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We have four formulas available under the license agreement with Nasal Therapeutics. We are marketing the Cold and Flu Relief in one formulation which distinguishes our product from any other product currently on the market.
We are and have been marketing our Allergy product and have announced that we will be shipping the Migraine product in the near future.
We have developed a sore throat product that we plan to introduce as soon as we have adequate funding to market it. Other products are under consideration.
In the case of each of those products we provide benefits that will attract the consumer and distinguish our product from others including the all-natural active ingredients, homeopathic nasal delivery, quick aid in relief of symptoms and the comfort of knowing there are no chemical interactions with other products the consumer might be taking.
Our expansion strategy is to add direct-to-consumer marketing to take our product directly to consumers by a combination of social media promotion and advertising through multiple channels, along with selling these products online directly to the consumer, thereby increasing our margins and our reach to the purchasers of such products.
Our business model is, currently, as a developer and manufacturer of over-the-counter homeopathic pharmaceutical products which aid in the relief of various symptoms and illnesses.
We have products for which we licensed the formulation from a third party as described elsewhere in this document.
We sell those products to the consumer through third parties. Our typical client is a pharmaceutical retail chain or a grocery retail chain.
We advertise and promote our products to our ultimate consumer customer through our retail client or directly to the consumer. Our retail clients often requires in-store promotions, advertising and placement discounts and rebates for the consumer, all funded by us.
In addition, we have advertised through radio, TV and online through social media channels. When we advertise or promote within the store, according to Generally Accepted Accounting Principles, that marketing and advertising cost is a credit to gross revenue and, then, reflected in the net revenue.
When we advertise directly, it is a business expense reflected in the profit and loss statement. The challenges of our business model include succeeding in getting the retailers to put our products on the shelves and then to encourage consumers to purchase those products from the retailers.
The cold and flu season was unusually mild, significantly diminishing the demand for our product.
Furthermore, as a result of the growth of Social Media and online marketing we are contemplating a modification of our strategy wherein we would focus our primary strategy on online direct-to-consumer marketing.
In this modification to our Business Model, we would advertise through Social Media sites, invest in Search Engine Optimization SEO marketing to drive consumers to our website where they would be able to purchase our products directly from us.
This strategy is expected to deliver enhanced sales and gross margins since we will be selling at retail, not wholesale.
Our homeopathic nasal spray products are, we believe, the next generation cold and flu remedy product, without any actual or potential hazards from zinc.
They are all natural, homeopathic and delivered nasally to quickly interact with the immune system so that the immune system can then deal with the symptoms and the illness itself.
This is in contrast to most other products which are chemical based and typically mask symptoms often causing drowsiness and sometimes conflicts with other medical treatments.
We focused this past winter on the marketing plan for the Cold and Flu Season. We launched and completed marketing programs through radio, television, online and through social media.
The most recognized accomplishment was to launch our Times Square Social Media campaign. The Social Media Campaign continued throughout the season.
The Thera Max tm Facebook, Twitter, and YouTube pages will be utilized for marketing research, consumer trends and product studies and to engage consumers around the world and demonstrate this new, super-smart cold and flu nasal spray.
We have also spent a considerable amount of time and effort to add to the capability of the company going forward so that we can begin to develop and execute the new and modified business plan.
In order to best accomplish that, we have engaged Mr. As part of the agreements pursuant to this, on May 22, , the then current Directors all resigned with the exception of Mr.
Hickel, and two new Directors joined the Board as described elsewhere in this document. Hickel signed a Separation Agreement wherein he agreed to stay for 90 days and then voluntarily leave the company, as described elsewhere in this document.
As a result of the above, the Company has decided to focus its efforts for the near future on marketing directly to the consumer online.
We will launch this program as soon as funds are available. The Gross profit margins in online direct-to-consumer are, typically, much higher and may enable us to grow the company with less investor capital.
Some of our creditors have indicated they may turn over our accounts to a collection agency though no such notices have been received.
The LeadDog debentures were previously extended to July 1, at which time they will become in default until another extension is agreed between the parties.
The LeadDog debentures contain a provision wherein they are restricted to conversions that will not allow their holdings to exceed 4.
LeadDog converted approximately four million shares on that basis. Our products compete against a vast number of well-established brands marketed by large pharmaceutical and consumer products companies as well as an increasing number of store brand products.
Store brand products are generally sold at a substantial discount to branded products. Participants in these categories compete primarily on the basis of price, product benefit, quality of product, and brand recognition.
Most of our competitors have substantially greater financial, marketing and other resources, longer operating histories, larger product portfolios and greater brand recognition than we do.
With our limited resources, we aim to succeed in this category by emphasizing the unique benefits regarding our products and providing consumers with innovative delivery systems.
Our unique benefits include the following: our products contain active ingredients that are all natural, are delivered nasally to quickly enter the body where most of the causes of the symptoms also enter the body; the active ingredients do not cause drowsiness and do not, typically, cause interactions with other chemical-based medical products.
They, therefore, work quickly in aiding in the relief of the symptoms of the sufferer. We are subject to various federal, state and local laws and regulations that affect our business.
All of our products are subject to regulation by the FDA, including regulations with respect to manufacturing processes and procedures, ingredients in the products, labeling and claims made.
The OTC monographs classify certain drug ingredients as safe and effective for specified uses and establish categorical requirements for the marketing of drugs containing such ingredients without pre-approval.
Although we believe that our products and claims comply in all material respects with the regulatory requirements, if the FDA or FTC were to determine that we are in violation of any such requirement, either agency could restrict our ability to market the products, require us to change the claims that we make or cause us to remove the products from the market.
As of February 29, , we engaged four full or part time advisors under written or informal consulting agreements. Subsequent to that date two advisors have resigned their roles with us and we added one part time advisor under a formal consulting agreement on May 22, when Mr.
Dean Blechman agreed to advise us as described elsewhere in this document. The following are some of the important factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in our forward-looking statements.
We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, financial condition or results of operation.
We currently do not have adequate arrangements for financing and we may not be able to obtain financing when required.
Obtaining additional financing would be subject to a number of factors outside of our control, including the results from our marketing programs including additional costs and expenses that may exceed our current estimates.
These factors may make the timing, amount, terms or conditions of additional financing unavailable to us in which case our business could fail.
Our retailer customers could decide not to continue or begin selling our products if we do not adequately advertise our message to consumer customers who are the ultimate users of our products.
Our business depends on the needs of consumers to relieve the symptoms of their illnesses. Our sales depend directly on the severity of the cold and flu season and environmental events will affect us.
Our lender has a lien on all of our assets and, if the outstanding obligations are not satisfied, could declare a default and exercise its claim against those assets.
Because we have only recently commenced business operations, we expect to incur substantial losses for the foreseeable future.
We have never been profitable. This could cause our business to fail. Our future is dependent upon our ability to obtain additional customers and financing and upon future profitable operations from the development of retail distribution and sales.
These factors raise substantial doubt that we will be able to continue as a going concern. This opinion could materially limit our ability to raise additional funds by issuing new debt or equity securities or otherwise.
If we fail to raise sufficient capital, we will not be able to complete our business plan. Kelly T. Hickel, our sole executive officer and a director, does not have any formal training as a scientist or in the technical aspects of management of a pharmaceutical company.
With no direct training or experience in these areas, our management may not be fully aware of the specific requirements related to working within this industry.
Our management's decisions and choices may not take into account standard managerial approaches pharmaceutical companies commonly use.
Consequently, our operations, earnings, and ultimate financial success could suffer irreparable harm due to management's lack of experience in this industry.
We compete with other pharmaceutical companies possessing greater financial resources and technical facilities than us in connection with the development and marketing of pharmaceutical products and in connection with the recruitment and retention of qualified personnel.
In order to gain and retain shelf space in the retail stores of our clients requires significant financial support in the form of marketing discounts, consumer rebates and incentives.
In order to expand our business we may seek additional channels of distribution for our products and those channels may require additional investments in marketing and other items that we are unable to make because of the availability of capital to us.
As described in more detail in Item 3 of this Annual Report, we have been sued in California in a purported class action alleging violations of certain regulations governing the packaging of our product.
Although we believe the suit is without merit, we are attempting to negotiate a modest settlement that may include minor additions to the packaging labels.
No assurances can be given as to the outcome of this litigation or its impact upon us or our business. We have limited resources and have had limited revenues to date.
We have had minimal revenues to date and will be dependent upon our limited available financial resources. We cannot ascertain with any degree of certainty the capital requirements for the execution of our business plan.
In the event that our limited financial resources prove to be insufficient to implement our business plan, we may be required to seek additional financing.
There can be no assurance that additional financing, if needed, will be available on acceptable terms, or at all. The failure by us to secure additional financing, if needed, could also have a material adverse effect on the continued development or growth of its business model.
We are negotiating arrangements with bank or financial institution to secure additional financing and there can be no assurance that any such arrangement, will be available on terms deemed to be commercially acceptable and in the best interests of the Company.
There currently are limitations on our ability to borrow funds to increase the amount of capital available to undertake our business plan. Moreover, our limited resources and lack of operating history may make it difficult to borrow funds.
The amount and nature of any borrowings by us will depend on numerous considerations, including the our capital requirements, our perceived ability to meet debt service on any such borrowings and the then prevailing conditions in the financial markets, as well as general economic conditions.
There can be no assurance that debt financing, if required or sought, would be available on terms deemed to be commercially acceptable by and in our best interests.
Our inability to borrow funds required to undertake its business model, may have a material adverse effect on our financial condition and future prospects.
Additionally, to the extent that debt financing ultimately proves to be available, any borrowings may subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest.
The success of our proposed plan of operation will depend to a great extent on the acceptance of our homeopathic products by the public.
To date, only limited market studies or projections of the acceptance of these products have been conducted. Our future success depends largely upon the continued service of our sole officer.
Our future success also depends on our ability to attract, retain and motivate qualified personnel when needed. Our current financial situation makes it difficult to recruit such personnel.
To the extent that additional shares of common stock are issued, our stockholders would experience dilution of their respective ownership interests.
We may use consultants and other third parties providing goods and services, including assistance in the manufacture, marketing, distribution and sale of products.
These consultants or third parties may be paid in cash, stock, options or other securities of the Company, and the consultants or third parties may be placement agents or their affiliates.
We do not expect to pay dividends in the foreseeable future, and the payment of dividends will be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition subsequent to the commencement of its business activities and the generation of profits from those activities.
The payment of any dividends subsequent to an investment will be within the discretion of the Board of Directors. We presently intend to retain all earnings, if any, for use in our business operations and accordingly, the Board does not anticipate declaring any dividends in the foreseeable future.
Since our inception, we have relied on such equity sales of our common stock to fund our operations. We may conduct further equity offerings in the future to finance our current projects or to finance subsequent projects that we decide to undertake.
If common stock is issued in return for additional funds, the price per share could be lower than that paid by our current stockholders.
We anticipate continuing to rely on equity sales of our common stock in order to fund our business operations. If we issue additional stock, stockholders percentage interest in us will be diluted.
The result of this could reduce the value of investors' stock. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks.
The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: a bid and offer quotations for the penny stock; b the compensation of the broker-dealer and its salesperson in the transaction; c the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and d a monthly account statements showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock. ITEM 1B. We currently do not own or rent any real property.
We have been sued in California in a purported class action regarding allegations that the product packaging should be modified.
We have reviewed the packaging with Registrar Corp, which helps businesses comply with U. Agent and Compliance Assistance for U.
Companies in the Drug Industry. Registrar Corp's Drug Labeling and Ingredient Review service helps companies determine their drug's likely classification and compliance with applicable labeling requirements.
All products packaging and labeling was reviewed by and received approval from Registrar before going to market.
Notwithstanding the above, and even though we believe the suit is without merit, we are attempting to negotiate a modest settlement that may include minor additions to the packaging labels.
Third Quarter September 1, through November 30, Fourth Quarter December 1, through February 29, As of June 8, , there were holders of record of our common stock.
We have not paid any dividends to date, have not yet generated earnings sufficient to pay dividends, and currently do not intend to pay dividends in the foreseeable future.
The financial summaries that follow present the results of operations of TheraBiogen, Inc. The amounts shown from the audited consolidated financials reflect the financial position and results of operations as of and for the years ended February 29, and February 28, We began shipping products for revenue in September and from inception through September we generated no revenue.
Revenue comes from sales of our products to retailers. We use sales agents to assist us in selling. Our customers and target customers are regional and national retail drug, grocery and general retail chains.
Our operating expenses for the years ended February 29, and consisted of the following:. The remaining increase in operating expenses was primarily due to increases in our administrative and consulting fees as we began shipping product to customers and increasing our sales and marketing activities.
The increase is due to expenditures for radio, television, online and events like the Times Square event from Christmas to New Years to support the sales in our retail outlets and to create brand awareness for our products.
The increase in our working capital deficit is attributable to marketing expenses, acquisition of operating assets and the increase in short term debt to finance operations.
To date, we have funded our operations with cash that we received from the sale of our common stock, advances from related parties as loans, working capital loans and advances against manufacturing costs from a financing company.
Our current cash and operating cash flows are not sufficient to meet our working capital requirements for the next twelve months.
We currently need to raise additional funds through public or private financings or borrowings to fund our operations. No assurance can be given that additional financing will be available or that, if available, such financings can be obtained on terms favorable to our stockholders or us.
If these notes are not converted and must be refinanced, the interest rate could increase. Our management, including our Chief Executive Officer and then Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a f under the Securities Exchange Act, as amended.
Our management, including our Chief Executive Officer and then Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of February 29, A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Under the supervision and with the participation of our management, including our Chief Executive Officer and then Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting.
In our assessment of the effectiveness of internal control over financial reporting as of February 29, , our management, including our Chief Executive Officer and then Chief Financial Officer, determined that there were control deficiencies that constituted material weaknesses, as described below.
As of the end of the period covered by this report, our management including our Chief Executive Officer and then Chief Financial Officer, also carried out an evaluation of our disclosure controls and procedures as defined in Rule 13a e of the Exchange Act.
Based on that evaluation, management including, our Chief Executive Officer and Chief Financial Officer, determined that our disclosure controls and procedures are ineffective in enabling us to record, process, summarize and report, in a timely manner, the information that we are required to disclose in our Exchange Act reports.
Control deficiencies that constituted material weaknesses, are described below. We do not have effective policies regarding the independence of our directors and have had only one independent director.
This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and only one director qualifies as an audit committee financial expert as defined in Item d 5 ii of Regulation S-B.
Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
We have no conflicts of interest policies and there is no provision for the review and approval of transactions between us and interested members of management.
We do not have any documented processes for the input, accumulation, or testing of financial data that would provide assurance that all transactions are accurately and timely recorded or that the financial reports will be prepared on a periodic basis.
We do not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements.
Accordingly, management has determined that this control deficiency constitutes a material weakness. Because of these material weaknesses, management has concluded that the we did not maintain effective internal control over financial reporting as of February 29, , based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.
Management, including our Chief Executive Officer and then Chief Financial Officer, has determined that we do not have the financial resources or personnel to address the material weaknesses identified or to conduct a more robust evaluation of its controls.
As resources become available, management will develop and implement remedial actions to address the material weaknesses it has identified.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the year ended February 29, that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our Chief Executive Officer, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
In an effort to improve our ability to grow the company and attain profitably, we have engaged Mr. This relationship will, we believe, be instrumental in revising our Business Plan and Strategy as discussed elsewhere in this document.
The persons who served as directors and executive officers of the as of June 8, their ages and positions held, are listed below. On May 22, , at the Board Meeting which approved Mr.
Rubizhevsky, Mr. Saxe, Mr. Forman and Mr. Rifenburgh resigned after first appointing Mr. Pasquale Petruzzo and Mr. Thomas Kelley to fill vacancies on the Board.
Furthermore, on May 11, , Mr. Hickel executed a Separation and Transition Services Agreement in which he agreed to resign all of his positions with the Company 90 days after execution of the Agreement, which Agreement was ratified by the Board on May 22, He also agreed that after his resignation he will have no affiliation of any kind with the Company.
Under the terms of the consulting agreement, FSR, Inc. Historically, Mr. Previously, Mr. Hickel was the turn-around President of MiniScribe Corp.
Hickel has arranged a number of private and public we financings and financial restructuring over the years. Hickel is a graduate of Indiana University, with a Bachelors of Science, and has attended coursework at Columbia University.
While there, he prepared financials and assisted CFO in the day to day operations. In , he invested in a food manufacturing business where I maintained all accounting duties and set up a business model to spin off the distribution business.
The company has since merged with a large company that has over 50 million in revenue. His degree is from Hofstra University.
Kelley is currently a television producer and consultant specializing in corporate problem solving by establishing models for communication among individuals and groups.
In , he co-founded The TFE group that works to develop, implement and evaluate new methodologies for integrating financial literacy topics into existing subject based content.
Kelley helped organize policy leaders, educators, and corporate leaders to share their experiences and insights about the need for financial education in schools.
We have no direct employees. Hickel, our sole officer of the listed above, has acted as an officer pursuant to a consulting agreement with FSR, Inc.
Our Chief Medical Officer had served part time on an informal consulting basis, prior to his resignation. As of May 22, , we have engaged Mr. We adopted charters for an Audit Committee, Compensation Committee and the Governance and Nominating Committee, and we established Board committees for each in Rifenburgh was appointed as the Chairman for that Committee and Mr.
Saxe and Mr. Rubizhevsky were appointed to serve on it with him. The Compensation Committee met two times in The Charters for each of the Audit, Compensation and Nominating were approved at that same meeting.
The Audit Committee met two times last year. The Audit Committee, chaired by Mr. Rifenburgh also included Mr. The Governance and Nominating Committee included Mr.
Hickel and Dr. We adopted a Code of Ethics that applies to our directors, officers and employees performing financial functions for us, including our chief executive officer, chief financial officer, controller and any person performing similar functions.
This code of ethics was adopted at the Board Meeting on September 2, Pursuant to the General Corporation Law of Nevada, the Company Certificate of Incorporation excludes personal liability on the part of its directors for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any acts or omissions which involve intentional misconduct, fraud or a knowing violation of law or for improper payment of dividends.
This exclusion of liability does not limit any right which a director may have to be indemnified and does not affect any director's liability under federal or applicable state securities laws.
We had no other agreement or understanding, express or implied, with any other executive officer concerning employment or cash or other compensation for services.
For the years ended February 29, and through the date of this report, no executive officer has received compensation from the Company pursuant to any compensatory or benefit plan.
There is no plan or understanding, express or implied, to pay any compensation to any executive officer pursuant to any compensatory or benefit plan of the Company.
No stock options were exercised by any of the officers or directors in fiscal In fiscal , the Board of Directors approved grants of stock to certain officers or consultants, as follows:.
FSR, Inc. In addition, the Board granted options to acquire additional shares, for a three year period at the closing market price on the date the options were issued, or as modified by the Board of Directors, as follows:.
This Plan provides for the following annual compensation to each member of the Board of Directors:. The stock and warrant grants will be made on the last business day of January and prorated grants will be made to directors appointed or elected during the calendar year.
No person entered into any employment or similar contract, during the year ended February 29, , other than the consulting agreement with FSR, Inc. Except as otherwise noted, each person listed below is the sole beneficial owner of the shares and has sole investment and voting power as to such shares.
No person listed below has any option, warrant or other right to acquire additional securities of the Company, except as may be otherwise noted.
Hickel is engaged by FSR, Inc. Hickel is not an officer or owner of FSR, Inc. Hickel, on May 22, Taxes were not prepared by the principal accountant.
The Audit Committee of the Board of Directors, policy is to pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting firm.
These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget.
The independent registered public accounting firm and management are required to report periodically to the Board of Directors regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date.
The Audit Committee of the Board of Directors may also pre-approve particular services in a case-by-case basis. The following exhibits are filed with this report, except those indicated as having previously been filed with the Securities and Exchange Commission and are incorporated by reference to another report, registration statement or form.
As to any shareholder of record requesting a copy of this report, we will furnish any exhibit indicated in the list below as filed with this report upon payment to us of our expenses in furnishing the information.
Any references to the "the Company" means TheraBiogen, Inc. Separation Agreement dated May between the Company and Mr.
Certification of Chief Executive Officer pursuant to 18 U. Section as adopted pursuant to Section of the Sarbanes-Oxley Act of We have audited the accompanying balance sheets of TheraBiogen, Inc.
Our responsibility is to express an opinion on these financial statements based on our audits. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. All new store employees are given an orientation and reference materials that stress excellence in customer service and selling skills.
All full-time store employees, including salespeople, cashiers and management trainees, receive additional training specific to their job responsibilities.
Our tiered curriculum includes seminars, individual instruction and performance evaluations designed to promote employee development.
The manager trainee program includes classroom style, self-directed and one-on-one training designed to teach key operational responsibilities such as product merchandising strategy, loss prevention and inventory control.
Moreover, each manager trainee must receive, or complete, a progressive series of outlines and evaluations in order to be considered for the next successive level of advancement.
Ongoing store management training includes advanced merchandising, delegation, personnel management, scheduling, payroll control, harassment prevention and loss prevention.
Description of Service Marks and Trademarks. The renewal dates for these service mark registrations are in and , respectively.
We intend to renew these service mark and trademark registrations if we are still using the marks in commerce and they continue to provide value to us at the time of renewal.
An investment in the Company entails risks and uncertainties including the following. You should carefully consider these risk factors when evaluating any investment in the Company.
Any of these risks and uncertainties could cause our actual results to differ materially from the results contemplated by the forward-looking statements set forth herein, and could otherwise have a significant adverse impact on our business, prospects, financial condition or results of operations or on the price of our common stock.
Disruptions in the overall economy and the financial markets may adversely impact our business and results of operations. In general, sales represent discretionary spending by our customers.
Discretionary spending is affected by many factors, including general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, currency exchange rates, taxation, gasoline prices, income, unemployment trends, home values and other matters that influence consumer confidence and spending, among others.
Many of these factors are outside of our control. We have experienced and may continue to experience increased inflationary pressure on our product costs.
As discussed in this and prior reports, the consumer environment has been challenging over the last several years.
The economic recession deteriorated the consumer spending environment and reduced consumer income, liquidity, credit and confidence in the economy, and resulted in substantial reductions in consumer spending.
Deterioration of the consumer spending environment could be harmful to our financial position and results of operations, could adversely affect our ability to comply with covenants under our credit facility and, as a result, may negatively impact our ability to continue payment of our quarterly dividend, to repurchase our stock and to open additional stores in the manner that we have in the past.
Intense competition in the sporting goods industry could limit our growth and reduce our profitability. The retail market for sporting goods is highly fragmented and intensely competitive.
We compete directly or indirectly with the following categories of companies:. Some of our competitors have a larger number of stores and greater financial, distribution, marketing and other resources than we have.
If our competitors reduce their prices, it may be difficult for us to reach our net sales goals without reducing our prices, which could impact our margins.
As a result of this competition, we may also need to spend more on advertising and promotion than we anticipate.
Increased competition in our current markets or the adoption or proliferation by competitors of innovative store formats, aggressive pricing strategies and retail sales methods, such as e-commerce, could cause us to lose market share and could have a material adverse effect on our business.
We began selling products through our e-commerce platform in late fiscal We have no assurance that our e-commerce efforts will prove profitable, whether.
Table of Contents due to product preferences of online buyers, ability to compete with other often more established online retailers, or for other reasons, such as the cannibalization of sales from our existing store base.
If we are unable to compete successfully, our operating results may suffer. If we fail to anticipate changes in consumer preferences, we may experience lower net sales, higher inventory, higher inventory markdowns and lower margins.
Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty. These preferences are also subject to change and can be impacted by sports participation levels in our market areas and the performance of sports teams for which we sell licensed products.
If we fail to identify and respond to these changes, our net sales may decline. In addition, because we often make commitments to purchase products from our vendors up to six months in advance of the proposed delivery, if we misjudge the market for our merchandise, we may over-stock unpopular products and be forced to take inventory markdowns that could have a negative impact on profitability.
Our quarterly net sales and operating results, reported and expected, can fluctuate substantially, which may adversely affect the market price of our common stock.
Our net and same store sales and results of operations, reported and expected, have fluctuated in the past and will vary from quarter to quarter in the future.
These fluctuations may adversely affect our financial condition and the market price of our common stock. Increased costs or declines in the effectiveness of print advertising, or a reduction in publishers of print advertising, could cause our operating results to suffer.
Our business relies heavily on print advertising. We utilize print advertising programs that include newspaper inserts, direct mailers and courier-delivered inserts in order to effectively deliver our message to our targeted markets.
Newspaper circulation and readership has been declining, which could limit the number of people who receive or read our advertisements.
Additionally, declining newspaper demand and the weak macroeconomic environment are adversely impacting newspaper publishers and could jeopardize their ability to operate, which could restrict our ability to advertise in the manner we have in the past.
If we are unable to develop other effective strategies to reach potential customers within our desired markets, awareness of our stores, products and promotions could decline and our net sales could suffer.
In addition, an increase in the cost of print advertising, paper or postal or other delivery fees could increase the cost of our advertising and adversely affect our operating results.
Because our stores are concentrated in the western United States, we are subject to regional risks.
Our stores are located in the western United States. Because of this, we are subject to regional risks, such as the economy, including downturns in the housing market, state financial conditions, unemployment and gas prices.
Other regional risks include adverse weather conditions, power outages, earthquakes and other natural disasters specific to the states in which we operate.
For example, particularly in southern California where we have a high concentration of stores, seasonal factors such as unfavorable weather conditions or other localized conditions such as flooding, drought, fires, earthquakes or electricity blackouts could impact our sales and harm our operations.
State and local regulatory compliance also can impact our financial results. Economic downturns or other adverse regional events could have an adverse impact upon our net sales and profitability and our ability to open additional stores in the manner that we have in the past.
Table of Contents A significant amount of our sales is impacted by seasonal weather conditions in our markets. Because many of the products we sell are used for seasonal outdoor sporting activities, our business is significantly impacted by unseasonable weather conditions in our markets.
For example, our winter sports and apparel sales are dependent on cold winter weather and snowfall in our markets, and can be negatively impacted by unseasonably warm or dry weather in our markets during the winter product selling season.
Conversely, sales of our spring products and summer products, such as baseball gear and camping and water sports equipment, can be adversely impacted by unseasonably cold or wet weather in those periods.
Accordingly, our sales results and financial condition will typically suffer when weather patterns do not conform to seasonal norms.
We experience seasonal fluctuations in our net sales and operating results. Seasonality influences our buying patterns which directly impacts our merchandise and accounts payable levels and cash flows.
We purchase merchandise for seasonal activities in advance of a season. In the fourth fiscal quarter, which includes the holiday selling season, we normally experience higher inventory purchase volumes and increased expense for staffing and advertising.
If we miscalculate the demand for our products generally or for our product mix during the fourth fiscal quarter, our net sales can decline, which can harm our financial performance.
A significant shortfall from expected fourth fiscal quarter net sales can negatively impact our annual operating results.
If we lose key management or are unable to attract and retain the talent required for our business, our operating results could suffer.
Our future success depends to a significant degree on the skills, experience and efforts of Steven G. Miller, our Chairman, President and Chief Executive Officer, and other key personnel with longstanding tenure who are not obligated to stay with us.
The loss of the services of any of these individuals for any reason could harm our business and operations. In addition, as our business grows, we will need to attract and retain additional qualified personnel in a timely manner and develop, train and manage an increasing number of management-level sales associates and other employees.
Competition for qualified employees could require us to pay higher wages and benefits to attract a sufficient number of qualified employees, and increases in the minimum wage or other employee benefit costs could increase our operating expense.
If we are unable to attract and retain personnel as needed in the future, our net sales growth and operating results may suffer.
All of our stores rely on a single distribution center. Any disruption or other operational difficulties at this distribution center could reduce our net sales or increase our operating expense.
We rely on a single distribution center located in Riverside, California to service our business. Any natural disaster or other serious disruption to the distribution center due to fire, earthquake or any other cause could damage a significant portion of our inventory and could materially impair both our ability to adequately stock our stores and our net sales and profitability.
If the security measures used at our distribution center do not prevent inventory theft, our gross margin may significantly decrease. Further, in the event that we are unable to grow our net sales sufficiently to allow us to leverage the costs of this distribution center in the manner we anticipate, our financial results could be negatively impacted.
Additionally, because we rely on a single distribution center, our growth could be limited if our distribution center reaches full capacity.
Such a constraint could result in a loss of market share and our inability to execute our business plan, which could have a material adverse effect on our financial condition and results of operations.
Table of Contents If we are unable to successfully implement our controlled growth strategy or manage our growing business, our future operating results could suffer.
One of our strategies includes opening profitable stores in new and existing markets. Our ability to successfully implement and capitalize on our growth strategy could be negatively affected by various factors including:.
In addition, our expansion in new and existing markets may present competitive, merchandising, marketing and distribution challenges that differ from our current challenges.
These potential new challenges include competition among our stores, added strain on our distribution center, additional information to be processed by our management information systems, diversion of management attention from ongoing operations and challenges associated with managing a substantially larger enterprise.
New markets may also have different competitive conditions, consumer tastes, responsiveness to print advertising and discretionary spending patterns than our existing markets.
To the extent that we are not able to meet these new challenges, our net sales could decrease and our operating expense could increase.
Our hardware and software systems are vulnerable to damage, theft or intrusion that could harm our business. Our success, in particular our ability to successfully manage inventory levels and process customer transactions, largely depends upon the efficient operation of our computer hardware and software systems.
We use management information systems to track inventory at the store level and aggregate daily sales information, communicate customer information and process purchasing card transactions, process shipments of goods and report financial information.
These systems and our operations are vulnerable to damage or interruption from:. Any failure of our computer hardware or software systems that causes an interruption in our operations or a decrease in inventory tracking could result in reduced net sales and profitability.
Additionally, if any data intrusion, security breach, misappropriation or theft were to occur, we could incur significant costs in responding to such event, including responding to any resulting claims, litigation or investigations, which could harm our operating results.
Table of Contents Breach of data security or other unauthorized disclosure of sensitive or confidential information could harm our business and standing with our customers.
The protection of our customer, employee and business data is critical to us. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of all such data, including confidential information.
Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events.
Unauthorized parties may attempt to gain access to our systems or information through fraud or other means, including deceiving our employees or third party service providers.
The methods used to obtain unauthorized access, disable or degrade service, or sabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods of time.
We have implemented and regularly review and update our control systems, processes and procedures to protect against unauthorized access to or use of secured data and to prevent data loss.
However, the ever-evolving threats mean we must continually evaluate and adapt our systems and processes, and there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data.
Any security breach involving the misappropriation, loss or other unauthorized disclosure of customer payment card or personal information or employee personal or confidential information, whether by us or our vendors, could damage our reputation, expose us to risk of litigation and liability, disrupt our operations, harm our business and have an adverse impact upon our net sales and profitability.
In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and changing requirements applicable to our business, compliance with those requirements could also result in additional costs.
If our suppliers do not provide sufficient quantities of products, our net sales and profitability could suffer.
We purchase merchandise from over vendors. Although only one vendor represented more than 5. Our 20 largest vendors collectively accounted for If there is a disruption in supply from a principal supplier or distributor, we may be unable to obtain merchandise that we desire to sell and that consumers desire to purchase.
A vendor could discontinue or restrict selling products to us at any time for reasons that may or may not be within our control. Our net sales and profitability could decline if we are unable to promptly replace a vendor who is unwilling or unable to satisfy our requirements with a vendor providing equally appealing products.
Moreover, many of our suppliers provide us with incentives, such as return privileges, volume purchase allowances and co-operative advertising.
A decline or discontinuation of these incentives could reduce our profits. Because many of the products that we sell are manufactured abroad, we may face delays, increased cost or quality control deficiencies in the importation of these products, which could reduce our net sales and profitability.
Like many other sporting goods retailers, a significant portion of the products that we purchase for resale, including those purchased from domestic suppliers, is manufactured abroad in China and other countries.
In addition, we believe most, if not all, of our private label merchandise is manufactured abroad. If any of these or other factors were to cause a disruption of trade from the countries in which the suppliers of our vendors are located, we may be unable to obtain sufficient quantities of products to satisfy our requirements or our cost of obtaining products.
Table of Contents may increase. In addition, to the extent that any foreign manufacturers which supply products to us directly or indirectly utilize quality control standards, labor practices or other practices that vary from those legally mandated or commonly accepted in the United States, we could be hurt by any resulting negative publicity or, in some cases, face potential liability.
Historically, instability in the political and economic environments of the countries in which our vendors or we obtain our products has not had a material adverse effect on our operations.
However, we cannot predict the effect that future changes in economic or political conditions in such foreign countries may have on our operations.
In the event of disruptions or delays in supply due to economic or political conditions in foreign countries, such disruptions or delays could adversely affect our results of operations unless and until alternative supply arrangements could be made.
In addition, merchandise purchased from alternative sources may be of lesser quality or more expensive than the merchandise we currently purchase abroad.
Disruptions in transportation, including disruptions at shipping ports through which our products are imported, could prevent us from timely distribution and delivery of inventory, which could reduce our net sales and profitability.
A substantial amount of our inventory is manufactured abroad. From time to time, shipping ports experience capacity constraints, labor strikes, work stoppages or other disruptions that may delay the delivery of imported products.
Currently, the Ports of Los Angeles and Long Beach, through which a substantial amount of the products manufactured abroad that we sell are imported, are experiencing delays due to a contract dispute with the International Longshore and Warehouse Union.
A lengthy contract dispute may lead to protracted delays in the movement of our products, which could further delay the delivery of products to our stores and impact net sales and profitability.
In addition, other conditions outside of our control, such as adverse weather conditions or acts of terrorism, could significantly disrupt operations at shipping ports or otherwise impact transportation of the imported merchandise we sell.
Future disruptions in transportation services or at a shipping port at which our products are received may result in delays in the transportation of such products to our distribution center and may ultimately delay the stocking of our stores with the affected merchandise.
As a result, our net sales and profitability could decline. Our costs may change as a result of currency exchange rate fluctuations or inflation in the purchase cost of merchandise manufactured abroad.
We source goods from various countries, including China, and thus changes in the value of the U. If the cost of goods that we purchase increases, we may not be able to similarly increase the retail prices of goods that we charge consumers without impacting our sales and our operating profits may suffer.
Increases in transportation costs due to rising fuel costs, climate change regulation and other factors may negatively impact our operating results.
We rely upon various means of transportation, including ship and truck, to deliver products from vendors to our distribution center and from our distribution center to our stores.
Consequently, our results can vary depending upon the price of fuel. The price of oil has fluctuated drastically over the last few years, creating volatility in our fuel costs.
In addition, efforts to combat climate change through reduction of greenhouse gases may result in higher fuel costs through taxation or other means.
In addition, labor shortages or other factors in the transportation industry could negatively affect transportation costs and our ability to supply our stores in a timely manner.
In particular, our business is highly dependent on the trucking industry to deliver products to our distribution center and our stores.
Our operating results may be adversely affected if we or our vendors are unable to secure adequate trucking resources at competitive prices to fulfill our delivery schedules to our distribution center or stores.
Table of Contents Terrorism and the uncertainty of war may harm our operating results. Terrorist attacks or acts of war may cause damage or disruption to us and our employees, facilities, information systems, vendors and customers, which could significantly impact our net sales, profitability and financial condition.
Terrorist attacks could also have a significant impact on ports or international shipping on which we are substantially dependent for the supply of much of the merchandise we sell.
Our corporate headquarters is located near Los Angeles International Airport and the Port of Los Angeles, which have been identified as potential terrorism targets.
The potential for future terrorist attacks, the national and international responses to terrorist attacks and other acts of war or hostility may cause greater uncertainty and cause our business to suffer in ways that we cannot currently predict.
Military action taken in response to such attacks could also have a short or long-term negative economic impact upon the financial markets, international shipping and our business in general.
Risks Related to Our Capital Structure. We are leveraged, future cash flows may not be sufficient to meet our obligations and we might have difficulty obtaining more financing or refinancing our existing indebtedness on favorable terms.
Our leveraged financial position means:. If our business declines, our future cash flows might not be sufficient to meet our obligations and commitments.
If we fail to make any required payment under our revolving credit facility, our debt payments may be accelerated under this agreement.
In addition, in the event of bankruptcy, insolvency or a material breach of any covenant contained in our revolving credit facility, our debt may be accelerated.
This acceleration could also result in the acceleration of other indebtedness that we may have outstanding at that time. The level of our indebtedness, and our ability to service our indebtedness, is directly affected by our cash flows from operations.
If we are unable to generate sufficient cash flows from operations to meet our obligations, commitments and covenants of our revolving credit facility, we may be required to refinance or restructure our indebtedness, raise additional debt or equity capital, sell material assets or operations, delay or forego expansion opportunities, or cease or curtail our quarterly dividends or share repurchase plans.
These alternative strategies might not be effected on satisfactory terms, if at all. The terms of our revolving credit facility impose operating and financial restrictions on us, which may impair our ability to respond to changing business and economic conditions.
The terms of our revolving credit facility impose operating and financial restrictions on us, including, among other things, covenants that require us to maintain a fixed-charge coverage ratio of not less than 1.
For example, our ability to engage in. Table of Contents the foregoing transactions will depend upon, among other things, our level of indebtedness at the time of the proposed transaction and whether we are in default under our revolving credit facility.
As a result, our ability to respond to changing business and economic conditions and to secure additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might further our growth strategy or otherwise benefit us and our stockholders without obtaining consent from our lenders.
In addition, our revolving credit facility is secured by a perfected security interest in our assets. In the event of our insolvency, liquidation, dissolution or reorganization, the lenders under our revolving credit facility would be entitled to payment in full from our assets before distributions, if any, were made to our stockholders.
Disruptions in the economy and financial markets may adversely impact our lenders. Volatility in capital and credit markets can impact the ability of financial institutions to meet their lending obligations.
Based on information available to us, all of the lenders under our revolving credit facility are currently able to fulfill their commitments thereunder.
However, circumstances could arise that may impact their ability to fund their obligations in the future.
Although we believe the commitments from our lenders under the revolving credit facility, together with our cash on hand and anticipated operating cash flows, should be sufficient to meet our near-term borrowing requirements, if Wells Fargo Bank, National Association, our principal lender, or any other lender, is for any reason unable to perform its lending or administrative commitments under the facility, then disruptions to our business could result and may require us to replace this facility with a new facility or to raise capital from alternative sources on less favorable terms, including higher rates of interest.
Current and future government regulation may negatively impact demand for our products and increase our cost of conducting business.
The conduct of our business, and the distribution, sale, advertising, labeling, safety, transportation and use of many of our products are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States.
These laws and regulations may change, sometimes dramatically, as a result of political, economic or social events. Changes in laws, regulations or governmental policy may alter the environment in which we do business and the demand for our products and, therefore, may impact our financial results or increase our liabilities.
Some of these laws and regulations include:. Changes in these and other laws and regulations or additional regulation could cause the demand for and sales of our products to decrease.
Moreover, complying with increased or changed regulations could cause our operating expense to increase. This could adversely affect our net sales and profitability.
Table of Contents We may be subject to periodic litigation that may adversely affect our business and financial performance. From time to time, we may be involved in lawsuits and regulatory actions relating to our business, certain of which may be maintained in jurisdictions with reputations for aggressive application of laws and procedures against corporate defendants.
Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings.
An unfavorable outcome could have a material adverse impact on our business, results of operations and financial condition.
In addition, regardless of the outcome of any litigation or regulatory proceedings, these proceedings could result in substantial costs and may require that we devote substantial resources to defend against these claims, which could impact our results of operations.
In particular, we may be involved in lawsuits related to employment, advertising and other matters, including class action lawsuits brought against us for alleged violations of the Fair Labor Standards Act, state wage and hour laws, state or federal advertising laws and other laws.
An unfavorable outcome or settlement in any such proceeding could, in addition to requiring us to pay any settlement or judgment amount, increase our operating expense as a consequence of any resulting changes we might be required to make in employment, advertising or other business practices.
In addition, we sell products manufactured by third parties, some of which may be defective. Many such products are manufactured overseas in countries which may utilize quality control standards that vary from those legally allowed or commonly accepted in the United States, which may increase our risk that such products may be defective.
If any products that we sell were to cause physical injury or injury to property, the injured party or parties could bring claims against us as the retailer of the products based upon strict product liability.
The Consumer Product Safety Commission has the authority to exclude from the market and recall certain consumer products that are found to be hazardous.
Similar laws exist in some states and cities in the United States. If we fail to comply with government and industry safety standards or reporting requirements, we may be subject to claims, lawsuits, product recalls, fines and negative publicity that could harm our results of operations and financial condition.
We also sell firearm-related products, which may be associated with an increased risk of injury and related lawsuits. We may incur losses due to lawsuits relating to our performance of background checks on firearms purchases as mandated by state and federal law or the improper use of firearms sold by us, including lawsuits by individuals, municipalities or other organizations attempting to recover damages or costs from firearms manufacturers and retailers relating to the misuse of firearms.
Commencement of these lawsuits against us could reduce our net sales and decrease our profitability. Our insurance coverage may not be adequate to cover claims that could be asserted against us.
If a successful claim was to be brought against us in excess of our insurance coverage, or for which we have no insurance coverage, it could harm our business.
Even unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our business. The sale of firearm-related products is subject to strict regulation, which could affect our operating results.
Because we sell firearm-related products, we are required to comply with federal, state and local laws and regulations pertaining to the purchase, storage, transfer and sale of such products.
These laws and regulations require us to, among other things, obtain and maintain federal, state or local permits or licenses in order to sell firearms, ensure that all purchasers of firearms are subjected to a pre-sale background check and other requirements, record the details of each firearm sale on appropriate government-issued forms, record each receipt or transfer of a firearm at our distribution center or any store location on acquisition and disposition records, and maintain these records for a specified period of time.
We also are required to timely respond to traces of firearms. Table of Contents by law enforcement agencies. Over the past several years, the purchase and sale of firearm-related products has been the subject of increased federal, state and local regulation.
These regulatory efforts are likely to continue in our current markets and other markets into which we may expand. If enacted, new laws and regulations could limit the types of firearm-related products that we are permitted to purchase and sell, impose new restrictions and requirements on the manner in which we purchase and sell these products, and impact our ability to offer these products in certain retail locations or markets.
If we fail to comply with existing or newly enacted laws and regulations relating to the purchase and sale of firearm-related products, our permits or licenses to sell firearm-related products at our stores or maintain inventory of firearm-related products at our distribution center may be suspended or revoked.
If this occurs, our net sales and profitability could suffer. Further, complying with increased regulation relating to the sale of firearm-related products could cause our operating expense to increase and this could adversely affect our results of operations.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.
Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance.
The declaration of discretionary dividend payments or the repurchase of our common stock pursuant to our share repurchase program may not continue.
We currently pay quarterly dividends subject to capital availability and periodic determinations that cash dividends are in the best interest of us and our stockholders.
Our dividend policy may be affected by, among other items, business conditions, our views on potential future capital requirements, the terms of our debt instruments, legal risks, changes in federal income tax law and challenges to our business model.
Our dividend policy may change from time to time and we may or may not continue to declare discretionary dividend payments. Additionally, although we have a share repurchase program authorized by our Board of Directors, we are not obligated to make any purchases under the program and we may discontinue it at any time.
Our anti-takeover provisions could prevent or delay a change in control of our company, even if such change of control would be beneficial to our stockholders.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws as well as provisions of Delaware law could discourage, delay or prevent a merger, acquisition or other change in control of our company, even if such change in control would be beneficial to our stockholders.
These provisions include:. These provisions and other similar provisions make it more difficult for a third party to acquire us without negotiation.
These provisions may apply even if the transaction may be considered beneficial by some stockholders. Significant stockholders or potential stockholders may attempt to effect changes or acquire control over our company, which could adversely affect our results of operations and financial condition.
Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of our Board of Directors and senior management from the pursuit of business strategies.
As a result, shareholder campaigns could adversely affect our results of operations and financial condition. We lease approximately 55, square feet of office and adjoining retail space related to our primary corporate headquarters, and we lease approximately 11, square feet related to our satellite office.
Our distribution facility is located in Riverside, California and has approximately , square feet of warehouse and office space. We have a distribution hub located in Salem, Oregon, utilizing approximately 12, square feet of space to separate consolidated truckloads of product for delivery to our regional markets.
Table of Contents We lease all of our retail store sites. Most of our store leases contain multiple fixed-price renewal options having a typical duration of five years per each option.
In most cases, as current leases expire, we believe we will be able to obtain lease renewals for existing store locations or new leases for equivalent locations in the same general area.
Our Stores. Throughout our history, we have focused on operating traditional, full-line sporting goods stores. Our stores generally range from 8, to 15, square feet and average approximately 11, square feet.
Our typical store is located in either a free-standing street location or a multi-store shopping center.
Our numerous convenient locations and accessible store format encourage frequent customer visits, resulting in approximately New Mexico. Our high same store sales per square foot combined with our efficient store-level operations and low store maintenance costs have allowed us to historically generate strong store-level returns.
Our same store sales per square foot declined from levels achieved prior to the economic recession beginning in fiscal Big 5 Sporting Goods Corporation , et al.
Wiener v. Big 5 Sporting Goods. Table of Contents Corporation , et al. Smith v. As a result of the foregoing, the parties agreed to settle the lawsuit.
The Company admitted no liability or wrongdoing with respect to the claims set forth in the lawsuit. If the settlement is upheld on appeal, the settlement will constitute a full and complete settlement and release of all claims related to the lawsuit.
However, if the settlement is not upheld on appeal, the Company intends to defend this litigation vigorously.
Big 5 Corp. The plaintiff alleges, among other things, that the Company failed to pay such employees for all time worked, failed to provide such employees with compliant meal and rest periods, failed to properly itemize wage statements, and failed to pay wages within required time periods during employment and upon termination of employment.
The Company believes that the complaint is without merit. The Company has not yet been served with the complaint or the amended complaint.
In an effort to negotiate a settlement of this litigation, the. Following the mediation, the Company recorded an estimated accrual with regard to this lawsuit in the fourth quarter of fiscal If the Company is unsuccessful in resolving the suit through a settlement, the Company intends to defend the suit vigorously.
The Company is involved in various other claims and legal actions arising in the ordinary course of business. Fiscal Period. First Quarter.
Second Quarter. Third Quarter. Fourth Quarter. Performance Graph. The information in this graph is provided at annual intervals for the fiscal years ended , , , and This graph shows historical stock price performance including reinvestment of dividends and is not necessarily indicative of future performance:.
Table of Contents Dividend Policy. Dividends are paid at the discretion of the Board of Directors. The agreement governing our revolving credit facility imposes restrictions on our ability to make dividend payments.
For example, our ability to pay cash dividends on our common stock will depend upon, among other things, our compliance with certain availability and fixed charge coverage ratio requirements at the time of the proposed dividend or distribution, and whether we are in default under the agreement.
Our future dividend policy will also depend on the requirements of any future credit or other financing agreements to which we may be a party and other factors considered relevant by our Board of Directors, including the General Corporation Law of the State of Delaware, which provides that dividends are only payable out of surplus or current net profits.
Issuer Repurchases. Under the authorization, the Company may purchase shares from time to time in the open market or in privately negotiated transactions in compliance with the applicable rules and regulations of the SEC.
However, the timing and amount of such purchases, if any, would be at the discretion of management and would depend upon market conditions and other considerations.
This amount reflects the dollar value of shares remaining available to repurchase under previously announced plans.
Statement of Operations Data:. Net sales 2. Cost of sales 3. Gross profit 2. Operating income. Interest expense.
Income before income taxes. Income taxes. Earnings per share:. Dividends per share. Weighted-average shares of common stock outstanding:.
Store Data:. Same store sales decrease increase 7. Same store sales per square foot in dollars 8. End of period stores. End of period same stores. Same store sales per store 9.
Other Financial Data:. Gross profit margin. Selling and administrative expense as a percentage of net sales. Operating margin. Depreciation and amortization.
Capital expenditures Inventory turns Balance Sheet Data:. Working capital Total assets. Long-term debt and capital leases, less current portion.
See notes on following page:. Table of Contents Notes to table on previous page. Our fiscal year is the 52 or 53 week reporting period ending on the Sunday closest to the calendar year end.
Fiscal , , , and each included 52 weeks. In fiscal , the amount was classified as selling and administrative expense.
Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory reserves, buying, distribution center expense, including depreciation, and store occupancy expense.
Store occupancy expense includes rent, amortization of leasehold improvements, common area maintenance, property taxes and insurance. Selling and administrative expense includes store-related expense, other than store occupancy expense, as well as advertising, depreciation and amortization, expense associated with operating our corporate headquarters and impairment charges, if any.
Same store sales for a period reflect net sales from stores operated throughout that period as well as the full corresponding prior year period.
Same store sales per square foot is calculated by dividing net sales for same stores, as defined above, by the total square footage for those stores.
Same store sales per store is calculated by dividing net sales for same stores, as defined above, by total same store count.
Our same store sales per store declined from levels achieved prior to the economic recession beginning in fiscal Capital expenditures in fiscal and reflected an increased investment in existing store remodeling and costs associated with the development of a new e-commerce platform.
Capital expenditures in fiscal also reflected investment in the development of a new point-of-sale system. Inventory turns equal fiscal year cost of sales divided by the fiscal year four-quarter weighted-average cost of merchandise inventory.
Working capital is defined as current assets less current liabilities. Fiscal , and each included 52 weeks. We reinforce our value reputation through weekly print advertising in major and local newspapers, direct mailers and digital marketing designed to generate customer traffic, drive sales and build brand awareness.
Throughout our history, we have emphasized controlled growth. In fiscal , we opened 16 new stores, four of which were relocations, and closed six stores, four of which were relocations.
In fiscal , we opened 17 new stores, three of which were relocations, and closed two stores, both of which were relocations. In fiscal , we opened 14 new stores, three of which were relocations, and closed six stores, two of which were relocations.
For fiscal , we expect to open approximately 10 net new stores. The following table summarizes our store count for the periods presented:.
Big 5 Sporting Goods stores:. Beginning of period. New stores 1. Stores relocated. Stores closed. End of period. New stores opened per year, net.
Stores that are relocated are classified as new stores. Sales from the prior location are treated as sales from a closed store and thus are excluded from same store sales calculations.
Table of Contents Executive Summary. Our lower operating results for fiscal compared to fiscal were mainly attributable to our reduced sales levels in fiscal , which included a decrease in same store sales of 2.
Our fiscal sales comparisons to the prior year generally improved in the second half of the year as improved sales for a number of product categories offset the lower demand for firearm-related products compared to fiscal We also believe our operating results for fiscal and fiscal , and to a greater extent for fiscal , reflected challenging macroeconomic conditions in our markets resulting primarily from the lingering effects of the economic recession.
Net sales for fiscal decreased 1. The decline in net sales was primarily attributable to a reduction in same store sales of 2.
Net income for fiscal decreased The reduction was driven primarily by lower net sales, lower merchandise margins and increased selling and administrative expense.
Gross profit for fiscal represented Merchandise margins were 27 basis points lower than last year, combined with higher distribution and store occupancy expense as a percentage of net sales.
Selling and administrative expense for fiscal increased 2. The increase was primarily attributable to higher employee labor and benefit-related expense and higher operating expense to support the increase in store count, partially offset by a decrease in print advertising expense.
Our principal liquidity requirements are for working capital, capital expenditures and cash dividends. We fund our liquidity requirements primarily through cash on hand, cash flows from operations and borrowings from our revolving credit facility.
Table of Contents Results of Operations. The following table sets forth selected items from our consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:.
Net sales. Cost of sales 2. Gross profit. Selling and administrative expense 3. Net income. Net sales change. Same store sales change 4.
Net income change. Same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period.
Fiscal Compared to Fiscal Net Sales. The change in net sales was primarily attributable to the following:. Same store sales decreased 2. Our lower same store sales reflected reduced demand for firearm-related products, combined with lower sales of winter-related merchandise as a result of unseasonably warm and dry winter-weather conditions in our primary markets in the first quarter and fourth quarter of fiscal Our sales comparisons to the prior year generally improved in the second half of fiscal as improved sales for a number of product categories offset the lower demand for firearm-related products compared to fiscal We experienced decreased customer transactions in our retail stores, and the average sale per transaction also declined slightly in fiscal compared to fiscal , primarily as a result of the reduced demand for firearm-related products in fiscal Table of Contents Store count at the end of fiscal was versus at the end of fiscal We opened 16 new stores, four of which were relocations, and closed six stores, four of which were relocations, in fiscal Gross Profit.
The change in gross profit was primarily attributable to the following:. Merchandise margins, which exclude buying, occupancy and distribution expense, decreased 27 basis points from fiscal , when merchandise margins increased 50 basis points versus fiscal The lower merchandise margins primarily reflected reduced sales of higher-margin winter-related products and increased sales promotions.
Selling and Administrative Expense. The change in selling and administrative expense was primarily attributable to the following:.
Interest Expense. The decrease in interest expense reflects the impact of lower average interest rates of 20 basis points to 1.
Income Taxes. This decrease was primarily due to lower pre-tax income and a lower effective tax rate in fiscal Our effective tax rate was The lower effective tax rate year over year primarily resulted from increased income tax credits for the current year.
Reinstatement of the WOTC reduced the effective tax rate for the first quarter of fiscal by basis points. Table of Contents Fiscal Compared to Fiscal Same store sales increased 3.
We believe our higher same store sales reflected favorable customer response to changes in our merchandise offering and new marketing initiatives, higher demand for firearm and ammunition products, and improved sales of winter merchandise in the first quarter of fiscal as a result of more favorable weather compared to unseasonably warm winter weather experienced in the first quarter of fiscal While we experienced a slight decline in customer transaction levels in our retail stores in fiscal when compared with fiscal , the average sale per transaction increased primarily as a result of changes in our sales mix and merchandise offering.
Store count at the end of fiscal was versus at the end of fiscal We opened 17 new stores, three of which were relocations, and closed two stores, both of which were relocations, in fiscal Gross profit as a percentage of net sales in fiscal was Merchandise margins, which exclude buying, occupancy and distribution expense, increased 50 basis points versus fiscal , when merchandise margins decreased 24 basis points versus fiscal The improvement primarily reflected a sales mix shift to higher-margin winter product categories as a result of favorable winter weather in the first quarter of fiscal compared with the same period in fiscal , combined with sales of firearm and ammunition products at higher margins during fiscal Store occupancy expense as a percentage of net sales in fiscal decreased by ten basis points compared with fiscal Selling and administrative expense as a percentage of net sales decreased basis points to Also, administrative expense for fiscal This increase was primarily due to higher pre-tax income and a higher effective tax rate in fiscal The increased effective tax rate year over year primarily reflected the impact of lower overall income tax credits as a percentage of pre-tax income for fiscal , partially offset by the retroactive reinstatement of the WOTC for that resulted from enactment of The American Taxpayer Relief Act of Liquidity and Capital Resources.
We believe our cash on hand, future cash flows from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months.
The following table summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years:.
Total cash provided by used in :. Operating activities. Investing activities. Financing activities. Net increase in cash.
The seasonality of our business historically provides greater cash flows from operations during the holiday and winter selling season.
We use operating cash flows and borrowings under our revolving credit facility to fund inventory increases in anticipation of the holidays and our inventory levels are normally at their highest in the months leading up to Christmas.
As holiday sales typically reduce inventory levels, this reduction, combined with net income, historically provides us with strong cash flows from operations at the end of our fiscal year.
Table of Contents For fiscal , we reduced the level of inventory purchases in the months leading up to Christmas compared to the prior year due in part to a carryover of winter-related merchandise from the prior season as a result of unfavorable weather conditions.
For the fiscal full year, our operating cash flow increased over fiscal as the impact of reduced inventory purchases in fiscal , due in part to lower sales levels, offset the effect of lower earnings.
The increase in our debt at the end of fiscal primarily reflected our lower earnings, a significant reduction in outstanding check payable balances year over year from fiscal , along with amounts paid for cash dividends and to repurchase stock.
For fiscal , while we increased inventory purchases in the months leading up to Christmas, weaker-than-anticipated sales during the fourth quarter of fiscal resulted in higher-than-expected inventory levels and lower operating cash flows in the fourth quarter of fiscal However, healthy net sales and net income for the fiscal full year contributed sufficient levels of operating cash flows that allowed us to pay down debt balances year over year.
For fiscal , we increased inventory purchases in the months leading up to Christmas, resulting in a higher accounts payable balance at year-end compared to fiscal Additionally, improved net sales and net income in fiscal compared with fiscal contributed to higher operating cash flows which allowed us to significantly pay down debt balances year over year.
Operating Activities. The increase in cash provided by operating activities for fiscal compared to fiscal was due primarily to reduced funding of inventory purchases, partially offset by the impact of lower net income, increases in prepaid expense largely related to the timing of rent payments and lower accrued expenses for certain employee benefits.
The decrease in cash provided by operating activities for fiscal compared to fiscal was due primarily to higher inventory levels, which reflected softer-than-anticipated sales in the fourth quarter of fiscal Furthermore, the timing of inventory purchases resulted in higher funding of accounts payable in fiscal when compared to fiscal The impact of higher inventory was partially offset by higher net income for fiscal Investing Activities.
Our capital spending is primarily to fund the opening of new stores, store-related remodeling, distribution center equipment and computer hardware and software purchases.
Capital expenditures by category for each of the last three fiscal years are as follows:. New stores. Store-related remodels. Distribution center.
Computer hardware, software and other. Our capital expenditures included 16 new stores in fiscal , 17 new stores in fiscal and 14 new stores in fiscal The higher capital expenditures in fiscal and also reflected an increased investment in existing store remodeling to support our merchandising initiatives and added costs related to the development of an e-commerce platform.
Fiscal also included added costs related to the development of a new point-of-sale system. Capital expenditures in fiscal , and included amounts related to our computer system replacement program as well as enhanced security measures to support our infrastructure.
Table of Contents Financing Activities. For fiscal , we used cash provided from operating activities primarily to fund dividend payments, treasury stock repurchases and capital lease payments, partially offset by increased borrowings under our revolving credit facility.
For fiscal , we used cash provided from operating activities primarily to pay dividends, pay down borrowings from our revolving credit facility and make capital lease payments.
These payments were partially offset by proceeds received from the exercise of employee share option awards.