UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                    FORM 10-K


(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NUMBER: 0-22963

                             BIG DOG HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                            -------------------------

           DELAWARE                                            52-1868665
           --------                                            ----------
(STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER INCORPORATION
       OR ORGANIZATION)                                   IDENTIFICATION NO.)

121 GRAY AVENUE, SANTA BARBARA, CALIFORNIA                     93101
------------------------------------------                     -----
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                   (ZIP CODE)

                                 (805) 963-8727
                                 --------------
               (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.01
par value

         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]

         The aggregate market value of Common Stock held by non-affiliates of
the registrant on March 1, 2001 was approximately $8.5 million. All outstanding
shares of Common Stock, other than those held by executive officers, directors
and 10% shareholders, are deemed to be held by non-affiliates.

         On March 1, 2001, the registrant had 8,484,084 shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III incorporates information by reference from the definitive
Proxy Statement for the 2001 Annual Meeting of Shareholders, to be filed with
the Commission no later than 120 days after the end of the registrant's fiscal
year covered by this Form 10-K.


<PAGE>


                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Big Dog Holdings, Inc. and its subsidiaries ("Big Dogs" or the
"Company") develops, markets and retails a branded, lifestyle collection of
unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. BIG DOGS(R) is an All-American,
family-oriented brand that the Company believes has established a unique niche
in its dedication to providing quality, value and fun. Big Dogs products were
first sold in 1983, and operations remained limited through 1992 when the
current controlling stockholders acquired the BIG DOGS(R) brand and related
assets. Following the acquisition, Big Dogs initiated a strategy of leveraging
the brand through dramatic expansion of its product line and rapid growth in
its retail stores. The number of the Company's stores has grown from 5 in 1993
to 198 as of December 31, 2000.

         The Company's collection is centered around its signature BIG DOGS(R)
name, logo and "Big Dog" characters and is designed to appeal to a broad range
of customers. The BIG DOGS(R) brand conveys a sense of fun, humor and a "Big Dog
attitude," whereby each customer can feel that he or she is a "Big Dog." The Big
Dog attitude and sense of fun are brought to life through the Company's graphic
capabilities that portray the Big Dog characters in a number of engaging,
positive and inspiring situations and activities. The Big Dog attitude is
further defined by a number of slogans such as "If You Can't Run with the Big
Dogs Stay on the Porch"(R), "Large and In Charge" and "Attitude is Everything."
These graphics and slogans combine a bold, spirited attitude with wry,
lighthearted humor. The appeal of the brand is further strengthened through a
customer's personal identification with particular sports and other activities
depicted in these graphics. In addition to its focus on fun, Big Dogs develops
customer loyalty and enhances its brand image by providing a consistently high
level of quality at moderate price points. Big Dogs accomplishes this primarily
through (i) selling its own brand directly to the consumer, (ii) low-cost
product development, and (iii) sourcing high-volume/low-cost basic apparel with
limited fashion risk.

         The BIG DOGS(R) brand is designed to appeal to men, women and children
of all ages, particularly baby boomers and their kids, when they are engaged in
leisure or recreational activities. Furthermore, the Company believes that the
millions of dog and other pet owners in the United States, as well as children,
have a strong natural affinity toward the dog-related images and themes in Big
Dogs graphics. In addition, the Company believes that the positive image the
brand brings to being a "Big Dog" has a special appeal to large-size customers.
The Company's apparel products, which include a wide variety of basic apparel
and related products, are developed with an emphasis on being functional rather
than fashion-forward or trendy. These apparel products include graphic T-shirts,
shorts, knit and woven shirts, fleece items, loungewear and boxer shorts. In
addition to its BIG DOGS(R) line of activewear and casual sportswear for men and
women, the Company has a LITTLE BIG DOGS(R) line of infants' and children's
apparel and a BIG BIG DOGS(R) line of big-size apparel. The Company also sells a
line of non-apparel products, including plush animals, stationery and pet
products, which feature Big Dog graphics and are developed to complement its
apparel.

         The Company reinforces its brand image by distributing BIG DOGS(R)
products primarily through its own retail stores. This distribution strategy
enables the Company to present a complete selection of its merchandise in a
creative and fun environment. In addition, this strategy enables it to more
effectively reach its targeted customers by locating stores in tourist-oriented
and other casual environments where it believes consumers are more likely to be
in the "Big Dog state of mind." The Company operates its retail stores in both
outlet and full-price formats, depending on the location. In addition to its
retail stores, Big Dogs markets its products through other channels, including
its catalog, better wholesale and corporate accounts, website and licensing
opportunities.

BUSINESS STRATEGY

         Big Dogs' mission is to build a brand that is recognized throughout the
world for providing high quality, good value and fun and functional products. To
achieve this goal, the Company has adopted the following operating strategies:

         PROMOTE THE BIG DOG SPIRIT OF FUN. A key and unique element in the
Company's brand image is its focus on fun. This spirit of fun revolves around
the Company's Big Dog character that has broad appeal to men, women and children
of all ages. The Company fosters this spirit by creating positive, humorous,
topical and inspiring graphics and slogans which it applies to its merchandise.
More than just a logo, the Big Dog represents the leader, athlete, child,
comedian, musician, boss, traveler, parent and dog lover in everyone. Big Dog
products are fun, not only because of their graphics and slogans, but also
because they are designed for recreational, sports and leisure activities and
make ideal gifts. Big Dogs' focus on fun is further enhanced by the lively,
enjoyable atmosphere in its retail stores and is also reflected in its catalog
and marketing promotions and activities.

         DELIVER HIGH QUALITY AT A GOOD VALUE. Big Dogs' products are
constructed using high-quality fabrics and other materials. Many of its products
feature unique graphics characterized by advanced print techniques, as well as
unique appliques and embroideries on many of its apparel products. The Company
believes that this combination of quality fabrics and graphics in its apparel
products provides the customer with a product that has an exceptional look and
feel. Big Dogs is able to deliver this level of quality at reasonable prices
primarily as a result of (i) selling its own brand direct to the consumer, (ii)
low-cost product development, (iii) sourcing of basic apparel, and (iv) low
marketing costs. The Company believes that delivering quality and value is
instrumental in generating customer appeal and brand loyalty for its products,
particularly those that do not prominently feature Big Dog graphics.

         ENHANCE FUNCTIONAL PRODUCTS WITH GRAPHICS. Big Dogs develops functional
rather than fashion-forward products. The Company believes it has a special
competency in creating distinctive, popular graphics which it uses to
differentiate its products from those of its competitors. Big Dogs has developed
a broad assortment of classic, functional clothing ("basics") in traditional,
less fashion-forward colors. The Company's focus on basics and its ability to
leverage its graphics across multiple product categories have allowed the
Company to eliminate the need for a traditional buyer or design staff, and
thereby lower its product development costs compared to most fashion apparel
companies. Furthermore, since its graphics are added in the last stage of
production, the Company is able to be more responsive to customer preferences
while also lowering its inventory risk.

         TARGET A BROAD, DIVERSE CUSTOMER BASE. Big Dogs believes it has
established an All-American, family-oriented brand featuring products, graphic
themes, slogans and promotions that appeal to a broad range of consumers.
Although its marketing focus is on baby boomers and their kids, Big Dogs'
customers include men, women and children of all ages, and span a wide range of
geographic areas and income levels. Furthermore, the Company believes that the
millions of dog and other pet owners in the United States, as well as children,
have a strong natural affinity for the dog-related images and themes in Big Dogs
graphics. In addition, the Company believes that the positive image the brand
brings to being a "Big Dog" has a special appeal to big-size customers.

         MAINTAIN CONTROLLED DISTRIBUTION. Big Dogs sells its products primarily
through its own stores and, to a lesser extent, through its catalog and website.
By selling direct to its customers, Big Dogs is able to present its complete
line of merchandise in a creative and fun environment. This also allows it to
target its customers more precisely by locating its stores in tourist-oriented
and other high-traffic areas where the Company believes consumers are more
likely to be inclined to purchase Big Dogs' fun, casual apparel. Selling direct
to the consumer also allows the Company (i) to enhance its margins while still
providing customer value, (ii) to be more responsive to customer feedback,
especially with regard to new product development, (iii) to reduce its need to
build brand awareness through large-scale media advertising, and (iv) to collect
customer names for its catalog through in-store sign-ups.

         CREATE AN ENTERTAINING SHOPPING EXPERIENCE. Big Dogs seeks to create a
distinctive and fun shopping environment in its stores through an innovative
display of its graphic art and humor, including in-store "T-shirt walls" and
other displays that are designed to immediately put the customer in the "Big Dog
state of mind." By showcasing the Company's complete product line, Big Dogs
stores offer something for everyone in the family. Effective cross-merchandising
in the stores is designed to add excitement and prompt add-on purchases. The
Company believes the customer's shopping experience is further enhanced by the
Company's knowledgeable and enthusiastic sales staff.

         EMPHASIZE GRASSROOTS MARKETING. The Company believes its most effective
marketing is its products themselves and their presentation in the Company's
retail stores, catalog and website. As a result, the Company has spent
relatively little on advertising. Also important to Big Dogs' marketing strategy
is its targeted "grassroots" marketing activities. These activities include
local and charity sponsorships (such as high school sports teams),
community-oriented promotional events (such as the Company's annual dog parade
in Santa Barbara), and corporate cross-promotions with leading consumer product
companies (such as Nabisco and Kellogs).

         The Company's continued growth will depend to a significant degree on
its ability to open and operate new stores, to increase net sales and
profitability from the Company's existing stores, and to expand its other
sources of revenue. Big Dogs' growth strategy is the continued expansion of its
retail stores and increasing revenue from other non-retail sources, such as the
licensing of its trademark worldwide, internet and other sales. The Company
opened 16 new stores and closed 9 under-performing stores in 2000. The Company
opens stores in locations and venues that management believes best target its
customers and can be obtained on terms that meet its unit profitability
requirements. Accordingly, the Company anticipates that the stores it opens in
the near future will be located in a variety of venues, including outlet malls,
stand-alone stores in tourist areas, tourist-oriented malls, regional malls,
metropolitan and power center locations. These new markets and venues have in
the past presented, and will continue to present, competitive and merchandising
challenges that are different from those faced by the Company in its existing
markets and venues.

MERCHANDISING

         Big Dogs' product line features a branded, lifestyle collection of
unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. Big Dogs' apparel lines include full
collections of classic unisex casual sportswear and activewear for adults, as
well as collections for infants and children and the big-size market. The
Company continuously explores opportunities to further leverage its brand and
graphics into new product lines.

         The Company's apparel products are manufactured from premium cotton,
or, in some instances, cotton/ synthetic blends. Big Dogs' apparel is
characterized by quality fabrics, construction and embellishments, and is
distinguished from other apparel lines by the BIG DOGS(R) name, dog logo,
graphics and slogans. In addition to its distinctive graphics, the Company
believes it has achieved recognition for the quality and performance of its
products.

         The majority of the Company's products range from between $4 and $45.
The following table sets forth the approximate contribution that each of the
Company's product categories made to total net sales in the Company's retail
stores for the year ended December 31, 2000:
<TABLE>
<CAPTION>

                                                                    % OF TOTAL
                                                                   RETAIL STORE*
                                                                     NET SALES
                                                                   -------------
<S>                                                                     <C>
Adult Apparel and Accessories .....................................     53.1%
Infants' and Children's Apparel and Accessories ...................     21.5
Big-size Apparel ..................................................     20.0
Non-Apparel Products ..............................................      5.4
                                                                        ----
Total .............................................................    100.0%
                                                                       -----
</TABLE>
*Does not include catalog, wholesale and internet sales.

         ADULT APPAREL AND ACCESSORIES. Big Dogs sells a complete line of adult
unisex activewear and casual sportswear. The Company offers screen-printed and
embroidered T-shirts and sweatshirts, in a variety of styles and colors, that
generally prominently display the Big Dogs graphics and slogans. In addition,
the Company offers shorts, knit and woven casual shirts, fleece tops and
bottoms, loungewear, boxer shorts, swimwear and sleepwear, all of which feature
print designs or simply the BIG DOGS(R) name and/or dog logo. The Company's
adult apparel line primarily focuses on basic items that recur with relatively
minor variation from season-to-season and year-to-year. While certain of
Company's classic, popular items and graphics have been in the Big Dogs line
with very little change for over 10 years, the Company introduces new apparel
and other products throughout the year to ensure that the merchandise
assortments are consistent with the top sellers within its competitive market.

         Big Dogs leverages its trademarks, characters and more popular graphics
by carefully translating them to a wide variety of apparel accessories,
including caps, ties, socks, sunglasses, bags, watches and wallets. These
products are developed and introduced based on their consistency with Big Dog's
brand image and whether they complement the Company's other products. The
Company's introduction of accessories not only provides an opportunity to create
add-on purchases, but also minimizes product development costs and inventory
risk by utilizing graphics and slogans that have first proven popular on the
Company's graphic T-shirts.

         INFANTS' AND CHILDREN'S APPAREL AND ACCESSORIES. The LITTLE BIG DOGS(R)
line includes infants, toddlers, kids and youth sizes. Products in this line
include graphic T-shirts, shirts, fleece items, infant and toddler one-pieces,
boxer shorts, dresses and shorts, virtually all of which feature distinctive
graphics. The graphics and fabrics of this line are designed to mirror many of
the more popular graphics and fabrics in the BIG DOGS(R) adult line in order to
encourage family purchases and leverage overall product development costs. The
Company sells its LITTLE BIG DOGS(R) line primarily through its retail stores,
catalog and website, and wholesales it to certain specialty and better
department stores.

         BIG-SIZE APPAREL. The Company believes that the BIG DOGS(R) image and
the positive emphasis the brand gives to being a "Big Dog" have a unique appeal
to consumers who wear big sizes. The Company's BIG BIG DOGS(R) category offers a
line of unisex activewear and casual sportswear. As with the regular adult
sizes, this category features screen-printed and embroidered T-shirts and
sweatshirts, in a variety of styles and colors, that generally prominently
display the Big Dogs graphic themes and slogans. In addition, the Company offers
shorts, knit and woven casual and sports shirts, fleece tops and bottoms,
loungewear, boxer shorts, swimwear and sleepwear, which may feature print
designs or simply the BIG DOGS(R) name and/or dog logo. The Company sells its
BIG BIG DOGS(R) line primarily through its retail stores, catalog and website,
and also through selected wholesale accounts.

         NON-APPAREL PRODUCTS. Big Dogs further leverages its trademarks,
characters and more popular graphics by applying them to a wide variety of
adult's and children's non-apparel items, including pet products, plush animals
and other toys, sporting goods, stationery, calendars, mousepads and screen
savers. As with apparel accessories, new non-apparel products are developed and
introduced based on whether they are consistent with Big Dogs' brand image and
complement the Company's other products. As with apparel accessories, the
graphics applied to these products have first proven popular on the Company's
T-shirts, resulting in lower product development costs and inventory risk. In
general, non-apparel items have higher gross margins than many of the Company's
other products.

MARKETING

         The Company strives to maintain a consistent brand image through the
coordination of its merchandising, marketing and sales efforts. The goal of the
Company's marketing efforts is to present a distinctive image of quality, value
and fun that consumers will associate with the Company's products and thereby
enhance the BIG DOGS(R) brand image. The BIG DOGS(R) brand image has been
developed with relatively little advertising, as the Company believes its most
effective marketing is its products themselves and their presentation in the
Company's retail stores, catalog and website. The Company's catalog and website
serve not only as a means of product distribution, but also as key marketing
pieces for the Company's retail stores.

         Also important to the Company's marketing strategy is its targeted
"grassroots" marketing activities. These activities include local and charity
sponsorships (such as high school sports teams), community-oriented promotional
events (such as the Company's annual dog parade in Santa Barbara), and corporate
cross-promotions with leading consumer product companies (such as Nabisco and
Kellogs). The Company trains and incentivizes its store managers to actively
involve their stores in local, grassroots activities. In addition, the Company
utilizes billboard advertising designed to direct customers to local Big Dogs
retail stores.

RETAIL STORES

         Big Dogs seeks to create a distinctive and fun shopping environment in
its stores through the innovative display of its graphic art and humor,
including in-store "T-shirt walls" and other displays designed to immediately
put the customer in the "Big Dog state of mind." In addition, the Company's
cross-merchandising and colorful signage are designed to add excitement in the
stores and prompt add-on purchases. By showcasing the Company's complete product
line and broad assortment, Big Dogs stores offer something for everyone in the
family and are particularly appealing to the dedicated Big Dogs customer.

         In 2000, the Company's retail stores contributed approximately 93% of
total net sales. As of December 31, 2000, the Company operated a total of 198
stores, 197 stores in 43 states and one store in Puerto Rico. Big Dogs stores
are typically located in tourist and recreation-oriented shopping locations and
other casual environments where the Company believes consumers are more likely
to be in the "Big Dog state of mind." In making site selections, the Company
also considers a variety of other factors, including proximity to large
population centers, area income, the prestige and potential customer-draw of the
other tenants in the center or area, projected profitability, store location and
visibility within the center, and the accessibility and visibility of the center
from nearby thoroughfares.


The table below sets forth the number of stores located in each state or
territory as of the end of 2000:
<TABLE>

<CAPTION>
 State           No. of Stores           State            No. of Stores
 -----           -------------           -----            -------------
<S>                          <C>                                      <C>
Alabama                      3         Missouri                       4
Alaska                       1         Nebraska                       1
Arizona                      7         Nevada                         3
California                  37         New Hampshire                  2
Colorado                     3         New Jersey                     2
Connecticut                  2         New Mexico                     1
Delaware                     3         New York                       7
Florida                     12         North Carolina                 6
Georgia                      6         Ohio                           4
Hawaii                       1         Oklahoma                       1
Idaho                        2         Oregon                         6
Illinois                     4         Pennsylvania                   7
Indiana                      4         South Carolina                 5
Iowa                         1         Tennessee                      6
Kansas                       2         Texas                          10
Louisiana                    1         Utah                           3
Maine                        2         Vermont                        2
Maryland                     5         Virginia                       4
Massachusetts                4         Washington                     5
Michigan                     5         Wisconsin                      4
Minnesota                    5         Wyoming                        1
Mississippi                  3

U.S. Territory      No. of Stores
-------------       -------------
Puerto Rico                  1
</TABLE>

         The Company operates its retail stores in both outlet and full-price
formats, depending on the location. Big Dogs' traditional emphasis has been on
outlet malls because those malls are often located in tourist areas and attract
significant numbers of Big Dogs' targeted customers. The Company anticipates
that the stores it opens in the near future will be in a variety of venues,
including outlet malls, stand-alone stores in tourist areas, tourist-oriented
malls, regional malls, metropolitan and power center locations.

         The Company's outlet mall stores average approximately 2,800 square
feet. The Company's outlet stores offer a complete and current line of the
Company's products priced approximately 25% less than the same items are sold
for in the Company's catalog and website, the Company's full-price stores and by
other retailers. The Company opened 16 new stores and closed 9 under-performing
stores during 2000. The Company's cost to open a store in 2000, including
leasehold improvements and furniture and fixtures, was approximately $49,000
(net of tenant improvement allowances). The average per store initial inventory
(partially financed by trade payables) for the new 2000 stores was approximately
$59,000 and pre-opening expenses averaged approximately $16,000 per store. The
average total cost to build new stores will vary in the future, depending on
various factors, including local construction costs, changes in store format and
design and tenant improvement allowances.

         Big Dogs store operations are managed by a Senior Vice
President--Retail, Director of Retail Operations, three regional managers and
approximately 15 district and area managers. Each of the stores is managed and
operated by a store manager, an assistant manager and full-time and part-time
sales associates. The Company seeks to further enhance its customers' shopping
experience by developing a knowledgeable and enthusiastic sales staff to
distinguish Big Dogs from its competition. In this regard, the Company has
implemented employee training and incentive programs and encourages its sales
associates to be friendly and courteous and to guide customers to graphics and
products that tie into their individual interests. The Company believes its
commitment to customer service enhances its ability to generate repeat business
and to attract new customers. The Company also believes that the fun nature of
its products and the growth of the Company create employee enthusiasm and
positive morale that in turn enhance customer service and contribute to the fun
shopping experience.

NON-RETAIL DISTRIBUTION

         Non-retail distribution channels, which include catalog and internet,
wholesale and corporate sales, and licensing, represented approximately 7% of
the Company's total net sales in 2000.

         CATALOG AND INTERNET. The Company's catalog is a key marketing piece
for its products and stores. The Company's proprietary mailing list has been
developed largely through sign-ups by customers in its retail stores rather than
through active prospecting. Big Dogs' proprietary mailing list has over 700,000
active customer names. In June 1999, Big Dogs launched a limited offering of its
products online at its www.BIGDOGS.com website. Based on the initial success of
this e-commerce site, the Company substantially upgraded the website and made
its entire product line available online in October 1999. As a result, internet
sales increased rapidly and totaled $1.9 million for the year 2000. The Company
believes its product is well suited for the internet market because of the
Company's focus on graphics and apparel that is not only character-driven but
basic in design and therefore easy to describe. Additionally, the increased
focus on internet sales has allowed the Company to reduce its mailings of
traditional paper catalogs and realize the related cost savings, while
maintaining the same level of total catalog and internet sales as prior year.
The Company's catalog and website enhance its overall product distribution by
increasing access to customers who do not generally visit outlet centers where
the Company's stores are primarily located. The Company is positive about its
future prospects on the internet, especially since Big Dogs owns its own brand
and controls its pricing and distribution. The Company's catalog and internet
sales in 2000 were approximately $4.2 million, or approximately 4% of total net
sales.

         WHOLESALE AND CORPORATE SALES. During 2000, the Company sold to over
500 wholesale accounts throughout the United States. The Company's wholesale
sales in 2000 were approximately $3.3 million, or approximately 3% of total net
sales.

         LICENSING. In August 2000, the Company entered into an agreement with
BHPC Marketing, Inc. to represent the Company in the licensing of its trademarks
worldwide. BHPC Marketing, Inc. has built its Southern California-based Beverly
Hills Polo Club brand into a widely recognized and popular brand throughout the
United States and more than 100 countries worldwide, with annual sales in excess
of $300 million. The Company believes it has significant licensing opportunities
worldwide. In 2001, the Company signed its first substantial international
license of its Big Dog trademarks in South Korea for apparel and other products.

SOURCING

         DOMESTIC AND INTERNATIONAL SOURCING. The Company does not own or
operate any manufacturing facilities and sources its products through
third-party contractors with manufacturing facilities that are primarily
overseas. The Company believes that outsourcing allows it to enhance production
flexibility and capacity, while substantially reducing capital expenditures and
avoiding the costs of managing a large production workforce. In addition,
outsourcing allows the Company to leverage working capital, transfer risk and
focus its energy and resources on merchandising, marketing and sales.

         Big Dogs' domestic sourcing is primarily limited to graphic T-shirts.
The bulk of its graphic T-shirt business is managed in-house. This includes
management of screen printing and blanks, but not screen printing operations.

         The majority of Big Dogs' other products are manufactured overseas,
primarily in Asia. In order to reduce the Company's exposure to production risks
and delays arising from trade disputes, political disruption or other factors
relating to any one vendor or country, the Company utilizes a diverse group of
vendors. Big Dogs sources product from approximately 100 unaffiliated vendors,
including over 35 foreign vendors in a number of countries. In order to enhance
its sourcing flexibility, the Company uses purchasing agents rather than operate
its own foreign sourcing office. These agents assist the Company in selecting
and overseeing third-party vendors, sourcing fabric and monitoring quotas and
other trade regulations. The Company does not have supply contracts with any of
its suppliers. Although the loss of major suppliers could have a significant
effect on the Company's immediate operating results, the Company believes
alternate sources of merchandise for most product categories are available at
comparable prices and that it could replace these suppliers without any
long-term adverse effect on the Company.

         The Company forecasts production requirements to secure necessary
manufacturing capacity and quota. Since the Company's foreign manufacturers are
located at greater geographic distances from the Company than its domestic
manufacturers, the Company generally allows greater lead-times for foreign
orders. However, due to the Company's focus on widely available basics rather
than fashion items, the Company believes these lead times do not present
significant risks.

         QUALITY CONTROL. The Company's quality control program is designed to
ensure that all goods bearing BIG DOGS(R) trademarks meet the Company's
standards. With respect to its products, the Company, through its employees and
sourcing agents, develops and inspects prototypes of each product prior to
manufacture. For apparel products, the Company, through its employees and
sourcing agents, inspects the prototypes and fabrics prior to cutting by the
contractors, establishes fittings based on the prototype and inspects samples.
The Company or its sourcing agents inspect the final product prior to shipment
to the Company's warehouse or at the warehouse prior to payment.

MANAGEMENT INFORMATION SYSTEMS

         The Company is committed to utilizing technology to enhance its
competitive position. The Company has put in place computer hardware, systems
applications and networks that are the same as those used by a number of large
retailers. These systems support the sales and distribution of products to its
stores and customers and improve the integration and efficiency of its domestic
and foreign sourcing operations. Big Dogs' MIS system provides integration of
store, merchandising, distribution and financial systems. These systems include
stock keeping unit ("SKU") and classification inventory tracking, purchase order
management, open-to-buy, merchandise distribution, automated ticket making,
general ledger, sales audit, accounts payable, fixed asset management, payroll
and integrated financials. These systems operate on an IBM AS 400 platform and a
Novell server network and utilize SVI (Island Pacific) software. The Company's
point-of-sale ("POS") system consists of registers providing price look-up,
e-mail and credit card and check authorization. Through automated two-way
communication with each store, sales information, e-mail and timekeeping
information are uploaded to the host system, and receiving, price changes and
systems maintenance are down-loaded through the POS devices. Sales are updated
daily in the merchandising report systems by polling sales from each store's POS
terminals. The Company evaluates information obtained through daily polling,
including a daily tracking of gross margin, to implement merchandising decisions
regarding reorders, markdowns and allocation of merchandise. Wholesale and
catalog operations are also supported by MIS applications from established
vendors, designed specifically to meet the unique requirements of these segments
of the business. These applications include customer service phone center, order
processing and mailing list maintenance.

ALLOCATION AND DISTRIBUTION OF MERCHANDISE

         Allocation and distribution of the Company's inventory is performed
centrally at the store, merchandise classification and SKU levels using
integrated third-party software. Utilizing its MIS capabilities, the Company's
planning and allocation group works closely with the merchandising and retail
departments to monitor and respond to customer purchasing trends and meet the
seasonal and locale-specific merchandising requirements of the Company's retail
stores.

         The Company's main warehouse facility and its mail order warehouse and
fulfillment facility are located in a 136,000 square-foot distribution facility
in Santa Fe Springs, California. All merchandise is delivered by vendors to this
facility, where it is inspected, entered into the Company's allocation software
system, picked and boxed for shipment to the stores or customers. The Company
ships merchandise to its stores at least weekly, to provide a steady flow of
merchandise.

TRADEMARKS

         The Company utilizes a variety of trademarks which it owns, including
the U.S. registered trademarks BIG DOGS(R), BIG DOG SPORTSWEAR(R), dog logo, BIG
DOG(R), LITTLE BIG DOGS(R) and BIG BIG DOGS(R). In addition, the Company has
registered certain of its trademarks or has registration applications pending in
over 22 other countries. The Company regards its trademarks and other
proprietary rights as valuable assets and believes that they have significant
value in the marketing of its products. From time to time in the course of
business, the Company discovers products in the marketplace that the Company
believes infringe upon its trademark rights or companies claim that a certain
product or graphic of the Company may infringe on their intellectual property
rights. The Company vigorously protects its trademarks and products. Actions
against infringement include the use of cease and desist letters, administrative
proceedings and lawsuits.



COMPETITION

         Although the level and nature of competition differ among the Company's
product categories, the Company competes primarily on the basis of its brand
image, offering a unique combination of quality, value and fun, and on other
factors including product assortment, price, store location and layout, and
customer service. The markets for each of the Company's products are highly
competitive. The Company believes that its long-term competitive position will
depend upon its ability to anticipate and respond effectively to changing
consumer demands and to offer customers a wide variety of high-quality, fun
products at competitive prices. Although the Company believes it does not
compete directly with any single company with respect to its entire range of
merchandise, within each merchandise category the Company competes with
well-known apparel and specialty retail companies such as The GAP, Eddie Bauer
and The Disney Stores, as well as a large number of national and regional
department stores, specialty retailers and apparel designers and manufacturers.
In addition, in recent years, the amount of casual sportswear and activewear
manufactured specifically for department stores and sold under their own labels
has significantly increased. Many of Big Dogs' competitors are significantly
larger and more diversified and have substantially greater financial,
distribution, marketing and other resources and have achieved greater
recognition for their brand names than the Company.

EMPLOYEES

         At March 1, 2001, the Company had approximately 600 full-time and 700
part-time employees. The number of part-time employees fluctuates significantly
based on seasonal needs. None of the Company's employees are covered by
collective bargaining agreements and the Company considers its relations with
its employees to be good.

EXECUTIVE OFFICERS OF THE REGISTRANT

         Set forth below are the names, ages, titles and present and past
positions of persons serving as executive officers of the Company as of March 1,
2001:

NAME                       AGE                                POSITION
Andrew D. Feshbach         40               President, Chief Executive Officer
                                             and Director
Douglas N. Nilsen          52               Executive Vice President -
                                             Merchandising
Anthony J. Wall            45               Executive Vice President -
                                             Business Affairs, General Counsel
                                             and Secretary
Roberta J. Morris          41               Chief Financial Officer, Treasurer
                                             and Assistant Secretary
Lee M. Cox                 32               Senior Vice President - Retail


         ANDREW D. FESHBACH co-founded the Company in May 1992 and has served
as President, Chief Executive Officer and as a director since that time. From
June 1992 until May 1997, Mr. Feshbach also served as Chief Financial Officer
of the  Company. Mr. Feshbach co-founded Fortune Fashions Inc. ("Fortune
Fashions"), a  custom manufacturer of embellished apparel in 1991 and has
served as a director since that time. From 1990 until the present, he has
served as a Vice President of Fortune Financial, a private merchant banking
firm owned by the Company's Chairman and majority stockholder, Fred Kayne. Mr.
Feshbach serves as a director of The Right Start, Inc., an infant products
retailer and catalog company. Mr.  Feshbach has an M.B.A. from Harvard
University.

         DOUGLAS N. NILSEN joined the Company in October 1995 and has served as
Executive Vice President--Merchandising since December 1995. From October 1995
until December 1995, he served as Senior Vice President of the Company. From
1990 to September 1995, he served as Director of Merchandise at Walt Disney
Attractions, Inc. for its U.S. theme parks and resorts, and in such capacity
was responsible for merchandising all apparel and accessories. From 1976 to
1990, Mr. Nilsen was employed by Macy's California in various capacities, most
recently as Vice President of Merchandising in both the Accessories and Men's
Divisions. Mr. Nilsen has an M.B.A. from New York University.


         ANTHONY J. WALL joined the Company in September 1994 and has served as
Executive Vice President since March 1996. He has also served as General
Counsel and Secretary of the Company since September 1994. He served as a
director of the Company from November 1995 until September 1997 and also as
Senior Vice President from September 1994 until March 1996. From 1981 until
1994, Mr. Wall practiced as an attorney with Gibson, Dunn & Crutcher and, from
1990 until 1994, was a partner in the corporate department of that firm. Mr.
Wall also serves as General Counsel of Fortune Fashions Inc., General Counsel
of Fortune Casuals, LLC, a manufacturer of casual apparel for the mass market,
and Vice President of Fortune Financial. Mr. Wall has a J.D. from the
University of Southern California.

         ROBERTA J. MORRIS joined the Company in August 1993 and has served as
Chief Financial Officer since March 1998, having previously served as Senior
Vice President--Finance since January 1995 and as Vice President--Finance of the
Company from August 1993 to January 1995. From 1988 to August 1993, Ms. Morris
was employed by Deloitte & Touche LLP, a national accounting firm, serving as a
Senior Manager from August 1992 until August 1993. Ms. Morris is a certified
public accountant.

         LEE M. COX joined the Company in September 2000 and has served as
Senior Vice President - Retail since February 2001.  From 1994 until September
2000, Mr. Cox was employed by Adidas Retail, Inc. in various capacities, most
recently as Director of Retail Stores.

ITEM 2.           PROPERTIES

         The Company's corporate headquarters are in leased offices comprising
approximately 24,000 square feet in Santa Barbara, California. This lease
expires July 2004, with an option to extend for another 5 years. The Company's
distribution facility is located in Santa Fe Springs, California in a building
comprising approximately 136,000 square feet under a lease that expires in
January 2008. The Company has an option to extend this lease for five years.

         The Company leases all of its store locations, which comprise an
aggregate of approximately 540,000 square feet. Store leases are typically for a
term of 5 years with a 5-year option and provide for base rent plus contingent
rent based upon a percentage of sales in excess of agreed-upon sales levels.

ITEM 3.           LEGAL PROCEEDINGS

         The Company is involved from time to time in litigation incidental to
its business. Management believes that the outcome of the current litigation
will not have a material adverse effect upon the financial statements of the
Company.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS

         Not applicable.


                                     PART II

ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS

         The common stock of the Company is traded on the NASDAQ National Market
under the symbol BDOG. The following table sets forth, for the period from the
first quarter 1999 through the fourth quarter 2000, the high and low "sales"
price of the shares of Common Stock of the Company, as reported on the NASDAQ
National Market.
<TABLE>
<CAPTION>
                                          2000                      1999
                                   ----------------          -----------------
                                     High     Low              High       Low
                                     ----     ---              ---        ---
<S>                                <C> <C>  <C> <C>          <C> <C>   <C> <C>
First Quarter                      $ 7 3/8  $ 3 1/4          $ 9 1/2   $ 4 5/8
Second Quarter                       7        3 3/4            6 1/8     4 1/2
Third Quarter                        6 3/16   4 1/8            6         5 1/8
Fourth Quarter                       5        3 1/2            8 1/2     5
</TABLE>

         On March 1, 2001, the last sales price of the Common Stock as reported
on the NASDAQ National Market was $4 3/32 per share. As of March 1, 2001, there
were approximately 156 shareholders of record of the Company's Common Stock.

         In February 1999, the Board of Directors approved an annual
discretionary cash dividend to be determined by the Board each year based on the
Company's year-end sales results. This dividend was declared in the amount of
$0.10 per share and paid in March 1999 and again in March 2000. In connection
with the repurchase of stock in September 2000, described below, the Company
entered into a $30.0 million revolving credit facility ("Credit Agreement") with
Bank of America and other lenders. The Credit Agreement prohibits the payment of
dividends by the Company. The Company has not paid a dividend in 2001 and does
not expect to pay dividends in the foreseeable future.

         On August 31, 1999, the Company sold a warrant for the purchase of
121,000 shares of common stock of the Company to PETsMART.com, Inc. for $121,000
with an exercise price of $10 per share. Such sale was deemed to be exempt from
registration under the Securities Act of 1933 in reliance on Section 4(2), as a
transaction not involving a public offering.

         On July 31, 2000, the Company announced that its Board of Directors
authorized the Company to purchase by tender offer and retire up to 3.5 million
shares of the Company's common stock at $6.25 per share, which represented
approximately 29% of the outstanding shares. The tender offer commenced on
August 2, 2000 and expired on August 30, 2000. The tender offer was fully
subscribed and the Company funded the total repurchase price of $22.0 million on
September 1, 2000 from available cash and borrowings under the Credit Agreement.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources".

ITEM 6.  SELECTED FINANCIAL DATA

         The selected consolidated financial data set forth below should be read
in conjunction with the Consolidated Financial Statements and the Notes thereto
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Form 10-K
<TABLE>
<CAPTION>


                                                                    YEARS ENDED DECEMBER 31,
                                                     -----------------------------------------------------
                                                     2000        1999        1998        1997         1996
                                                     ----        ----        ----        ----         ----
                                                      (in thousands, except per share and operating data)
<S>                                                 <C>         <C>         <C>          <C>         <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................    $ 115,280   $ 109,573   $ 100,677    $ 86,181   $ 68,683
Cost of goods sold..............................       48,836      46,491      41,236      36,328     29,720
                                                   ----------   ----------  ----------  ---------- ---------
Gross profit....................................       66,444      63,082      59,441      49,853     38,963
                                                   ----------   ----------  ----------  ----------  --------
Selling, marketing and distribution expenses....       49,680      46,643      44,785      37,683     31,137
General and administrative expenses.............        4,861       4,412       4,548       3,984      3,298
                                                  -----------  ----------- -----------  ---------- ---------
Total operating expenses........................       54,541      51,055      49,333      41,667     34,435
                                                   ----------   ----------  ----------   ---------  --------
EBITDA (1) .....................................       11,903      12,027      10,108       8,186      4,528
Depreciation and amortization ..................        4,029       4,090       3,752       2,620      1,811
Write-off of impaired asset ....................        3,000         ---         ---         ---        ---
Interest expense (income), net..................          338        (395)       (350)      1,268      1,647
                                                    ---------  ----------   ---------  ----------  ---------
Income before provision for income taxes........        4,536       8,332       6,706       4,298      1,070
Provision for income taxes......................        2,719       3,136       2,674       1,633        435
                                                   ----------   ----------  ----------  ---------- ----------
Net income......................................    $   1,817    $  5,196    $  4,032    $  2,665  $     635
                                                    =========    =========   =========   ========= =========
Net income per share
 Basic and diluted..............................     $   0.17    $   0.43    $   0.32    $   0.24   $   0.06

Weighted average common shares
 Basic..........................................       10,808      12,032      12,472      10,965      9,978
 Diluted........................................       10,906      12,182      12,509      11,187     10,049

Cash dividend per common share..................     $   0.10    $   0.10    $   0.00    $   0.00   $   0.00

OPERATING DATA:
Number of stores (2)
 Stores open at beginning of period.............          191         177         150         121         91
 Stores added (net of closures).................            7          14          27          29         30
                                                          ---         ---         ---         ---        ---
 Stores open at end of period...................          198         191         177         150        121
Comparable stores sales increase (3)............         1.3%        1.0%        0.6%        6.6%        3.5%

BALANCE SHEET DATA:
Working capital.................................      $17,553     $32,462     $30,348     $35,468    $ 13,742
Total assets....................................       43,280      56,413      52,994      52,584      25,773
Total indebtedness (4)..........................        6,000         ---         ---         ---      15,697
Stockholders' equity............................       25,859      46,660      43,187      45,541       6,142
</TABLE>

(1) EBITDA represents income from operations, plus depreciation and
amortization. The method of calculating EBITDA set forth above may be different
from calculations of EBITDA employed by other companies and, accordingly, may
not be directly comparable to such other computations. EBITDA should not be
viewed as a substitute for Generally Accepted Accounting Principles (GAAP)
measurements such as net income or cash flows from operations. It is presented
as supplementary information.

(2) Excludes four temporary stores open for a portion of 1996 and one temporary
store open for a portion of 1998.

(3) Comparable store sales represent net sales of stores open at least one full
year. Effective December 31, 1997, the Company changed the way comparable store
sales were calculated, and for comparison purposes all prior years have been
restated. Stores are considered comparable beginning on the first day of the
third month following the one-year anniversary of their opening. Stores that are
relocated but remain in the same shopping area remain in the comparable store
base. The change to this method did not significantly affect previously reported
comparable store sales percentages. The Company believes this method better
reflects the effect of one-time promotional events and is more consistent with
industry methods.

(4) Includes subordinated debt, obligations under the bank line of credit and
obligations under capital leases.

ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto of the Company
contained elsewhere in this Form 10-K.

GENERAL

         Big Dogs develops, markets and retails a branded, lifestyle collection
of unique, high-quality, popular-priced consumer products, including activewear,
casual sportswear, accessories and gifts. The number of Company stores has grown
from 5 in 1993 to 198 as of December 31, 2000.

         On July 31, 2000, the Company announced that its Board of Directors
authorized the Company to purchase by tender offer and retire up to 3.5 million
shares of the Company's common stock at $6.25 per share, which represented
approximately 29% of the outstanding shares. The tender offer commenced on
August 2, 2000 and expired on August 30, 2000. The tender offer was fully
subscribed and the Company funded the tender offer in the amount of $22,004,000
on September 1, 2000 from available cash and borrowings under the Credit
Agreement (see Liquidity and Capital Resources). Upon redemption of the tendered
shares, the Company retired the shares by reducing common stock by $35,000 and
additional paid-in capital by $21,969,000.



RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain
selected statement of operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>

                                                                     YEARS ENDED DECEMBER 31,
                                                                 --------------------------------
                                                                2000           1999         1998
                                                                ----           ----         ----
<S>                                                             <C>            <C>          <C>
Net sales..................................................     100.0%         100.0%       100.0%

Cost of goods sold.........................................      42.4           42.4         41.0
                                                                -----          -----         ----
Gross profit...............................................      57.6           57.6         59.0

Selling, marketing and distribution expenses...............      46.1           45.8         47.5
General and administrative expenses........................       4.7            4.6          5.2
                                                                -----          -----        -----
Total operating expenses...................................      50.8           50.4         52.7
                                                                -----          -----        -----
Income from operations.....................................       6.8%           7.2%         6.3%
</TABLE>

YEARS ENDED DECEMBER 31, 2000 AND 1999

         NET SALES. Net sales consist of sales from the Company's stores,
catalog, website, and wholesale accounts, all net of returns and allowances. Net
sales increased to $115.3 million in 2000 from $109.6 million for 1999, an
increase of $5.7 million, or 5.2%. Of the $5.7 million increase, $6.1 million
was attributable to stores not yet qualifying as comparable stores, and $1.2
million came from the 1.3% comparable store sales increase for the period,
offset by a $1.6 million decrease in the Company's wholesale and other business.
The increase in net sales in 2000 was attributable to continued growth in the
number of stores and in the children's and big-size categories. The Company's
children's and big-size products continued to increase as a percentage of total
retail net sales to 42% in 2000 from 39% in 1999.

         GROSS PROFIT. Gross profit increased to $66.4 million in 2000 from
$63.1 million for 1999, an increase of $3.3 million, or 5.2%. As a percentage of
net sales, gross profit remained constant at 57.6% for the years ended 2000 and
1999.

         SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses consist of expenses associated with creating,
distributing, and selling products through all channels of distribution,
including occupancy, payroll and catalog costs. Selling, marketing and
distribution expenses increased to $53.2 million in 2000 from $50.1 million in
1999, an increase of $3.1 million, or 6.2%. As a percentage of net sales, these
expenses remained relatively constant, increasing to 46.1% in 2000 from 45.8% in
1999.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist of administrative salaries, corporate occupancy costs and other
corporate expenses. General and administrative expenses increased to $5.4
million in 2000 from $5.0 million in 1999, an increase of $0.4 million, or 8.0%.
As a percentage of net sales, these expenses remained relatively constant,
increasing to 4.7% in 2000 from 4.6% in 1999.

         ASSET IMPAIRMENT. In 1999, the Company invested in the preferred stock
of PETsMART.com, the leading pet product e-commerce company, as part of a
strategic marketing relationship. It had been the intent of PETsMART.com to
raise capital through a public offering in order to support and expand its
operations. As of December 2000, no public offering for PETsMART.com had
occurred and it appears unlikely this event will occur in the foreseeable
future. Additionally, in December 2000, PETsMART.com restructured its ownership
and diluted the Company's ownership position significantly. After careful
consideration of the internet and capital markets the Company conservatively
wrote off the entire $3.0 million investment at December 31, 2000. However,
PETsMART.com remains the leading internet pet product e-commerce company and the
Company remains optimistic that value can still be recovered.

         INTEREST EXPENSE AND INCOME, NET. The Company had net interest expense
of $0.3 million in 2000 compared to $0.4 million of net interest income in 1999.
The net change is due to interest expense incurred on borrowings under the
Credit Agreement used to finance the tender offer in 2000. In 1999, the Company
invested excess cash in short-term investments, which contributed to the
interest income.

         INCOME TAXES. In 2000, the Company's provision for income taxes
reflects a 59.9% effective tax rate, compared to a 37.6% tax rate in 1999. The
increase in the effective tax rate is primarily related to a valuation
allowance, specifically identified with the write-off of its $3.0 million
investment in PETsMART.com, which reduced the Company's deferred tax asset to a
level which, more likely than not, will be realized.

YEARS ENDED DECEMBER 31, 1999 AND 1998

         NET SALES. Net sales increased to $109.6 million in 1999 from $100.7
million for 1998, an increase of $8.9 million, or 8.8%. Of the $8.9 million
increase, $7.6 million was attributable to stores not yet qualifying as
comparable stores and $0.8 million came from the 1.0% comparable store sales
increase for the period. Additionally, non-retail sales increased by $0.5
million for the year, which is primarily related to the Company's agreement with
PETsMART.com. The increase in net sales in 1999 was attributable to continued
growth in the number of stores and in the children's and big-size categories.
The Company's children's and big-size products continued to increase to 39% of
total retail net sales from 35% of total retail net sales in 1998.

         GROSS PROFIT. Gross profit increased to $63.1 million in 1999 from
$59.4 million for 1998, an increase of $3.7 million, or 6.2%. As a percentage of
net sales, gross profit decreased to 57.6% in 1999 from 59.0% in 1998. This
decrease as a percentage of net sales was primarily attributable to an increased
level of promotional activity and continued sales in products other than
t-shirts, which have a lower margin.

         SELLING, MARKETING AND DISTRIBUTION EXPENSES. Selling, marketing and
distribution expenses increased to $50.1 million in 1999 from $47.8 million in
1998, an increase of $2.3 million, or 4.8%. As a percentage of net sales, these
expenses decreased to 45.8% in 1999 from 47.5% in 1998. In early 1998, the
Company moved its distribution center to a larger facility in order to build the
infrastructure necessary to accommodate growth. During the first half of 1998,
the Company did not realize this growth and, therefore, the Company incurred a
decrease in operating leverage. Subsequently, controls were put in place and
improvements were made in the second half of 1998 and throughout 1999.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased to $5.0 million in 1999 from $5.3 million in 1998. As a
percentage of net sales, these expenses decreased to 4.6% in 1999 from 5.2% in
1998. The decrease in general and administrative expenses is attributable to
improved cost controls in 1999, as well as the leverage of spreading them over a
larger revenue base.

         INTEREST EXPENSE AND INCOME, NET. Net interest income remained
constant at $0.4 million for 1999 and 1998.

SEASONALITY AND QUARTERLY RESULTS

         The Company believes its seasonality is somewhat different than many
apparel retailers since a significant number of the Company's stores are located
in tourist areas and outdoor malls that have different visitation patterns than
urban and suburban retail centers. The third and fourth quarters (consisting of
the summer vacation, back-to-school and Christmas seasons) have historically
accounted for the largest percentage of the Company's annual net sales and
profits. In 2000, excluding sales generated by stores not open for all of 2000,
substantially all the Company's operating income and approximately 28% and 35%
of the Company's net retail sales were generated during the third and fourth
quarters, respectively.

         The Company's quarterly results of operations may also fluctuate as a
result of a variety of factors, including the timing of store openings, the
amount of revenue contributed by new stores, changes in comparable store sales,
changes in the mix of products sold, customer acceptance of new products, the
timing and level of markdowns, competitive factors and general economic
conditions.

LIQUIDITY AND CAPITAL RESOURCES

         During 2000, the Company's primary uses of cash were for the build-out
of new stores, advance purchase of inventories, payment of cash dividends and
stock repurchases. The Company satisfied its cash requirements primarily from
its cash reserves, borrowings under its Credit Agreement and cash flow from
operations. In July 2000, the Company's Board of Directors authorized the
Company to purchase by tender offer and retire up to 3.5 million shares of its
common stock at $6.25 per share. The tender offer was fully subscribed and the
Company funded the total purchase price of $22.0 million on September 1, 2000.

         Cash provided by operating activities was $4.7 million and $11.8
million in 2000 and 1999, respectively. The $7.1 million decrease in cash
provided by operations is primarily attributable to the increase in inventories.
At December 31, 2000 and 1999 inventories were $26.8 million and $19.9 million,
respectively.

         Cash used in investing activities in 2000 and 1999 was $1.7 million and
$5.7 million, respectively. Cash flows used in investing activities during 2000
primarily related to opening 16 new stores for $0.8 million and retrofitting
existing stores for $0.4 million. Cash flows used in investing activities during
1999 related primarily to a $2.5 million investment in PETsMART.com Series D
preferred stock, opening 17 new stores for $1.0 million, retrofitting existing
stores for $0.9 million, improvements at the Company's distribution facility
including build-out of a second-floor mezzanine totaling $0.5 million, and
issuance of long-term notes receivable to certain officers and employees
totaling $0.5 million.

         Cash used in financing activities during 2000 and 1999 was $16.6
million and $1.6 million, respectively. In 2000, the Company purchased and
retired 3.5 million shares of its common stock through a tender offer for $22.0
million and paid a discretionary dividend of $0.10 per share to stockholders for
a total dividend payment of $1.2 million, offset by net short-term borrowings of
$6.0 million and $0.6 million in repayments of notes receivable from certain
officers and employees. In 1999, the Company paid a discretionary dividend of
$0.10 per share to stockholders for a total dividend payment of $1.2 million and
repurchased 0.1 million shares of its common stock for approximately $0.5
million.

         The Company had a borrowing arrangement with a bank whereby the Company
could, from time to time and upon approval from the bank, borrow up to $8.0
million. Such borrowings could be used for cash advances and letters of credit.
The borrowing arrangement provided for interest at the bank's prime rate less
3/8% or 250 basis points over the LIBOR rate and was collateralized by
substantially all the assets of the Company. This borrowing arrangement
terminated upon commencement of the Credit Agreement discussed below.

         In conjunction with the Company's tender offer to purchase and retire
up to 3.5 million shares of the Company's common stock (see Item 5), the Company
entered into a new $30.0 million revolving credit facility ("Credit Agreement")
with Bank of America and other lenders on July 28, 2000. The Credit Agreement
has a three-year term and has scheduled annual commitment reductions. The
maximum commitment balance is $25.0 million, $20.0 million and $15.0 million on
December 31, 2001, June 30, 2002 and December 31, 2002, respectively. The Credit
Agreement is secured by substantially all assets of the Company, requires the
compliance of various financial affirmative and negative covenants and prohibits
the payment of dividends. This agreement provides for a performance-pricing
structured interest charge, ranging from LIBOR plus 1.75% to 2.75%, based on the
results of certain financial ratios. As of December 31, 2000, the Company had
$6.0 million outstanding under this Credit Agreement. Additionally, the Company
had $1.8 million of letters of credit outstanding as of December 31, 2000. The
letters of credit expire through April 2001.

         In 2000, the Company's average cost to build a new store, including
furniture and fixtures, and leasehold improvements, net of tenant improvement
allowances, was approximately $49,000. The average total cost to build new
stores will vary in the future, depending on various factors, including square
footage, changes in store design, local construction costs and tenant
improvement allowances. The Company's average initial inventory for new stores
opened in 2000 was approximately $59,000. The Company's initial inventory for
new stores will vary in the future depending on various factors, including store
concept and square footage. The Company believes that cash generated from
operations together with borrowings under the Credit Agreement will be
sufficient to fund its operations and planned expansion through 2001.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. The statement requires that the Company recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company adopted SFAS No. 133 effective
January 1, 2001. The adoption of SFAS No. 133 did not have an impact on the
Company's financial statements.

         In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 which summarizes certain of the staff's
views in applying accounting principals generally accepted in the United States
of America to revenue recognition in financial statements. The application of
SAB No. 101 did not have a material impact on the Company's financial position
or results of operations.

INFLATION

         The Company does not believe that inflation has had a material effect
on operations in the past year. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

         This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. The statements contained in this Form 10-K
that are not purely historical are forward-looking statements, including without
limitation statements regarding the Company's expectations, beliefs, intentions
or strategies regarding the future. Such forward-looking statements include the
discussions in this Management's Discussion and Analysis of Financial Condition
and Results of Operations regarding the seasonality of business, expected new
store openings and costs and inflation risks. Uncertainties to which the
foregoing and other aspects of the Company's business may be subject include
those discussed below in regard to factors that may effect quarterly results
discussed below, the factors affecting the costs of building new stores, and
other risks and uncertainties discussed below. All forward-looking statements in
this document are based upon information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-looking
statements. Notwithstanding the Company's growth in sales and profitability
during recent periods, the Company faces significant risks and, as a result,
there can be no assurance that the Company's historical growth will be
indicative of future performance.

         Other factors that could cause actual results to differ materially from
the forward-looking statements contained in this report, as well as affect the
registrant's ability to achieve its financial and other goals, include, but are
not limited to, the following:

         CHANGES IN CONSUMER PREFERENCES. The consumer products industry in
general, and the apparel industry in particular, are subject to changing
consumer demands and preferences. Although the Company believes its products
historically have not been significantly affected by fashion trends, the
Company's products are subject to changing consumer preferences. The Company's
success will depend significantly on its ability to continue to produce popular
graphics and products that anticipate, gauge and respond in a timely manner to
changing consumer demands and preferences. In addition, consumer preferences
could shift away from the Company's traditional graphic and logo-oriented
merchandise.

         FACTORS AFFECTING STORE TRAFFIC. The large majority of the Company's
stores are located in tourist areas, tourist-serving areas and outlet malls, and
the Company's sales depend on a high level of traffic in these locations. The
Company, therefore, depends on the ability of these tourist destinations and
malls to continue to generate a high volume of consumer traffic in the vicinity
of the Company's stores. Tourism and outlet mall traffic may be adversely
affected by domestic and international economic downturns, such as a recession,
adverse weather, natural disasters, changing consumer preferences, highway or
surface street traffic, the closing of high-profile stores near the Company's
stores and declines in the desirability of the shopping environment in a
particular tourist destination or mall.

         ABILITY TO ACHIEVE FUTURE GROWTH. The Company's continued growth will
depend to a significant degree on its ability to open and operate profitable new
stores, to increase net sales and profitability of the Company's existing
stores, and to expand its other sources of revenue. There can be no assurance
that new stores will achieve sales and profitability levels consistent with
existing stores. The Company's retail expansion is dependent on a number of
factors, including the Company's ability to locate and obtain favorable store
sites, and to negotiate acceptable lease terms. In addition, there can be no
assurance that the Company's strategies to increase other sources of revenue,
which may include expansion of its catalog business, wholesale business,
internet business, corporate sales, international sales, licensing, co-branding
and media and entertainment activities, will be successful or that the Company's
overall sales or profitability will increase or not be adversely affected as a
result of any such expansion.

         DEPENDENCE ON KEY PERSONNEL. The success of the Company is
significantly dependent on the performance of its key management, particularly
Chief Executive Officer, Andrew Feshbach, and Executive Vice
President--Merchandising, Doug Nilsen.

         DEPENDENCE ON THIRD-PARTY AND FOREIGN MANUFACTURERS. The Company does
not own or operate any manufacturing facilities and is therefore dependent on
third parties for the manufacture of its products. The loss of major suppliers,
or the failure of such suppliers to timely deliver the Company's products or to
meet the Company's quality standards, could adversely affect the Company's
ability to deliver products to its customers in a timely manner.

         The majority of the Company's products are purchased from vendors with
manufacturing facilities located outside the United States, primarily in Asia
and particularly in China. The Company's operations could be adversely affected
by events that result in disruption of trade from foreign countries in which the
Company's suppliers are located.

         The Company's staff or agents periodically visit and observe the
operations of its foreign and domestic manufacturers, but the Company does not
control such manufacturers or their labor practices. Therefore the Company
cannot necessarily prevent legal or ethical violations by its independent
manufacturers, and it is uncertain what impact such violations would have on the
Company.

         SUBSTANTIAL COMPETITION. The markets for each of the Company's products
are highly competitive. The Company believes that its long-term competitive
position will depend upon its ability to anticipate and respond effectively to
changing consumer demands and to offer customers a wide variety of high-quality,
fun products at competitive prices.

         RELIANCE ON INFORMATION SYSTEMS. The Company relies on various
information systems to manage its operations and regularly makes investments to
upgrade, enhance or replace such systems. Substantial disruptions affecting the
Company's information systems could have an adverse affect on its business.

         CONTROL BY EXISTING STOCKHOLDERS AND ANTI-TAKEOVER PROVISIONS. As of
March 1, 2001, the Chairman of the Board, Fred Kayne, owned approximately 53% of
the Company's outstanding Common Stock and the Company's other current directors
and executive officers owned a significant number of additional shares. As a
result, Mr. Kayne, acting either individually or with the Company's current
directors and executive officers, is able to control the election of directors,
and to determine the outcome of any other matter submitted to a vote of the
Company's stockholders. This concentration of ownership, together with the
anti-takeover effects of certain provisions of the Delaware General Corporation
Law and the Company's Certificate of Incorporation and Bylaws, may have the
effect of delaying or preventing a change in control of the Company, may
discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the prevailing market price
of the Common Stock.

         VOLATILITY OF STOCK PRICE. The price of the Company's shares has and
may continue to fluctuate based upon a number of factors, including,
quarter-to-quarter variations in the Company's results of operations,
fluctuations in the Company's comparable store sales, the performance of other
manufacturers and retailers, and the condition of the overall economy.

         DEPENDENCE ON TRADEMARKS. The Company uses a number of trademarks, the
primary ones of which are registered with the United States Patent and Trademark
Office and in a number of foreign countries. There can be no assurance, however,
that the Company will not be restricted in the future expansion of its use of
its trademarks to certain new, non-apparel product categories and in certain
countries.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company does not believe it has material exposure to losses from
market-rate sensitive instruments. The Company has not invested in derivative
financial instruments. The Company has a Credit Agreement with a group of banks
whereby the Company may borrow at a floating rate. The Credit Agreement provides
for a performance-pricing structured interest charge, ranging from LIBOR plus
1.75% to 2.75%, based on the results of certain financial ratios. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company had $6.0 million
borrowings under this arrangement as of December 31, 2000.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See "Index to Consolidated Financial Statements" at Item 14(a) for a
listing of the consolidated financial statements filed as part of this report.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE
         None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         See "Executive Officers" in Part I, Item 1 hereof for information
regarding the executive officers. Other information with respect to this item is
incorporated by reference from the registrant's definitive proxy statement to be
filed with the Commission not later than 120 days after the end of the
registrant's fiscal year.

ITEM 11. EXECUTIVE COMPENSATION

         Information with respect to this item is incorporated by reference from
the registrant's definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information with respect to this item is incorporated by reference from
the registrant's definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information with respect to this item is incorporated by reference from
the registrant's definitive proxy statement to be filed with the Commission not
later than 120 days after the end of the registrant's fiscal year.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K

(a)      1.       The financial statements listed in the "Index to Consolidated
                  Financial Statements" at page F-1 are filed as a part of this
                  report.

         2.       Financial statement schedules are omitted because they are
                  not applicable or the required information is shown in the
                  financial statements or notes thereto.

         3.       Exhibits included or incorporated herein:
                  See "Index to Exhibits."

(b)               Reports on Form 8-K.

                  There were no reports on Form 8-K filed during the last
                  quarter of the fiscal year covered by this report.


<PAGE>


SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
March 29, 2001 on its behalf by the undersigned, thereunto duly authorized.

                                       BIG DOG HOLDINGS, INC.

                                       By /s/ANDREW D. FESHBACH
                                       ------------------------
                                           Andrew D. Feshbach
                                           Chief Executive Officer and President

         Each person whose signature appears below hereby authorizes Andrew D.
Feshbach and Anthony J. Wall or either of them, as attorneys-in-fact to sign on
his behalf, individually, and in each capacity stated below and to file all
amendments and/or supplements to the Annual Report on Form 10-K.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

      SIGNATURE                            TITLE                    DATE
---------------------           ------------------------        --------------
/s/ANDREW D. FESHBACH           Chief Executive Officer,        March 29, 2001
---------------------           President and Director
Andrew D. Feshbach              (Principal Executive
                                Officer)

/s/ROBERTA J. MORRIS            Chief Financial Officer,        March 29, 2001
--------------------            Treasurer and Assistant
Roberta J. Morris               Secretary (Principal
                                Financial and Accounting
                                Officer)

/s/FRED KAYNE                   Chairman of the Board           March 29, 2001
-------------
Fred Kayne

/s/SKIP R. COOMBER, III         Director                        March 29, 2001
-----------------------
Skip R. Coomber, III

/s/STEVEN C. GOOD               Director                        March 29, 2001
----------------
Steven C. Good

/s/ROBERT H. SCHNELL            Director                        March 29, 2001
--------------------
Robert H. Schnell

/s/KENNETH A. SOLOMON           Director                        March 29, 2001
---------------------
Kenneth A. Solomon

/s/DAVID J. WALSH               Director                        March 29, 2001
-----------------
David J. Walsh












<PAGE>



                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2000, 1999, and 1998



                                                                            PAGE
                                                                            ----

Independent Auditors' Report...........................................      F-2

Consolidated Balance Sheets as of December 31, 2000 and 1999...........      F-3

Consolidated Statements of Income for the years ended December 31,
2000, 1999, and 1998...................................................      F-4

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999, and 1998......................................      F-5

Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998...................................................      F-6

Notes to the Consolidated Financial Statements.........................      F-7



<PAGE>



                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Big Dog Holdings, Inc.:

         We have audited the accompanying consolidated balance sheets of Big Dog
Holdings, Inc. and subsidiary as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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.

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the companies as of December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP


Los Angeles, California
March 16, 2001



<PAGE>

                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                         DECEMBER 31,
                                                                              ------------------------------
<S>                                                                               <C>                <C>
                                                                                  2000               1999
                                                                                  ----               ----
                             ASSETS (Note 4)
CURRENT ASSETS:
 Cash and cash equivalents.............................................       $ 4,376,000      $ 17,925,000
 Receivables:
  Trade, net............................................................          296,000           425,000
  Other.................................................................          243,000           543,000
 Inventories (Note 9)...................................................       26,759,000        19,950,000
 Prepaid expenses and other current assets..............................          549,000         1,107,000
 Deferred income taxes (Note 5).........................................        1,429,000           875,000
                                                                              -----------      ------------
Total current assets....................................................       33,652,000        40,825,000
PROPERTY AND EQUIPMENT, Net (Notes 1, 2 and 9)..........................        9,072,000        12,037,000
INTANGIBLE ASSETS, Net..................................................          145,000           117,000
OTHER ASSETS (Note 3)...................................................          411,000         3,434,000
                                                                              -----------      ------------
TOTAL...................................................................      $43,280,000      $ 56,413,000
                                                                              ============     ============

                   LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Short-term borrowings (Note 4)                                               $ 6,000,000      $        ---
 Accounts payable (Note 9)..............................................        4,553,000         3,411,000
 Income taxes payable (Note 5)..........................................        1,826,000         1,768,000
 Accrued expenses and other current liabilities.........................        3,720,000         3,184,000
                                                                              -----------      ------------
Total current liabilities...............................................       16,099,000         8,363,000
DEFERRED RENT (Note 6)..................................................          863,000           878,000
DEFERRED GAIN ON SALE-LEASEBACK (Note 2)................................          459,000           512,000
                                                                              -----------       -----------
 Total liabilities......................................................       17,421,000         9,753,000
                                                                              -----------       -----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 6)
STOCKHOLDERS' EQUITY (Notes 3 and 7):
 Preferred stock, $.01 par value, 3,000,000 shares authorized,
   none issued and outstanding..........................................      $       ---       $       ---
 Common stock $.01 par value, 30,000,000 shares authorized,
   9,686,284 and 13,183,550 shares issued at
   December 31, 2000 and 1999, respectively.............................           97,000           132,000
 Additional paid-in capital.............................................       20,475,000        42,417,000
 Retained earnings......................................................       12,367,000        11,750,000
 Treasury stock, 1,202,200 and 1,183,200 shares at December 31,
   2000 and 1999, respectively..........................................       (7,080,000)       (7,006,000)
 Notes receivable from common stockholders..............................              ---          (633,000)
                                                                              -----------      ------------
                                                                              -----------      ------------
TOTAL...................................................................     $ 43,280,000      $ 56,413,000
                                                                             ============      ============
</TABLE>

                 See notes to consolidated financial statements.

<PAGE>



                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>


                                                                                 YEARS ENDED DECEMBER 31,
                                                                     ---------------------------------------------
<S>                                                                       <C>              <C>             <C>
                                                                          2000             1999            1998
                                                                          ----             ----            ----
NET SALES (Note 3)...........................................        $ 115,280,000    $ 109,573,000   $ 100,677,000
COST OF GOODS SOLD (Note 9)..................................           48,836,000       46,491,000      41,236,000
                                                                     -------------    -------------   -------------
GROSS PROFIT.................................................           66,444,000       63,082,000      59,441,000
                                                                     -------------    -------------   -------------
OPERATING EXPENSES:
 Selling, marketing and distribution.........................           53,176,000       50,125,000      47,809,000
 General and administrative..................................            5,394,000        5,020,000       5,276,000
                                                                     -------------     ------------    ------------
  Total operating expenses...................................           58,570,000       55,145,000      53,085,000
                                                                     -------------     ------------    ------------
INCOME FROM OPERATIONS.......................................            7,874,000        7,937,000       6,356,000

WRITE-OFF OF IMPAIRED ASSET (Note 3).........................            3,000,000              ---             ---

INTEREST EXPENSE (INCOME), NET (Note 4)......................              338,000         (395,000)       (350,000)
                                                                     -------------     ------------    ------------
INCOME BEFORE PROVISION FOR INCOME TAXES.....................            4,536,000        8,332,000       6,706,000

PROVISION FOR INCOME TAXES (Note 5)..........................            2,719,000        3,136,000       2,674,000
                                                                     -------------     ------------    ------------
NET INCOME...................................................        $   1,817,000     $  5,196,000    $  4,032,000
                                                                     =============     ============    ============
NET INCOME PER SHARE
 BASIC AND DILUTED...........................................        $        0.17     $       0.43    $       0.32
                                                                     =============     ============    ============
</TABLE>

                 See notes to consolidated financial statements.

<PAGE>



                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>


                                                                                                           NOTES
                                                                                                         RECEIVABLE
                                                                                                            FROM
                                 COMMON STOCK            ADDITIONAL                 TREASURY STOCK         COMMON
                                 ------------            PAID-IN     RETAINED        --------------         STOCK-
                            SHARES         AMOUNT        CAPITAL     EARNINGS     SHARES        AMOUNT     HOLDERS        TOTAL
                            ------         ------        -------    ---------     ------        ------     -------        -----
<S>                        <C>         <C>          <C>             <C>           <C>           <C>         <C>           <C>
BALANCE,
JANUARY 1, 1998..........  13,159,550  $  132,000   $ 42,224,000    $3,732,000                           $(547,000)    $45,541,000

 Warrants exercised......      24,000         ---         72,000           ---                                 ---          72,000

 Repurchased common
  stock (Note 7).........         ---         ---            ---           ---  1,083,200  $ (6,494,000)       ---      (6,494,000)
 Collections of notes
  receivable.............         ---         ---            ---           ---        ---           ---     36,000          36,000

 Net income..............         ---         ---            ---     4,032,000        ---           ---        ---       4,032,000
                           ----------  ----------   ------------    ----------  ---------   ----------- ----------     -----------


BALANCE,
DECEMBER 31, 1998.......   13,183,550    132,000      42,296,000     7,764,000  1,083,200    (6,494,000)  (511,000)     43,187,000

Cash dividend paid.......        ---         ---             ---    (1,210,000)       ---           ---        ---      (1,210,000)

Repurchased common
  stock (Note 7).........        ---         ---             ---          ---     100,000       (512,000)      ---        (512,000)

Warrants issued..........        ---         ---         121,000          ---         ---            ---       ---         121,000

Interest on notes
receivable...............        ---         ---             ---          ---         ---            ---  (122,000)       (122,000)
Net income...............        ---         ---             ---    5,196,000                        ---       ---       5,196,000
                           ---------   ---------     ------------   ---------   ---------    ------------ --------       ---------


BALANCE,
DECEMBER 31, 1999.......  13,183,550    132,000        42,417,000   11,750,000  1,183,200     (7,006,000) (633,000)     46,660,000

Cash dividend paid.......        ---        ---               ---   (1,200,000)       ---            ---       ---      (1,200,000)

Repurchased and retired
  common stock (Note 7).. (3,505,166)   (35,000)      (21,969,000)         ---        ---            ---       ---     (22,004,000)

Repurchased common
  stock (Note 7).........        ---        ---               ---          ---     19,000        (74,000)      ---         (74,000)

Options exercised........      7,900        ---            27,000          ---        ---            ---       ---          27,000

Collection of notes
 receivable............          ---        ---               ---          ---        ---            ---   633,000         633,000

Net income...............        ---        ---               ---    1,817,000        ---            ---       ---       1,817,000
                           ---------   --------     -------------   ----------  ---------    -----------  --------      ----------

BALANCE,
DECEMBER 31, 2000.......   9,686,284   $ 97,000     $  20,475,000  $12,367,000  1,202,200    $(7,080,000) $    ---     $25,859,000
                           =========== ========     =============  ===========  =========    ===========  ========    ============
</TABLE>


                 See notes to consolidated financial statements.











<PAGE>
                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                      YEARS ENDED DECEMBER 31,
                                                                                 -----------------------------------
                                                                                 2000           1999            1998
                                                                                 ----           ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                          <C>             <C>            <C>
 Net income................................................................  $ 1,817,000     $ 5,196,000    $ 4,032,000
 Adjustments to reconcile net income to net cash provided by operating
  activities:
  Depreciation and amortization............................................    4,029,000       4,088,000      3,752,000
  Provision for losses on receivables......................................       33,000          21,000         26,000
  Loss  (gain) on disposition of property and equipment....................      221,000        (503,000)       123,000
  Write-off of impaired asset - fixed assets...............................      359,000             ---            ---
  Write-off of impaired asset - PETsMART.com investment....................    3,000,000             ---            ---
  Deferred income taxes....................................................     (554,000)         (3,000)      (728,000)
  Changes in operating assets and liabilities:
   Receivables.............................................................      397,000         (83,000)      (181,000)
   Inventories.............................................................   (6,809,000)      3,395,000     (6,631,000)
   Prepaid expenses and other current assets...............................      558,000        (296,000)       (67,000)
   Accounts payable........................................................    1,142,000         (83,000)       727,000
   Income taxes payable....................................................       58,000        (853,000)     1,226,000
   Accrued expenses and other current liabilities..........................      536,000         256,000        697,000
   Deferred rent...........................................................      (15,000)        114,000        114,000
   Deferred gain on sale-leaseback.........................................      (53,000)        512,000            ---
                                                                             -----------     -----------    -----------
    Net cash provided by operating activities..............................    4,719,000      11,761,000      3,090,000
                                                                             -----------     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures......................................................   (1,769,000)     (4,745,000)    (6,508,000)
 Investments...............................................................     (100,000)     (2,626,000)           ---
 Proceeds from sale of property and equipment..............................      157,000       2,134,000         13,000

 Principal repayments of notes receivable..................................      119,000         163,000            ---
 Issuance of long-term notes receivable and interest.......................      (20,000)       (550,000)           ---
 Other.....................................................................      (37,000)        (69,000)      (259,000)
                                                                             -----------     -----------    -----------
    Net cash used in investing activities..................................   (1,650,000)     (5,693,000)    (6,754,000)
                                                                             -----------     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Repurchase and retirement of common stock.................................  (22,004,000)            ---            ---
 Repurchase of common stock................................................      (74,000)       (512,000)    (6,494,000)
 Proceeds from issuance of warrants........................................          ---         121,000            ---
 Proceeds from exercise of options.........................................       27,000             ---            ---
 Proceeds from exercise of warrants........................................          ---             ---         72,000
 Principal repayments of notes receivable..................................      633,000             ---         36,000
 Short-term borrowings, net................................................    6,000,000             ---            ---
 Dividends paid............................................................   (1,200,000)     (1,210,000)           ---
                                                                             -----------     -----------    -----------
    Net cash used in financing activities..................................  (16,618,000)     (1,601,000)    (6,386,000)
                                                                             -----------     -----------    -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.......................  (13,549,000)      4,467,000    (10,050,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...............................   17,925,000      13,458,000     23,508,000
                                                                             -----------     -----------    -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.....................................  $ 4,376,000     $17,925,000    $13,458,000
                                                                             ===========     ===========    ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid for:
  Interest.................................................................  $   532,000     $    30,000    $    42,000
  Income taxes.............................................................  $ 3,213,000     $ 3,991,000    $ 2,176,000
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

         In 1999, the Company recorded $122,000 in interest income related to
notes receivable from common stockholders.

         In April 2000, the Company purchased $520,000 of PETsMART.com Series D
preferred stocks from certain officers and other individuals of the Company in
exchange for cash of $100,000 and redemption of notes receivable from such
officers and others.


                 See notes to consolidated financial statements.


<PAGE>


                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

         The consolidated financial statements include the accounts of Big Dog
Holdings, Inc. and its wholly owned subsidiary, Big Dog USA, Inc. (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.

         The Company principally develops and markets apparel and other consumer
products through Company-operated retail stores, wholesale accounts and a
catalog.

CASH & CASH EQUIVALENTS

         The Company considers all highly liquid investments with a maturity of
less than three months when purchased to be cash equivalents.

INVENTORIES

         Inventories, consisting substantially of finished goods, are stated at
the lower of cost (first-in, first-out method) or market.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost, less accumulated
depreciation, and depreciated using the straight-line method over their
estimated useful lives, ranging from two to ten years. Amortization of leasehold
improvements is computed using the straight-line method based upon the life of
the improvement or the term of the lease, whichever is shorter.

INTANGIBLE ASSETS

         Intangible assets are stated at cost, less accumulated amortization,
and amortized using the straight-line method over five years. Accumulated
amortization was $726,000 and $693,000 at December 31, 2000 and 1999,
respectively.

IMPAIRMENT OF LONG-LIVED ASSETS

         The Company evaluates the carrying value of long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If the estimated future
cash flows (undiscounted and without interest charges) from the use of an asset
are less than the carrying value, a write-down would be recorded to reduce the
related asset to its estimated fair value. During 2000, the Company recorded a
write-down of fixed assets for certain retail stores totaling $359,000, which is
included in selling, marketing and distribution expenses in the consolidated
statements of income.

REVENUE RECOGNITION

        Substantially all of the Company's revenues are generated by its retail
operations, which are recognized at the time of sale. The Company also generates
revenues through its wholesale, internet and mail order catalog operations,
which are recognized at the time of shipment


<PAGE>
                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

STORE PREOPENING EXPENSES

         The Company expenses store preopening costs as incurred, which totaled
$321,000, $304,000, and $474,000 in 2000, 1999, and 1998, respectively.

INCOME TAXES

         The Company accounts for income taxes using an asset and liability
approach for measuring deferred income taxes based on temporary differences
between the financial statement and income tax bases of assets and liabilities
existing at each balance sheet date. A valuation allowance is established, when
necessary, to reduce deferred income tax assets to the amount expected to be
realized. The income tax provision or benefit is the tax payable or refundable
for the period plus or minus the change during the period in deferred income tax
assets (see Note 5).

EARNINGS PER SHARE

         Basic earnings per share is calculated based on the weighted average
number of shares outstanding. Diluted earnings per share is calculated based on
the same number of shares plus additional shares representing stock
distributable under stock-based plans computed using the treasury stock method.

         The following reconciles the numerator and denominator of the basic and
diluted per-share computations for net income:
<TABLE>
<CAPTION>


                                                                             YEARS ENDED DECEMBER 31,
                                                                   ------------------------------------------
<S>                                                                    <C>             <C>            <C>
                                                                       2000            1999           1998
                                                                   -----------     -----------    -----------
Net Income....................................................     $ 1,817,000     $ 5,196,000    $ 4,032,000
                                                                   ===========     ===========    ===========
Basic Weighted Average Shares:
 Weighted average number of shares outstanding................      10,808,000      12,032,000     12,472,000
Effect of Dilutive Securities:
 Options and warrants.........................................          98,000         150,000         37,000
                                                                   -----------     -----------    -----------
Diluted Weighted Average Shares:
 Weighted average number of shares outstanding and
 Common share equivalents.....................................      10,906,000      12,182,000     12,509,000
                                                                   ===========     ===========    ===========
Antidilutive options and warrants.............................         940,000         929,000      1,615,000
</TABLE>

         Antidilutive options consist of the weighted average of stock options
for the respective years that had an exercise price greater than the average
market price during the year. Such options are therefore excluded from the
computation of diluted shares.

USE OF ESTIMATES

        The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

<PAGE>

                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

CONCENTRATION OF CREDIT RISK

        The Company has $2,748,000 of cash on deposit with a high credit
quality financial institution which is in excess of the Federal Deposit
Insurance Corporation limit.

   FAIR VALUE OF FINANCIAL INSTRUMENTS

         The estimated fair values of receivables and accounts payable
approximate their carrying values because of the short-term maturity of these
instruments.

   RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. The statement requires that the Company recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. The Company adopted SFAS No. 133 effective January
1, 2001. The adoption of SFAS No. 133 did not have an impact on the Company's
financial statements.

         In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 which summarizes certain of the staff's
views in applying accounting principals generally accepted in the United States
of America to revenue recognition in financial statements. The application of
SAB No. 101 did not have a material impact on the Company's financial position
or results of operations.


2. PROPERTY AND EQUIPMENT

         Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                             DECEMBER 31,
                                                                     --------------------------
                                                                         2000            1999
                                                                         ----            ----
<S>                                                                  <C>             <C>
         Leasehold improvements.............................         $ 8,501,000     $ 9,334,000
         Equipment and fixtures.............................          16,630,000      15,428,000
                                                                     -----------     -----------
                                                                      25,131,000      24,762,000

         Less accumulated depreciation and amortization.....          16,059,000      12,725,000
                                                                     -----------     -----------
         Property and equipment, net........................         $ 9,072,000     $12,037,000
                                                                     ===========     ===========
</TABLE>
         Depreciation and amortization expense on property and equipment totaled
$3,997,000, $4,060,000 and $3,621,000 in 2000, 1999, and 1998, respectively.

         In May 1999, the Company purchased the building which houses its
downtown Santa Barbara retail store for $1,600,000. In August 1999, the Company
sold this building for $2,119,000 and simultaneously entered into a 10-year
lease. The $527,000 gain related to the sale of this building is being deferred
over the life of the lease.


<PAGE>
                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


3. INVESTMENT IN PETsMART.COM

         In 1999, the Company purchased $2,500,000 of Series D preferred stock
and entered into a strategic relationship agreement and related agreements with
PETsMART.com, Inc. Under these agreements, the Company and PETsMART.com would
participate in cooperative marketing efforts, including direct mailings and
sponsorship on each other's websites. Included as part of the strategic
relationship, the Company bought a warrant to purchase common stock of
PETsMART.com at varying exercise prices. The warrant is subject to partial
revocation in the event certain performance criteria are not met. Additionally,
the Company sold PETsMART.com a five-year warrant to purchase 121,000 shares of
common stock of the Company at an exercise price of $10 per share for $121,000.
The Company also provided consulting and other services to PETsMART.com for
which it received $750,000 of income that is included in Net Sales. In
conjunction with this investment, which is accounted for on the cost method, the
Company also made loans totaling $400,000 to certain officers and other
individuals of the Company to finance their purchase of the Series D preferred
stock of PETsMART.com. Such secured notes bear interest at 9% per annum, payable
annually with principal due in October 2003.

         In April 2000, the Company purchased $520,000 of PETsMART.com Series D
preferred stock from certain officers and other individuals of the Company in
exchange for cash and the related notes.

         In 1999, the Company invested in the preferred stock of PETsMART.com,
the leading pet product e-commerce company, as part of a strategic marketing
relationship. It had been the intent of PETsMART.com to raise capital through a
public offering in order to support and expand its operations. As of December
2000, no public offering for PETsMART.com had occurred and it appears unlikely
this event will occur in the foreseeable future. Additionally, in December 2000,
PETsMART.com restructured its ownership and diluted the Company's ownership
position significantly. After careful consideration of the internet and capital
markets, the Company wrote off the entire $3.0 million investment at December
31, 2000.


4. SHORT-TERM BORROWINGS

         The Company had a borrowing arrangement with a bank whereby the Company
could, from time to time and upon approval from the bank, borrow up to $8.0
million. Such borrowings could be used for cash advances and letters of credit.
The borrowing arrangement provided for interest at the bank's prime rate less
3/8% or 250 basis points over the LIBOR rate and was collateralized by
substantially all the assets of the Company. This borrowing arrangement
terminated upon commencement of the $30.0 million revolving credit facility
discussed below.

         In conjunction with the Company's tender offer to purchase and retire
up to 3.5 million shares of the Company's common stock (see Note 7), the Company
entered into a new $30.0 million revolving credit facility ("Credit Agreement")
with Bank of America and other lenders on July 28, 2000. The Credit Agreement
has a three-year term and has scheduled annual commitment reductions. The
maximum commitment balance is $25.0 million, $20.0 million and $15.0 million on
December 31, 2001, June 30, 2002 and December 31, 2002, respectively. The Credit
Agreement is secured by substantially all assets of the Company, requires the
compliance of various financial affirmative and negative covenants and prohibits
the payment of dividends. This agreement provides for a performance-pricing
structured interest charge, ranging from LIBOR plus 1.75% to 2.75%, based on the
results of certain financial ratios. As of December 31, 2000, the Company had
$6.0 million outstanding under this Credit Agreement. Additionally, the Company
had $1.8 million of letters of credit outstanding as of December 31, 2000. The
letters of credit expire through April 2001.




<PAGE>


                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


5. INCOME TAXES

         The provision for income taxes consists of the following:
<TABLE>
<CAPTION>

                                                                     YEARS ENDED DECEMBER 31,
                                                            ---------------------------------------
<S>                                                              <C>            <C>          <C>
                                                                 2000           1999         1998
                                                            -----------    -----------   -----------
        Current:
            Federal......................................   $ 2,818,000    $ 2,672,000   $ 2,978,000
            State........................................       455,000        467,000       424,000
                                                            -----------    -----------   -----------
        Total............................................     3,273,000      3,139,000     3,402,000
                                                            -----------    -----------   -----------
        Deferred:
            Federal......................................      (417,000)         4,000      (664,000)
            State........................................                                    (64,000)
                                                               (137,000)        (7,000)
                                                            -----------    -----------   -----------
        Total............................................      (554,000)        (3,000)     (728,000)
                                                            -----------    -----------   -----------

        Total income tax provision.......................   $ 2,719,000    $ 3,136,000   $ 2,674,000
                                                            ===========    ===========   ===========
</TABLE>

         The Company's effective income tax rate differs from the federal
statutory rate due to the following:
<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                                ---------------------------------
<S>                                                             <C>            <C>           <C>
                                                                2000           1999          1998
                                                                ----           ----          ----
        Federal statutory income tax rate................       34.0%          34.0%         34.0%
        State taxes, net of federal benefit..............        3.6            3.6           3.4
        Valuation allowance..............................       24.9            0.0           0.0
        Other, net.......................................       (2.6)           0.0           2.5
                                                                ----           ----          ----
        Total............................................       59.9%          37.6%         39.9%
                                                                ====           ====          ====
</TABLE>


<PAGE>


                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


5. INCOME TAXES (continued)

             Significant components of the Company's net deferred income tax
assets are as follows:
<TABLE>
<CAPTION>

                                                                                   DECEMBER 31,
                                                                          --------------------------
<S>                                                                            <C>            <C>
                                                                               2000           1999
                                                                           ----------     ----------
        Deferred income tax assets:
            Allowance for doubtful receivables and sales returns.......   $    47,000    $    36,000
            Accrued vacation...........................................        55,000         49,000
            Write-off of impaired of asset ............................     1,185,000            ---
            Inventory uniform capitalization...........................       591,000        423,000
            Intangible assets..........................................       155,000        164,000
            State income taxes.........................................        46,000        129,000
            Deferred rent..............................................       341,000        347,000
            Deferred gain on sale of building..........................       182,000        202,000
            Reserve liabilities........................................       140,000         25,000
                                                                          -----------    -----------
        Total gross deferred income tax assets........................      2,742,000      1,375,000
        Less valuation allowance......................................      1,129,000            ---
                                                                          -----------    -----------

        Total deferred income tax assets..............................      1,613,000      1,375,000
                                                                          -----------    -----------
        Deferred income tax liabilities:
            Prepaid expenses...........................................      (121,000)      (192,000)
            Depreciation...............................................       (63,000)      (308,000)
                                                                          -----------    -----------

        Total deferred income tax liabilities.........................       (184,000)      (500,000)
                                                                           ----------    -----------
        Deferred income tax asset.....................................     $1,429,000    $   875,000
                                                                           ==========    ===========
</TABLE>

         A valuation allowance, which is specifically identified with the $3.0
million write-off of its investment in PETsMART.com, is provided to reduce the
deferred tax assets to a level which, more likely than not, will be realized.
The remaining balance of the net deferred tax assets should be realized through
future operating results, the reversal of taxable temporary differences, and
available tax planning strategies.


<PAGE>


                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


6. COMMITMENTS AND CONTINGENCIES

LEASES

         The Company leases retail stores, office buildings and warehouse space
under lease agreements that expire through 2009. Future minimum lease payments
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
        YEARS ENDING DECEMBER 31,
        -------------------------
<S>                                                                                    <C>
                  2001............................................................     $ 15,076,000
                  2002............................................................       12,090,000
                  2003............................................................       10,148,000
                  2004............................................................        8,068,000
                  2005............................................................        4,889,000
                  Thereafter......................................................        6,870,000
                                                                                       ------------
                  Total...........................................................     $ 57,141,000
                                                                                       ============
</TABLE>

         The above amounts do not include contingent rentals based on sales in
excess of the stipulated minimum that may be paid under certain leases on retail
stores and common area charges. Additionally, certain leases contain future
adjustments in rental payments based on changes in a specified inflation index.
The effective annual rent expense for the Company is the total rent paid over
the term of the lease, amortized on a straight-line basis. The difference
between the actual rent paid and the effective rent recognized for financial
statement purposes is reported as deferred rent.

         Rent expense for 2000, 1999, and 1998 totaled $16,873,000, $15,636,000,
and $13,962,000, respectively, and includes contingent rentals of $392,000,
$329,000, and $336,000, for 2000, 1999, and 1998, respectively.

LITIGATION

         The Company is not involved in any legal proceedings other than certain
actions arising in the ordinary course of its business. While the outcome of
such proceedings and threatened proceedings cannot be predicted with certainty,
in the opinion of management, the ultimate resolution of these matters
individually or in the aggregate will not have a material adverse effect on the
Company's business, financial condition or results of operations.


7. STOCKHOLDERS' EQUITY

COMMON STOCK

         In March 1998, the Board of Directors authorized the repurchase of up
to $10,000,000 of its common stock. The Company has repurchased 1,202,200 shares
totaling $7,080,000 as of December 31, 2000.

         As of December 31, 2000, 1999, and 1998, there were unexercised
warrants outstanding of 193,000, 193,000 and 72,000, respectively, to purchase
common stock at exercise prices ranging between $10 and $3 per share.

          On July 31, 2000, the Company announced that its Board of Directors
authorized the Company to purchase by tender offer and retire up to 3.5 million
shares of the Company's common stock at $6.25 per share, which represented
approximately 29% of the outstanding shares. The tender offer commenced on
August 2, 2000 and expired on August 30, 2000. The tender offer was fully
subscribed and the Company funded the total repurchase

<PAGE>
                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. STOCKHOLDERS' EQUITY (continued)

COMMON STOCK (continued)

price of $22.0 million on September 1, 2000 from available cash and borrowings
under the Credit Agreement (see Note 4). Upon redemption of the tendered shares,
the Company retired the shares by reducing common stock by $35,000 and
additional paid-in capital by $21,969,000. The Credit Agreement prohibits the
payment of dividends by the Company. The Company has not paid a dividend in
2001.

STOCK OPTIONS

         In August 1997, the Company adopted the 1997 Performance Award Plan to
attract, reward and retain officers and employees. The maximum number of shares
reserved for issuance under this plan was 1,000,000. In February 1998, the
Company amended the 1997 Performance Award Plan (the "Plan") to increase the
maximum number of shares reserved for issuance under the Plan to 2,000,000.
Awards under this plan may be in the form of nonqualified stock options,
incentive stock options, stock appreciation rights, restricted stock,
performance shares, stock bonuses, or cash bonuses based upon performance.
Options granted in 1997 vested at 20% each year, beginning one year after the
grant date and expire seven to ten years from the date of grant.

         In April 1998, the Company re-priced (by canceling and reissuing)
444,750 options granted under the Plan. The re-priced options have a ten-year
life and either (i) have an exercise price of $6.50 per share (fair market value
at grant date) and vest in equal installments on each anniversary of the April 7
grant date over the next five years or (ii) as to officers, have exercise prices
ranging from $6.50 to $10.00 and vest at varying rates of 10% to 20% per year on
each anniversary of the April 7 grant date over the next seven years.

         In March 2001, the Company granted stock options for an aggregate of
687,500 shares to officers and other employees at an exercise price of $4.25 per
share. Such options vest over a five-year period.

The following summarizes stock option activity for the periods presented:
<TABLE>
<CAPTION>

                                                                                    WEIGHTED-
                                                               NUMBER                AVERAGE
                                                             OF SHARES            EXERCISE PRICE
                                                            ----------            --------------
<S>                                                             <C>                    <C>

Balance at January 1, 1998...........................         468,750                 11.11

 Options granted.....................................       1,970,150                  6.92
 Options cancelled...................................      (1,197,450)                (9.19)
                                                           ----------
Balance at December 31, 1998.........................       1,241,450                  6.32

 Options granted.....................................          70,000                  5.82
 Options cancelled...................................        (116,000)                (6.59)
                                                            ---------
Balance at December 31, 1999.........................       1,195,450                  6.27

 Options granted ....................................          76,500                  5.76
 Options exercised...................................          (7,900)                (3.50)
 Options cancelled...................................        (343,800)                (6.66)
                                                            ---------
Balance at December 31, 2000                                  920,250                  6.10
                                                            =========
</TABLE>
<PAGE>


                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


7. STOCKHOLDERS' EQUITY (continued)

The following table summarizes information about stock options outstanding at
December 31, 2000:
<TABLE>
<CAPTION>


                                                                                                 OPTIONS
                                              OPTIONS OUTSTANDING                              EXERCISABLE
                             ------------------------------------------------------     -----------------------------
                                                   WEIGHTED-
                                                    AVERAGE             WEIGHTED-
     RANGE OF EXERCISE         OPTIONS             REMAINING             AVERAGE          OPTIONS    WEIGHTED-AVERAGE
           PRICES            OUTSTANDING        CONTRACTUAL LIFE      EXERCISE PRICE    EXERCISABLE   EXERCISE PRICE
       -------------        ------------        ----------------      --------------    -----------  ---------------
<S>         <C>                  <C>                  <C>                  <C>              <C>            <C>
           $3.50               206,000             8.0 years             $ 3.50           86,900         $ 3.50
        5.00 - 6.50            558,250             7.5 years               6.22          208,650           6.12
            8.00                72,500             7.3 years               8.00              ---            ---
       10.00 - 14.00            83,500             6.9 years              10.08            4,600          10.74
                               -------                                                   -------
        3.50 - 14.00           920,250             7.6 years               6.10          300,150           5.43
                               =======                                                   =======
</TABLE>

         The Company accounts for its stock-based awards using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.

         SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income and net income per share had the Company
adopted the fair value method as of the beginning of 1995. Under SFAS No. 123,
the fair value of stock-based awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
2000, 1999, and 1998, respectively: expected volatility of 215%, 223%, and
259%,; risk-free interest rates of 6.4%, 5.6%, and 5.4%,; expected lives of
10.0, 10.0, and 9.9 years; and $0.10 per share cash dividend in 2000 and 1999,
no dividend in 1998. Forfeitures are recognized as they occur. If the computed
fair values of the 2000, 1999, and 1998 awards had been amortized to expense
over the vesting period of the awards, pro forma net income would have been
reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>

                                                                                     YEARS ENDED DECEMBER 31,
                                                                       -------------------------------------------
<S>                                                                          <C>             <C>           <C>
                                                                            2000             1999          1998
                                                                       -----------      -----------    -----------
Net income:
 As reported.....................................................      $ 1,817,000      $ 5,196,000    $ 4,032,000
 Pro forma.......................................................        1,414,000        4,700,000      3,586,000
Net income per share:
 As reported:
 Basic and diluted...............................................      $      0.17      $      0.43     $     0.32

 Pro forma:
 Basic and diluted...............................................      $      0.13      $      0.39     $     0.29


Weighted average fair value of options granted during the year...      $      4.21      $      3.77     $     5.04
</TABLE>
<PAGE>

                      BIG DOG HOLDINGS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. EMPLOYEE BENEFIT PLAN

         The Company has a Retirement Savings Plan (the "Plan"), a defined
contribution plan adopted pursuant to Section 401(k) of the Internal Revenue
Code. The Plan is available to substantially all of the Company's employees.
Prior to November 2000, the Plan did not provide for an employer matching
contribution. The Company amended the Plan in November 2000 to match each dollar
deferred up to 3% of compensation, which is limited to $1,000 annually, per
participant. Participants vest in the Company's contribution at varying rates of
0% to 25% per year over six years. The Company contributed approximately $29,000
in 2000.

9. RELATED PARTY TRANSACTIONS

         Two of the Company's stockholders and directors have ownership
interests in two former merchandise vendors to the Company. Merchandise
inventory purchased from these related vendors totaled $474,000 and $2,182,000
in 2000 and 1998, respectively. There were no purchases made in 1999. Included
in accounts payable is $250,000 due to these vendors at December 31, 2000.

         The Company engaged a related party to perform retail construction
services. Construction services provided to the Company totaled $3,000 and
$871,000 in 1999 and 1998, respectively. No such services were provided in 2000.

10. QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>

                                                             FIRST       SECOND       THIRD       FOURTH
                                                            QUARTER      QUARTER     QUARTER     QUARTER
                                                            -------      -------     -------     -------
                                                                  (in thousands, except per share)
Year ended December 31, 2000:
<S>                                                           <C>          <C>         <C>          <C>
 Net sales...........................................         $16,586      $26,205     $31,505      $40,984
 Gross profit........................................           9,156       15,523      18,531       23,234
 Selling, marketing and distribution expenses........          11,786       12,537      13,350       15,503
 General and administrative expenses.................           1,329        1,342       1,252        1,471
 Total operating expenses............................          13,115       13,879      14,602       16,974
 (Loss) income from operations.......................          (3,959)       1,644       3,929        6,260
 Net (loss) income...................................          (2,330)       1,038       2,279          830
 Net (loss) income per share
  Basic and diluted..................................       $  (0.19)      $  0.09     $  0.21      $  0.10

 Weighted average shares outstanding
  Basic..............................................          12,000       11,986      10,801        8,476
  Diluted............................................          12,000       12,070      10,915        8,548

Year ended December 31, 1999:
 Net sales...........................................        $ 16,743     $ 24,093    $ 29,596     $ 39,141
 Gross profit........................................           8,887       14,560      18,154       21,481
 Selling, marketing and distribution expenses........          11,323       12,107      12,240       14,455
 General and administrative expenses.................           1,215        1,249       1,242        1,314
 Total operating expenses............................          12,538       13,356      13,482       15,769
 (Loss) income from operations.......................          (3,651)       1,204       4,672        5,712
 Net (loss) income...................................          (2,170)         734       2,887        3,745
 Net (loss) income per share
  Basic and diluted..................................      $   (0.18)     $   0.06     $  0.24      $  0.31

 Weighted average shares outstanding
  Basic..............................................          12,100       12,029      12,002       12,000
  Diluted............................................          12,100       12,160      12,150       12,171
</TABLE>

<PAGE>

                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>
            Exhibit No.          Description

<S>             <C>                                                       <C>
                3.1      Amended and Restated Certificate of Incorpration (1)
                3.1A     Certificat of Correction (1)
                3.2      Amended and Reinstated Bylaws (2)
                4.1      Reference is hereby made to Exhibits 3.1, 3.1A, and 3.2
                4.2      Specimen Stock Certificate (1)
               10.1      Credit Agreement amont the Company, Big Dogs USA, Inc.,
                         Bank of America, N.A., Israel Discount Band and Santa
                         Barbara Bank & Trust dated July 28, 2000(3)
               10.3      Form of Warrants issued November 4, 1996 (1)
               10.10     Amended and Restated 1997 Performance Award Plan (4)
               10.10A    Form of Employee Nonqualified 1997 Performance Award
                             Plan (1)
               10.10B    Terms and Conditions for Non-Qualified Options
                             Granted under the Amended and Restated 1997
                             Performance Award Plan (3)
               10.10C    From of Eligible Director Non-Qualified Stock Option
                             Agreement (3)
               10.11     Lease between Big Dog USA, Inc. and The Prudential
                             Insurance Company of America dated November 4,
                             1997 (2)
               10.12     Lease Agreement between Big Dog Holdings, Inc. and
                             S.V.B. Properties dated as of June 1, 1994, as
                             amended by Lease Agreement dated as of
                             December 1, 1994, Second Lease Amendment dated as
                             of March 1, 1996, Third Lease Amendment between
                             Big Dog Holdings and Greeland Realty LLC dated as
                             of July 22, 1996, (1) and Fourth Lease Amendment
                             dated December 18, 1998 (3)
               10.14     From of Indemnification Agreement (1)
               21.1      List of Subsidiaries of Big Dog Holdings, Inc. (1)
               23.1      Independent Auditors' Consent
               24.1      Power of Attorney (included in signature page)
</TABLE>

(1) Incorporated by reference from the Company's S-1 Registration Statement (No.
    333-33027), as amended, which became effective September 25, 1997.

(2) Incorporated by reference from the Company's Annual Report on Form 10-K
    for the year ended December 31, 1997.

(3) Incorporated by reference from the Company's Schedule TO filed July 31,2000

(4) Incoporated by reference from the Company's Annual Report on Form 10-K for
    the year ended December 31, 1998