<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 1995
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 0-13851
BEEBA'S CREATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
California 95-2848021
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
9220 Activity Road, San Diego, California 92126
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 549-2922
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
----- -----
As of July 5, 1995, 2,398,224 shares of the Registrant's common stock were
outstanding.
Page 1 of 15
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
May 31, August 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,177,004 $ 6,565,813
Receivables:
Trade accounts, less allowance for
doubtful accounts ($430,000 at
May 31, 1995 and $578,000 at
August 31, 1994) 11,695,734 15,329,232
Income taxes receivable 1,596 480
Due from affiliates and employees 87,628 14,799
----------- -----------
11,783,362 16,940,511
Inventories 8,250,875 10,799,714
Deferred income taxes 1,453,831 1,509,294
Other current assets 928,392 916,201
----------- -----------
Total current assets 28,593,464 36,731,533
Furniture, fixtures and equipment 896,769 880,793
Other assets 675,823 967,041
----------- -----------
$30,166,056 $38,579,367
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,000,000
Accounts payable and accrued expenses $ 7,348,522 7,749,654
Income taxes payable 52,386
----------- -----------
Total current liabilities 7,400,908 10,749,654
Deferred income taxes 1,095,858 1,095,858
Minority interest 5,747,229
Shareholders' equity:
Preferred stock, no par value,
25,000,000 shares authorized
Common stock, no par value, 50,000,000
shares authorized; issued and
outstanding (2,398,224 at May 31,
1995 and 2,507,924 at August 31, 1994) 12,590,085 12,351,527
Retained earnings 9,079,205 8,635,099
----------- -----------
Total shareholders' equity 21,669,290 20,986,626
----------- -----------
$30,166,056 $38,579,367
=========== ===========
</TABLE>
2
<PAGE> 3
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Third quarter ended Nine months ended
------------------------- -------------------------
May 31, May 31, May 31, May 31,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $22,637,221 $28,960,150 $63,676,183 $88,696,460
Cost of goods sold 17,445,270 24,103,202 48,219,489 73,128,528
----------- ----------- ----------- -----------
Gross profit 5,191,951 4,856,948 15,456,694 15,567,932
Expenses:
Selling, general and
administrative 4,912,608 6,821,336 14,391,469 21,065,415
Employee plans and bonuses 309,160 56,311 646,241 248,848
----------- ----------- ----------- -----------
Income (loss) from operations (29,817) (2,020,699) 418,984 (5,746,331)
Interest income 52,078 48,941 156,820 114,738
Interest expense (140,143) (2,221) (361,869)
----------- ----------- ----------- -----------
Income (loss) before
income taxes 22,261 (2,111,901) 573,583 (5,993,462)
Provision (benefit) for
income taxes (29,217) (77,129) 184,577 (1,513,306)
----------- ----------- ----------- -----------
Net income (loss) before
minority interest 51,478 (2,034,772) 389,006 (4,480,156)
Minority interest (679,229) (55,100) (1,156,711)
----------- ----------- ----------- -----------
Net income (loss) $51,478 ($1,355,543) $444,106 ($3,323,445)
=========== =========== =========== ===========
Net income (loss)
per common share $.02 ($.52) $.18 ($1.28)
=========== =========== =========== ===========
Weighted average number of
shares outstanding 2,417,898 2,626,310 2,452,573 2,591,407
=========== =========== =========== ===========
</TABLE>
3
<PAGE> 4
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended May 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 8,300,694 $ 3,082,061
----------- -----------
Cash flows from investing activities:
Capital expenditures (235,888) (239,730)
----------- -----------
Net cash (used) by investing activities (235,888) (239,730)
----------- -----------
Cash flows from financing activities:
Net repayments under line of credit
and short-term loan agreements (3,000,000) (1,949,266)
Dividends paid (413,959)
Proceeds from sales of common stock 150,000
Purchases and retirement of subsidiary
shares by subsidiary (4,631,536)
Purchases of subsidiary shares by parent (385,099)
Purchases and retirement of parent common stock (436,980) (403,972)
----------- -----------
Net cash (used) by financing activities (8,453,615) (2,617,197)
----------- -----------
Net increase (decrease) in cash and cash equivalents (388,809) 225,134
Cash and cash equivalents at beginning of period 6,565,813 4,724,483
----------- -----------
Cash and cash equivalents at end of period $ 6,177,004 $ 4,949,617
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $17,750 $343,921
Income taxes $23,401 $142,865
</TABLE>
4
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BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Condensed Consolidated Financial Statements:
The consolidated balance sheet as of May 31, 1995, and the consolidated
statements of operations for the three and nine months ended May 31, 1995 and
1994 and the condensed consolidated cash flow statements for the nine months
ended May 31, 1995 and 1994 have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the consolidated financial
position, results of operations and cash flows at May 31, 1995 and for all
periods presented have been made. The results of operations for the periods
ended May 31, 1995 and 1994 are not necessarily indicative of the operating
results for the full years.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's August 31, 1994 audited financial
statements.
2. Earnings Per Share:
At May 31, 1995 and 1994, outstanding options were either antidilutive or
diluted earnings per share by less than 3%, and, accordingly, were not included
in the weighted average number of shares outstanding for these periods.
3. Inventories:
<TABLE>
<CAPTION>
May 31, August 31,
1995 1994
---------- -----------
<S> <C> <C>
Fabric and trims $2,104,177 $ 2,795,280
Finished goods 6,146,698 8,004,434
---------- -----------
$8,250,875 $10,799,714
========== ===========
</TABLE>
5
<PAGE> 6
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
4. Notes Payable:
At May 31, 1995, the Company had agreements with a financial institution
pursuant to which the Company sells substantially all of its trade accounts
receivable to the financial institution on a pre-approved non-recourse basis.
The Company can request advances in anticipation of customer collections at the
lender's prime rate plus one percent or LIBOR plus two percent, borrow on an
acceptance basis at rates which vary in accordance with the prevailing market
rate for such acceptances and open letters of credit through the lender, all of
which are collateralized by all of the Company's assets. Notes payable and
contingent liabilities for irrevocable letters of credit outstanding are as
follows:
<TABLE>
<CAPTION>
May 31, August 31,
1995 1994
------------ ------------
<S> <C> <C>
Notes payable $3,000,000
Contingent liabilities for
irrevocable letters of credit $11,220,135 $10,632,251
</TABLE>
5. Tender Offer by Subsidiary and Purchase of Minority Interest:
On September 21, 1994, the Company's Body Drama subsidiary purchased
and retired 1,446,921 shares of its stock at $2.93 per share for a total cash
consideration paid to shareholders of $4,239,479. The aggregate cost of the
shares is expected to be approximately $4.9 million, which includes expenses
specifically associated with the tender offer, including the estimated costs of
defense for a related class action suit filed against Body Drama, the Company
and several of Body Drama's former and present officers and directors.
On November 30, 1994, the Company completed a short-form merger and
acquired the remaining 128,079 outstanding shares of Body Drama for $2.93 per
share. The aggregate cost of the shares, which includes legal and other costs
incurred in connection with the purchase, was approximately $385,000.
Subsequent to the short-form merger, the Company owns 100% of Body Drama.
6
<PAGE> 7
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Litigation:
On August 8, 1994, a class action lawsuit was filed in the San Diego
Superior Court against the Company, its Body Drama subsidiary and certain
former and present directors and officers of Body Drama seeking to enjoin Body
Drama's tender offer for its shares and to recover certain unspecified damages
on the basis of alleged breaches of fiduciary duty by the defendants. The
court denied the plaintiffs' claim for injunctive relief and the tender offer
closed on September 21, 1994. On January 20, 1995, the court dismissed two of
the four causes of action claimed by the plaintiff in the lawsuit. Management
believes that the remaining allegations of the complaint are without merit and
intends to vigorously defend the lawsuit.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
NINE MONTHS ENDED MAY 31, 1995 COMPARED TO THE NINE MONTHS ENDED MAY 31, 1994.
Net sales for the nine months ended May 31, 1995 decreased approximately
$25 million (28.2%) compared to the nine months ended May 31, 1994. The
decrease was due primarily to a 27% decrease in the number of garments sold.
Gross margins increased from 17.6% for the nine months ended May 31, 1994
to 24.3% for the current nine month period. The first nine months of fiscal
1994 were characterized by weak economic and market conditions for the apparel
industry in general which resulted in lower than normal gross margins as well
as an increase in the number of garments sold below cost and the size of the
average loss per garment for those items sold below cost. While the general
business and market conditions have not improved in the current fiscal year,
the Company's current product mix resulted in higher overall gross margins and
fewer garments being sold below cost in the first nine months of fiscal 1995.
The Company's product mix constantly changes to reflect customer mix,
fashion trends and changing seasons. Consequently, gross margins are likely to
vary on a quarter-to-quarter basis and in comparison to gross margins generated
in the same period of prior fiscal years.
Selling, general and administrative expenses decreased in dollar amount
from $21.1 million for the first nine months of last year to $14.4 million for
the first nine months of fiscal 1995, and decreased as a percent of net sales
from 23.8% last year to 22.6% for the current period. The decrease in dollar
amount was due to the lower sales volume in the current period. The decrease
as a percent of net sales was due to the Company's efforts to reduce its
operating expenses, including the closure of one of its two warehouse
facilities in early fiscal 1995 and the reversal of an unutilized $250,000
reserve established in fiscal 1994 for such closure.
Several key employees are compensated, in part, on the overall
profitability of various divisions. The increase in employee plans and bonus
expense in the current period reflects the improvement in the Company's overall
operating performance.
8
<PAGE> 9
Interest expense decreased in the current period compared to the first
nine months of last year due to the Company's decreased usage of its short-term
line of credit. Interest income increased in the current period due to
increases in the prime rate of interest, and consequently the Company's
investment rate, in the first nine months of fiscal 1995 compared to last year.
THREE MONTHS ENDED MAY 31, 1995 COMPARED TO THE THREE MONTHS ENDED MAY 31,
1994.
Net sales for the third quarter of fiscal 1995 decreased approximately
$6.3 million (21.8%) compared to the net sales for the same quarter last year.
The decrease was due a 14% decrease in the number of garments sold and a 9%
decrease in the Company's average selling prices.
Gross margins increased from 16.8% for the three months ended May 31, 1994
to 22.9% for the current quarter. The third quarter of fiscal 1994 was
characterized by weak economic and market conditions for the apparel industry
in general which resulted in lower than normal gross margins as well as an
increase in the number of garments sold below cost and the size of the average
loss per garment for those items sold below cost. While the general business
and market conditions have not improved in the current quarter, the Company's
current product mix resulted in higher overall gross margins and fewer garments
being sold below cost in the third quarter of fiscal 1995.
Selling, general and administrative expenses decreased in dollar amount
from $6.8 million for the third quarter of last year to $4.9 million for the
third quarter of fiscal 1995, and decreased as a percent of sales from 23.6%
last year to 21.7% for the current quarter. The decrease in dollar amount was
due to the lower sales volume in the current period. The decrease as a percent
of net sales was due to the Company's efforts to reduce its operating expenses,
including the closure of one of its two warehouse facilities in early fiscal
1995.
Several key employees are compensated, in part, on the overall
profitability of various divisions. The increase in employee plans and bonus
expense in the current quarter reflects the improvement in the Company's
overall operating performance.
The Company did not utilize its short-term line of credit during the
third quarter of fiscal 1995 and therefore incurred no interest expense in the
current quarter.
9
<PAGE> 10
Liquidity and Capital Resources
At May 31, 1995, the Company had agreements with a financial institution
pursuant to which the Company generally sells and assigns substantially all of
its trade accounts receivable to the financial institution on a pre-approved
non-recourse basis. Occasionally, the Company ships merchandise to customers
and does not sell the resulting receivables to the financial institution. Such
shipments are generally made on a COD basis or are backed by a commercial or
standby letter of credit issued by the customer's bank. The amount of the
Company's receivables which were not sold to the financial institution and were
not made on a COD basis or supported by commercial or standby letters of credit
at May 31, 1995 was approximately $86,000.
Payment for receivables which are sold to the financial institution is
made at the time customers make payment to the financial institution or, if a
customer is financially unable to make payment, within approximately 180 days
of the invoice due date. The Company may request advances in anticipation of
customer collections at the lender's prime rate plus one percent or LIBOR plus
two percent, borrow on an acceptance basis at rates which vary in accordance
with the prevailing market rate for such acceptances and open letters of credit
through the lender. The amount of such borrowings, including a portion of
outstanding letters of credit, are limited to certain percentages of
outstanding accounts receivable and finished goods inventory owned by the
Company and are collateralized by all of the assets of the Company. Under
these agreements, the Company is required to maintain certain levels of net
worth and working capital.
On September 21, 1994, the Company's Body Drama subsidiary purchased
and retired 1,446,921 shares of its stock for $2.93 per share for a total cash
consideration paid to shareholders of $4,239,479. The aggregate cost of the
shares is expected to be approximately $4.9 million, which includes expenses
specifically associated with the tender offer, including the estimated costs of
defense for a related class action suit filed against Body Drama, the Company
and several of Body Drama's former and present directors and officers.
On November 30, 1994, the Company completed a short-form merger to
acquire the remaining 128,079 outstanding shares of Body Drama for $2.93 per
share. The aggregate cost of the shares, which includes legal and other costs
incurred in connection with the purchase, was approximately $385,000.
Subsequent to the short-form merger, the Company owns 100% of Body Drama.
On May 10, 1994, the Company announced that it may, from time to time,
purchase up to 1,000,000 of its shares through open
10
<PAGE> 11
market purchases. No price range for the purchases was announced. The Company
acquired and retired 243,950 shares of its common stock at an aggregate cost of
$954,059 through May 31, 1995. The Board terminated the stock repurchase
program and does not anticipate purchasing any additional shares of its common
stock through open market purchases in the foreseeable future.
The Company is not aware of any trends or other matters which will, or
are reasonably likely to, result in its liquidity materially increasing or
decreasing.
Other Information
INVENTORY
The experience of the Company demonstrates that, in its ordinary course of
operations, a portion of the Company's sales may be made below its normal
selling prices or below cost subsequent to May 31, 1995. However, the amount
of such sales depends on several factors, including general economic
conditions, market conditions within the apparel industry, the desirability of
the styles held in inventory and competitive pressures from other garment
suppliers.
The Company's inventory decreased from $18.8 million at May 31, 1994 to
$8.3 million at May 31, 1995. The Company has established an inventory
markdown reserve as of May 31, 1995, which management believes will be
sufficient for current inventory that is expected to be sold below cost in the
future. There can be no assurance that the Company will realize its expected
selling prices, or that the inventory markdown reserve will be adequate, for
items in inventory as of May 31, 1995 for which customer sales orders have not
yet been received.
BACKLOG
At May 31, 1995, the Company had unfilled customer orders of $30.9
million compared to $48 million of such orders at May 31, 1994, with such
orders generally scheduled for delivery by November 1995 and February 1995,
respectively. These amounts include both confirmed orders and unconfirmed
orders which the Company believes, based on industry practice and past
experience, will be confirmed. The amount of unfilled orders at a particular
time is affected by a number of factors, including the scheduling of the
production and shipment of garments, which in some instances may be delayed or
accelerated by customer request. Accordingly, a comparison of unfilled orders
from period to period is not necessarily meaningful and may not be indicative
of eventual actual shipments. While cancellations, rejections and returns
have generally not been material in the past, there can be no assurance that
cancellations, rejections and returns will not reduce the amount of sales
realized from the backlog of orders at May 31, 1995.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Litigation.
On August 8, 1994, a class action lawsuit was filed in the San Diego
Superior Court against the Company, its Body Drama subsidiary and certain
former and present directors and officers of Body Drama seeking to enjoin Body
Drama's tender offer for its shares and to recover certain unspecified damages
on the basis of alleged breaches of fiduciary duty by the defendants. The
court denied the plaintiffs' claim for injunctive relief and the tender offer
closed on September 21, 1994. On January 20, 1995, the court dismissed two of
the four causes of action claimed by the plaintiff in the lawsuit. Management
believes that the remaining allegations of the complaint are without merit and
intends to vigorously defend the lawsuit.
Item 5. Investment Banking Firm Engaged.
On March 23, 1995, the Company announced that it had retained the
investment banking firm of Wedbush Morgan Securities to act as its financial
advisor in connection with the identification of potential acquisition or
merger candidates and the possible sale of all or a part of the assets or stock
of the Company.
Item 6. Exhibits and Reports in 8-K.
(a) Exhibits.
The following exhibits are filed herewith. Exhibit numbers refer to
Item 601 of Regulation S-K:
27. Financial Data Schedule.
(b) There were no reports on Form 8-K filed during this period.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEEBA'S CREATIONS, INC.
----------------------------------
Registrant
July 5, 1995 By: Thomas P. Baumann
----------------------------------
Thomas P. Baumann
As Principal Financial Officer and
on behalf of the Registrant
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> MAY-31-1995
<EXCHANGE-RATE> 1
<CASH> 6,177,004
<SECURITIES> 0
<RECEIVABLES> 11,783,362
<ALLOWANCES> 0
<INVENTORY> 8,250,875
<CURRENT-ASSETS> 28,593,464
<PP&E> 896,769
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,166,056
<CURRENT-LIABILITIES> 7,400,908
<BONDS> 0
<COMMON> 12,590,085
0
0
<OTHER-SE> 21,669,290
<TOTAL-LIABILITY-AND-EQUITY> 30,166,056
<SALES> 63,676,183
<TOTAL-REVENUES> 63,676,183
<CGS> 48,219,489
<TOTAL-COSTS> 48,219,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,221
<INCOME-PRETAX> 573,583
<INCOME-TAX> 184,577
<INCOME-CONTINUING> 444,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 444,106
<EPS-PRIMARY> .18
<EPS-DILUTED> 0
<FN> THE ASSET VALUES FOR RECEIVABLES AND PP&E REPRESENT AMOUNTS NET OF ALLOWANCES
AND DEPRECIATION RESPECTIVELY
</FN>
</TABLE>
