<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: February 28, 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 April 4, 1995, 2,434,424 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>
February 28, August 31,
1995 1994
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,856,054 $ 6,565,813
Receivables:
Trade accounts, less allowance for
doubtful accounts ($721,000 at
February 28, 1995 and $578,000
at August 31, 1994) 15,613,202 15,329,232
Income taxes receivable 1,596,480
Due from affiliates and employees 21,463 14,799
----------- -----------
15,634,665 16,940,511
Inventories 11,466,601 10,799,714
Deferred income taxes 1,453,831 1,509,294
Other current assets 596,418 916,201
----------- -----------
Total current assets 31,007,569 36,731,533
Furniture, fixtures and equipment 959,398 880,793
Other assets 712,555 967,041
----------- -----------
$32,679,522 $38,579,367
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,000,000
Accounts payable and
accrued expenses $ 9,736,982 7,749,654
Income taxes payable 81,387
----------- -----------
Total current liabilities 9,818,369 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 (2,434,424 at February 28,
1995 and 2,507,924 at August 31, 1994) 12,737,568 12,351,527
Retained earnings 9,027,727 8,635,099
----------- -----------
Total shareholders' equity 21,765,295 20,986,626
----------- -----------
$32,679,522 $38,579,367
=========== ===========
</TABLE>
2
<PAGE> 3
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Second quarter ended Six months ended
----------------------------- -----------------------------
February 28, February 28, February 28, February 28,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $21,227,142 $29,020,872 $41,038,962 $59,736,310
Cost of goods sold 15,547,802 24,414,385 30,774,219 49,025,326
----------- ----------- ----------- -----------
Gross profit 5,679,340 4,606,487 10,264,743 10,710,984
Expenses:
Selling, general and
administrative 4,730,242 6,966,216 9,478,861 14,244,079
Employee plans and bonuses 236,636 91,448 337,081 192,537
----------- ----------- ----------- -----------
Income (loss) from operations 712,462 (2,451,177) 448,801 (3,725,632)
Interest income 62,490 26,689 104,742 65,797
Interest expense (125,310) (2,221) (221,726)
----------- ----------- ----------- -----------
Income (loss) before
income taxes 774,952 (2,549,798) 551,322 (3,881,561)
Provision (benefit) for
income taxes 307,185 (890,024) 213,794 (1,436,177)
----------- ----------- ----------- -----------
Net income (loss) before
minority interest 467,767 (1,659,774) 337,528 (2,445,384)
Minority interest (364,689) (55,100) (477,482)
----------- ----------- ----------- -----------
Net income (loss) $ 467,767 $(1,295,085) $ 392,628 $(1,967,902)
=========== =========== =========== ===========
Net income (loss)
per common share $.19 $(.50) $.16 $(.76)
=========== =========== =========== ===========
Weighted average number of
shares outstanding 2,445,224 2,605,507 2,470,197 2,573,666
=========== =========== =========== ===========
</TABLE>
3
<PAGE> 4
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended February 28,
-------------------------------
1995 1994
---------- -----------
<S> <C> <C>
Net cash provided (used) by operating activities $ 3,820,064 $(4,971,819)
----------- -----------
Cash flows from investing activities:
Capital expenditures (223,689) (183,555)
----------- -----------
Net cash (used) by investing activities (223,689) (183,555)
----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under line of
credit and short-term loan agreements (3,000,000) 4,686,043
Dividends paid (413,959)
Proceeds from sales of common stock 150,000
Purchases and retirement of subsidiary
shares by subsidiary (4,628,855)
Purchases of subsidiary shares by parent (385,099)
Purchases and retirement of parent common stock (292,180)
----------- -----------
Net cash provided (used) by financing activities (8,306,134) 4,422,084
----------- -----------
Net (decrease) in cash and cash equivalents (4,709,759) (733,290)
Cash and cash equivalents at beginning of period 6,565,813 4,724,483
----------- -----------
Cash and cash equivalents at end of period $ 1,856,054 $ 3,991,183
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $17,750 $195,910
Income taxes $23,401 $141,265
</TABLE>
4
<PAGE> 5
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Condensed Consolidated Financial Statements:
The consolidated balance sheet as of February 28, 1995, and the
consolidated statements of operations for the three and six months ended
February 28, 1995 and 1994 and the condensed consolidated cash flow statements
for the six months ended February 28, 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
February 28, 1995 and for all periods presented have been made. The results of
operations for the periods ended February 28, 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 February 28, 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>
February 28, August 31,
1995 1994
------------ ------------
<S> <C> <C>
Fabric and trims $2,002,450 $2,795,280
Finished goods 9,464,151 8,004,434
----------- -----------
$11,466,601 $10,799,714
=========== ===========
</TABLE>
5
<PAGE> 6
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
4. Notes Payable:
At February 28, 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>
February 28, August 31,
1995 1994
------------ ------------
<S> <C> <C>
Notes payable $ 3,000,000
Contingent liabilities for
irrevocable letters of credit $12,915,599 $10,632,251
</TABLE>
5. Tender offer by subsidiary and purchase of minority interests:
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 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.
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
SIX MONTHS ENDED FEBRUARY 28, 1995 COMPARED TO THE SIX MONTHS ENDED FEBRUARY
28, 1994.
Net sales for the six months ended February 28, 1995 decreased
approximately $18.7 million (31.3%) as compared to the six months ended
February 28, 1994. The decrease was due primarily to a 34% decrease in the
number of garments sold in the current period compared to the first six months
of fiscal 1994.
Gross margins increased from 17.9% for the six months ended February
28, 1994 to 25% for the current six month period. The first six 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 six 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 $14.2 million for the first six months of last year to $9.5 million
for the first six months of fiscal 1995, and decreased as a percent of net
sales from 23.8% last year to 23.1% 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
six 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 six months of fiscal 1995 compared to last year.
THREE MONTHS ENDED FEBRUARY 28, 1995 COMPARED TO THE THREE MONTHS ENDED
FEBRUARY 28, 1994.
Net sales for the second quarter of fiscal 1995 decreased
approximately $7.8 million (26.9%) compared to the net sales for the same
quarter last year. The decrease was due to a 33.6% decrease in the number of
garments sold offset partially by a 10.1% increase in the average garment
selling price in the current quarter.
Gross margins increased from 15.9% for the three months ended February
28, 1994 to 26.8% for the current quarter. The second 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 and for those items sold at a loss, the
average loss per garment was lower than in the second quarter of fiscal 1994.
Selling, general and administrative expenses decreased in dollar
amount from $7 million for the second quarter of last year to $4.7 million for
the second quarter of fiscal 1995, and decreased as a percent of net sales from
24% last year to 22.3% for the current quarter. The decrease in dollar amount
was due to the lower sales volume in the current quarter. 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 quarter reflects the improvement in the Company's
overall operating performance.
9
<PAGE> 10
The Company did not utilize its short-term line of credit during the
second quarter of fiscal 1995 and therefore incurred no interest expense in the
current quarter. Interest income increased in the current quarter due to
increases in the prime rate of interest, and consequently the Company's
investment rate, in the second quarter of fiscal 1995 compared to last year.
Liquidity and Capital Resources
At February 28, 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 February 28, 1995 was approximately
$358,000.
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.
10
<PAGE> 11
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 market purchases. No price
range for the purchases was announced. To date, the Company has acquired and
retired 207,750 shares of its common stock at an aggregate cost of
approximately $809,000.
Except for the Body Drama tender offer, the subsequent merger of Body
Drama and Beeba's and the Company's continuing stock repurchase activity (if
such additional repurchase activity is significant) 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 February 28, 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 $22 million at February 28,
1994 to $11.5 million at February 28, 1995. The Company has established an
inventory markdown reserve as of February 28, 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 February 28, 1995 for which customer
sales orders have not yet been received.
11
<PAGE> 12
BACKLOG
At February 28, 1995, the Company had unfilled customer orders of
$30.9 million compared to $43.1 million of such orders at February 28, 1994,
with such orders generally scheduled for delivery by August 1995 and 1994,
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 February 28, 1995.
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 4. Submission of Matters to a Vote of Security Holders.
An annual meeting of shareholders of the Company was held on January
11, 1995. At the meeting, the shareholders approved: (1) the appointment of
Deloitte & Touche as the Company's independent certified public accountants for
the fiscal year ended August 31, 1995 by votes of 2,173,890 for, 6,756 against
and 4,621 abstain and (2) the election of directors as follows:
<TABLE>
<CAPTION>
Name Votes For Withheld
---------------------- ----------- --------
<S> <C> <C>
Arjun C. Waney 2,156,615 28,652
Steven P. Wyandt 2,156,615 28,652
Christopher A. Crane 2,156,515 28,752
Luther A. Henderson 2,156,215 29,063
Eugene B. Price II 2,156,615 28,652
</TABLE>
12
<PAGE> 13
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.
13
<PAGE> 14
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
April 4, 1995 By: Thomas P. Bauman
-------------------------------------
Thomas P. Baumann
As Principal Financial Officer and
on behalf of the Registrant
14
<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> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<EXCHANGE-RATE> 1
<CASH> 1,856,054
<SECURITIES> 0
<RECEIVABLES> 15,634,665
<ALLOWANCES> 0
<INVENTORY> 11,466,601
<CURRENT-ASSETS> 31,007,569
<PP&E> 959,398
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,679,522
<CURRENT-LIABILITIES> 9,818,369
<BONDS> 0
<COMMON> 12,737,568
0
0
<OTHER-SE> 9,027,727
<TOTAL-LIABILITY-AND-EQUITY> 21,765,295
<SALES> 41,038,962
<TOTAL-REVENUES> 41,038,962
<CGS> 30,774,219
<TOTAL-COSTS> 30,774,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,221
<INCOME-PRETAX> 551,322
<INCOME-TAX> 213,794
<INCOME-CONTINUING> 392,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 392,628
<EPS-PRIMARY> .16
<EPS-DILUTED> 0
<FN> THE ASSET VALUES FOR RECEIVABLES AND PP&E REPRESENT AMOUNTS NET OF
ALLOWANCES AND DEPRECIATION RESPECTIVELY
</TABLE>
