**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**ý QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended April 2, 2005**

 

**OR**

 

**o TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission File Number 0-24395**

 

**bebestores, inc.**

(Exact name of registrant as specified in its charter)

 
| **California**                                             | ** ** | **94-2450490**                        |
|------------------------------------------------------------|------------|---------------------------------------|
| (State or  Jurisdiction of  Incorporation or Organization) |       | (IRS Employer  Identification Number) |

 

**400 Valley Drive Brisbane, California 94005**(Address ofprincipal executive offices)

** **

**Telephone: (415) 715-3900**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  ý Yes oNo

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Securities Exchange Act).   ýYes o No

 

Indicate the number ofshares outstanding of each of the issuers of common stock, as of the latestpracticable date.

 

COMMON STOCK, PAR VALUE OF $0.001 PER SHARE, 60,461,554SHARESOUTSTANDING AS OF MAY 2, 2005

 

 

----

 

**bebestores, inc.**

 

#### **TABLE OF CONTENTS**

 
| **PART I.**  | **FINANCIAL  INFORMATION** |                                                                                                                                  |
|-------------------|----------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
|              | ITEM  1.                   | Condensed  Consolidated Financial Statements                                                                                          |   |
|              |                       |
|              |                       | Condensed  Consolidated Balance Sheets as of April 2, 2005, June 30, 2004 and  March 31, 2004                          |   |
|              |                       |                                                                                                                                  |   |
|              |                       | Condensed  Consolidated Statements of Earnings for the three months and nine months  ended April 2, 2005 and March 31, 2004 |   |
|              |                       |                                                                                                                                  |   |
|              |                       | Condensed  Consolidated Statements of Cash Flows for the nine months ended April 2,  2005 and March 31, 2004                |   |
|              |                       |                                                                                                                                  |   |
|              |                       | Notes  to Condensed Consolidated Financial Statements                                                                                 |   |
|              |                       |
|              | ITEM  2.                   | Management’s  Discussion and Analysis of Financial Condition and  Results of Operations                                     |   |
|              |                       |                                                                                                                                  |   |
|              | ITEM  3.                   | Quantitative  and Qualitative Disclosures about Market Risk                                                                           |   |
|              |                       |                                                                                                                                  |   |
|              | ITEM 4.                    | Controls and  Procedures                                                                                                              |   |
|              |                       |                                                                                                                                  |   |
| **PART II.** | **OTHER INFORMATION**      |                                                                                                                                  |
|              |                       |                                                                                                                                  |   |
|              | ITEM 1                     | Legal Proceedings                                                                                                                     |   |
|              |                       |                                                                                                                                  |   |
|              | ITEM  2.                   | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                          |   |
|              |                       |                                                                                                                                  |   |
|              | ITEM 3.                    | Defaults Upon  Senior Securities                                                                                                      |   |
|              |                       |                                                                                                                                  |   |
|              | ITEM  4.                   | Submission  of Matters to a Vote of Security Holders                                                                                  |   |
|              |                       |                                                                                                                                  |   |
|              | ITEM 5.                    | Other Information                                                                                                                     |   |
|              |                       |                                                                                                                                  |   |
|              | ITEM 6.                    | Exhibits                                                                                                                              |   |
|              |                       |                                                                                                                                  |   |
| **SIGNATURE**     |                       |
| ** **        |                       |
| **EXHIBIT INDEX** |                       |
|                   |                            |                                                                                                                                       |  |  |  |

 

2

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**PART I.         FINANCIAL INFORMATION**

ITEM 1.          Condensed Consolidated FinancialStatements

 

**bebestores, inc.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Inthousands, except share data)**

**(unaudited)**

 
| ** **                                                                                                                                      | ** ** | **As of**         | ** ** | **As of**         | ** ** | **As of**          | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|--------------------|------------|
| ** **                                                                                                                                      | ** ** | **April 2,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** |
| ** **                                                                                                                                      | ** ** | **2005**          | ** ** | **2004**          | ** ** | **2004**           | ** ** |
| ** **                                                                                                                                      | ** ** | ** **        | ** ** | ** **        | ** ** | ** **         | ** ** |
| **Assets:**                                                                                                                                     |       |              |       |              |       |               |       |
| Current assets:                                                                                                                                 |       |              |       |              |       |               |       |
| Cash and  equivalents                                                                                                                           |       | $                 | 35,581     |              | $          | 26,055             |       | $ | 20,274 |   |
| Short-term  marketable securities                                                                                                               |       | 220,602           |       | 160,200           |       | 150,350            |       |
| Receivables (net  of allowance of $799, $632 and $591)                                                                                          |       | 3,817             |       | 2,911             |       | 1,794              |       |
| Inventories                                                                                                                                     |       | 31,513            |       | 25,538            |       | 26,553             |       |
| Prepaid and  other                                                                                                                              |       | 18,063            |       | 7,580             |       | 5,681              |       |
| Total current  assets                                                                                                                           |       | 309,576           |       | 222,284           |       | 204,652            |       |
| Property and  equipment, net                                                                                                                    |       | 72,331            |       | 62,355            |       | 60,975             |       |
| Long-term  marketable securities                                                                                                                |       | 2,000             |       | 7,875             |       | 7,875              |       |
| Other assets                                                                                                                                    |       | 5,670             |       | 4,222             |       | 4,915              |       |
| Total assets                                                                                                                                    |       | $                 | 389,577    |              | $          | 296,736            |       | $ | 278,417 |   |
|                                                                                                                                            |       |              |       |              |       |               |       |
| **Liabilities  and Shareholders’ Equity:**                                                                                                 |       |              |       |              |       |               |       |
| Current  liabilities:                                                                                                                           |       |              |       |              |       |               |       |
| Accounts payable                                                                                                                                |       | $                 | 27,067     |              | $          | 14,467             |       | $ | 13,247 |   |
| Accrued  liabilities                                                                                                                            |       | 22,778            |       | 19,653            |       | 16,290             |       |
| Total current liabilities                                                                                                                       |       | 49,845            |       | 34,120            |       | 29,537             |       |
| Deferred rent  and other lease incentives                                                                                                       |       | 28,919            |       | 18,196            |       | 16,199             |       |
| Total  liabilities                                                                                                                              |       | 78,764            |       | 52,316            |       | 45,736             |       |
|                                                                                                                                            |       |              |       |              |       |               |       |
| Commitments and  contingencies                                                                                                                  |       | —            |       | —            |       | —             |       |
| Shareholders’  equity:                                                                                                                     |       |              |       |              |       |               |       |
| Preferred  stock-authorized 1,000,000 shares at $0.001 par value per share; no shares  issued and outstanding                                   |       | —            |       | —            |       | —             |       |
| Common  stock-authorized 90,000,000 shares at $0.001 par value per share; issued and  outstanding: 60,455,277, 58,817,693 and 58,498,934 shares |       | 60                |       | 59                |       | 58                 |       |
| Additional  paid-in capital                                                                                                                     |       | 73,973            |       | 49,124            |       | 45,662             |       |
| Deferred  compensation                                                                                                                          |       | (61               | )          | (36               | )          | (64                | )          |
| Accumulated  other comprehensive income                                                                                                         |       | 1,030             |       | 296               |       | 422                |       |
| Retained  earnings                                                                                                                              |       | 235,811           |       | 194,977           |       | 186,603            |       |
| Total  shareholders’ equity                                                                                                                |       | 310,813           |       | 244,420           |       | 232,681            |       |
| Total  liabilities and shareholders’ equity                                                                                                |       | $                 | 389,577    |              | $          | 296,736            |       | $ | 278,417 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

3

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**bebe stores, inc.**

**CONDENSEDCONSOLIDATED STATEMENTS OF EARNINGS**

**(In thousands, except per share data)**

**(unaudited)**

 
| ** **                                         | ** ** | **Three Months Ended**  | ** ** | **Nine Months Ended**    | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|
| ** **                                         | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** | ** ** |
|                                               |       |                    |       |                     |       |   |   |   |   |
| Net sales                                          |       | $                       | 116,862    |                     | $          | 83,637 |   | $ | 372,590 |   | $ | 279,203 |   |
| Cost of sales,  including production and occupancy |       | 62,183                  |       | 44,924                   |       | 189,463 |   | 147,937 |   |
|                                               |       |                    |       |                     |       |   |   |   |   |
| Gross profit                                       |       | 54,679                  |       | 38,713                   |       | 183,127 |   | 131,266 |   |
| Selling, general  and administrative expenses      |       | 37,842                  |       | 30,485                   |       | 110,655 |   | 92,104 |   |
|                                               |       |                    |       |                     |       |   |   |   |   |
| Income from  operations                            |       | 16,837                  |       | 8,228                    |       | 72,472 |   | 39,162 |   |
| Interest and  other income, net                    |       | 1,117                   |       | 524                      |       | 3,027 |   | 1,480 |   |
|                                               |       |                    |       |                     |       |   |   |   |   |
| Earnings before  income taxes                      |       | 17,954                  |       | 8,752                    |       | 75,499 |   | 40,642 |   |
| Provision for  income taxes                        |       | 6,823                   |       | 3,288                    |       | 28,690 |   | 15,247 |   |
|                                               |       |                    |       |                     |       |   |   |   |   |
| Net earnings                                       |       | $                       | 11,131     |                     | $          | 5,464 |   | $ | 46,809 |   | $ | 25,395 |   |
|                                               |       |                    |       |                     |       |   |   |   |   |
| Basic earnings  per share                          |       | $                       | 0.19       |                     | $          | 0.09 |   | $ | 0.79 |   | $ | 0.44 |   |
| Diluted earnings  per share                        |       | $                       | 0.18       |                     | $          | 0.09 |   | $ | 0.76 |   | $ | 0.43 |   |
| Basic weighted  average shares outstanding         |       | 60,133                  |       | 58,303                   |       | 59,473 |   | 58,091 |   |
| Diluted weighted  average shares outstanding       |       | 62,699                  |       | 59,695                   |       | 61,860 |   | 59,418 |   |
|                                                    |            |                         |            |                          |            |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to condensed consolidatedfinancial statements.

 

4

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**bebestores, inc.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

**(unaudited)**

 
| ** **                                                                       | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                       | ** ** | **April 2,**     | ** ** | **March 31,** | ** ** |
| ** **                                                                       | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Cash flows from  operating activities:                                           |       |                  |       |   |   |
| Net earnings                                                                     |       | $                     | 46,809     |   | $ | 25,395 |   |
| Adjustments to  reconcile net earnings to cash provided by operating activities: |       |                  |       |   |   |
| Non-cash  compensation expense                                                   |       | 637                   |       | 111 |   |
| Depreciation and  amortization                                                   |       | 9,912                 |       | 9,271 |   |
| Net loss on  disposal of property                                                |       | 304                   |       | 96 |   |
| Deferred rent and other lease incentives                                         |       | 6,353                 |       | 2,576 |   |
| Deferred income taxes                                                            |       | (1,217                | )          | — |   |
| Changes in  operating assets and liabilities:                                    |       |                  |       |   |   |
| Receivables                                                                      |       | (859                  | )          | (103 | ) |
| Inventories                                                                      |       | (5,936                | )          | (1,128 | ) |
| Prepaid expenses  and other assets                                               |       | (6,785                | )          | 470 |   |
| Accounts payable                                                                 |       | 12,590                |       | (2,062 | ) |
| Accrued  liabilities                                                             |       | 9,721                 |       | 5,376 |   |
| Net cash  provided by operating activities                                       |       | 71,529                |       | 40,002 |   |
|                                                                             |       |                  |       |   |   |
| Cash flows from  investing activities:                                           |       |                  |       |   |   |
| Purchase of  property and equipment                                              |       | (15,891               | )          | (17,883 | ) |
| Purchase of marketable securities                                                |       | (217,624              | )          | (167,444 | ) |
| Proceeds from  sale of marketable securities                                     |       | 163,097               |       | 145,844 |   |
| Net cash used by  investing activities                                           |       | (70,418               | )          | (39,483 | ) |
|                                                                             |       |                  |       |   |   |
| Cash flows from  financing activities:                                           |       |                  |       |   |   |
| Net proceeds  from issuance of common stock                                      |       | 13,706                |       | 4,903 |   |
| Cash dividends  paid                                                             |       | (5,975                | )          | — |   |
| Net cash  provided by financing activities                                       |       | 7,731                 |       | 4,903 |   |
|                                                                             |       |                  |       |   |   |
| Effect of  exchange rate changes on cash                                         |       | 684                   |       | 213 |   |
| Net increase in  cash and equivalents                                            |       | 9,526                 |       | 5,635 |   |
| Cash and  equivalents:                                                           |       |                  |       |   |   |
| Beginning of  period                                                             |       | 26,055                |       | 14,639 |   |
| End of period                                                                    |       | $                     | 35,581     |   | $ | 20,274 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

5

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##### **bebe stores, inc.**

##### ** **

##### **NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

##### **(unaudited)**

##### ** **

##### **INTERIM FINANCIAL STATEMENTS**

##### ** **

Theaccompanying condensed consolidated balance sheets of bebe stores, inc. (“theCompany”) as of April 2, 2005, June 30, 2004 and March 31, 2004,the condensed consolidated statements of earnings for the three and nine monthsended April 2, 2005 and March 31, 2004 and the condensed consolidatedstatements of cash flows for the nine months ended April 2, 2005 and March 31,2004 have been prepared in accordance with accounting principles generally acceptedin the United States of America for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X,without audit. Accordingly, they do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates of America for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary to present fairly the financial position at the balancesheet dates and the results of earnings for the three and nine months thenended have been included. The condensed consolidated balance sheet at June 30,2004, presented herein, was derived from the audited balance sheet included inthe Form 10-K for the fiscal year ended June 30, 2004.

 

The Company’s business isaffected by the pattern of seasonality common to most retail apparelbusinesses. The results for the periods presented are not necessarilyindicative of future financial results.

 

Certain notes and otherinformation have been condensed or omitted from the interim condensedconsolidated financial statements presented in this Quarterly Report on Form 10-Q.Therefore, these condensed consolidated financial statements should be read inconjunction with the Company’s Annual Report on Form 10-K for theyear ended June 30, 2004.

 

##### **FISCAL YEAR**

##### ** **

##### **Beginning on July 1, 2004,the Company changed their month end to a 4-4-5 week periodend.  Each period will end on aSaturday.  The three months ending April 2,2005 and March 31, 2004 both include 91 days.  The nine months ending April 2, 2005include one additional day in the reporting period than the comparative periodof fiscal year 2004 which was reported on a calendar month basis.**

##### ** **

**STOCK SPLIT**

 

In November 2004,the Company declared a 3-for-2 stock split which became effectivein December 2004.  All share and pershare amounts included in the financial statements and the related notes havebeen adjusted to reflect the stock split.

 

##### **MARKETABLE SECURITIES**

##### ** **

The Company’smarketable securities are classified as available-for-sale and are carried atcost which approximates their fair market value.

 

Auctionrate securities have stated maturities beyond one year but are priced andtraded as short-term instruments due to the liquidity provided through theinterest rate reset mechanism and are classified as short-term when theyrepresent investments of cash that are intended for use in current operations. Priorto the third quarter of fiscal 2005, the Company had classified auction ratesecurities as cash equivalents on the consolidated balance sheets.  As of April 2, 2005, auction rate securitiesare classified as investments and to conform to the current periodpresentation, the Company has reclassified $155.2 million and $150.4million of auction rate securities from cash equivalents to short-terminvestments as of June 30, 2004 and March 31, 2004, respectively.There was no impact on the consolidated statements of operations as a result ofthe reclassification. The impact on the consolidated statements of cash flowswas an increase of $32.1 million in cash used in investing activities forthe nine months ended March 31, 2004.

 

6

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**Inventories**

 

The Company’s inventoriesconsist of:

 
| ** **                      | ** ** | **As of**           | ** ** | **As of**    | ** ** | **As of**     | ** ** |
|---------------------------------|------------|---------------------|------------|--------------|------------|---------------|------------|
|                            | ** ** | **April 2,**        | ** ** | **June 30,** | ** ** | **March 31,** | ** ** |
| ** **                      | ** ** | **2005**            | ** ** | **2004**     | ** ** | **2004**      | ** ** |
| ** **                      | ** ** | **(in  thousands)** | ** ** |
| Raw materials                   |       | $                   | 7,204      |         | $          | 5,805         |       | $ | 5,737 |   |
| Merchandise  available for sale |       | 24,309              |       | 19,733       |       | 20,816        |       |
| Inventories                     |       | $                   | 31,513     |         | $          | 25,538        |       | $ | 26,553 |   |

 

##### **LEASE ACCOUNTING**

##### ** **

The Company leasesretail stores and office space under operating leases.  In the third quarter of fiscal 2005, in orderto comply with Financial Accounting Standards Board (“FASB”) Statement No. 13“Accounting for Leases”, FASB Technical Bulletin No. 85-3 “Accountingfor Operating Leases with Scheduled Rent Increases”, and FASB TechnicalBulletin No. 88-1 “Issues Relating to Accounting for Leases”, andconsistent with the views expressed by the Office of the Chief Accountant ofthe Securities and Exchange Commission to the American Institute of CertifiedPublic Accountants on February 7, 2005, the Company corrected the mannerin which it accounts for construction allowances and the period over which itrecognizes rent expense.

 

Historically, the Companyhas recognized straight line expense for leases beginning on the store openingdate which had the effect of excluding the build-out period of its stores fromthe calculation of the period over which it expenses rent.  The Company has corrected its leaseaccounting to begin recording rent expense when it takes possession of a store,which occurs approximately 90 days prior to the opening of the store.

 

Additionally,construction allowances related to store openings prior to September 2002had been recorded as reductions of property and equipment and amortized as areduction of depreciation expense. Construction allowances related to store openings prior to September 2002have been appropriately reclassified as deferred rent and will be amortized asa reduction of rent expense. Construction allowances related to store openings beginning in September 2002were appropriately recorded as deferred rent and amortized as a reduction ofrent expense.

 

The cumulativeimpact of the lease accounting adjustments through April 2, 2005 resultsin an increase to total assets of $5.4 million, an increase to deferred rentand other lease incentives of $8.6 million, and a reduction to net incomebefore income taxes of $3.2 million.  Theeffect of the cumulative adjustment on net income after tax is $2.0 million, or$0.03 per diluted share.  The Company hasrecorded this adjustment as a cumulative, non-cash charge in the third quarterended April 2, 2005.  Prior yearfinancial results will not be restated due to the immateriality of this adjustmentto the results of operations and financial position for the current year or anyindividual prior year.  The adjustment didnot affect historical cash flows.

 

##### **EARNINGS PER SHARE**

 

Basic earnings per shareis computed as net earnings divided by the weighted average number of commonshares outstanding for the period. Diluted earnings per share reflects thepotential dilution that could occur from common shares issuable through theexercise of dilutive stock options.

 

The following is areconciliation of the number of shares used in the basic and diluted earningsper share computations:

 
| ** **                                                     | ** ** | **Three Months Ended**  | ** ** | **Nine Months Ended**    | ** ** |
|----------------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|
| ** **                                                     | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** | ** ** |
| ** **                                                     | ** ** | **(In  thousands)**     |       | **(In  thousands)**      |       |
| Basic weighted  average number of shares outstanding           |       | 60,133                  |       | 58,303                   |       | 59,473 |   | 58,091 |   |
| Incremental  shares from the assumed issuance of stock options |       | 2,566                   |       | 1,392                    |       | 2,387 |   | 1,327 |   |
|                                                           |       |                    |       |                     |       |   |   |   |   |
| Diluted weighted  average number of shares outstanding         |       | 62,699                  |       | 59,695                   |       | 61,860 |   | 59,418 |   |

 

7

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The number of incrementalshares from the assumed issuance of stock options is calculated applying thetreasury stock method.

 

Excluded from the computation of the number of dilutedweighted average shares outstanding were antidilutive options of approximately70,000 and 1,480,000 for the three months ended April 2, 2005 and March 31,2004, respectively, and approximately 168,000 and 921,000 for the nine months endedApril 2, 2005 and March 31, 2004, respectively.

 

##### **COMPREHENSIVE INCOME**

 

Comprehensive incomeconsists of net income and other comprehensive income (income, expenses, gainsand losses that bypass the income statement and are reported directly as a separatecomponent of equity).  The Company’scomprehensive income consists of net income and foreign currency translationadjustments for all periods presented.

 
| ** **                         | ** ** | **Three Months Ended**     | ** ** | **Nine Months Ended**    | ** ** |
|------------------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                         | ** ** | **April 2,  2005**    | ** ** | **March 31,  2004** | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** | ** ** |
| ** **                         | ** ** | **(Dollars in thousands)** | ** ** |
| Net income                         |       | $                          | 11,131     |                     | $          | 5,464 |   | $ | 46,809 |   | $ | 25,395 |   |
| Other  comprehensive income (loss) |       | (96                        | )          | (103                     | )          | 734 |   | 153 |   |
|                               |       |                       |       |                     |       |   |   |   |   |
| Total  comprehensive income        |       | $                          | 11,035     |                     | $          | 5,361 |   | $ | 47,543 |   | $ | 25,548 |   |

 

##### **CREDIT FACILITIES**

 

**The Company has an unsecured commercial line ofcredit agreement with a bank, which provides for borrowings and issuance ofletters of credit up to a combined total of $25.0 million and expires on March 1,2006. The outstanding balance bears interest at either the bank’s referencerate (which was 5.75% as of April 2, 2005) or the LIBOR rate plus 1.75percentage points. As of April 2, 2005, there were no outstandingborrowings, and letters of credit outstanding totaled $2.6 million.**

** **

**This credit facility requires the Company to complywith certain financial covenants, including a minimum tangible net worth andcertain restrictions on making loans and investments.**

** **

##### **STOCK BASED COMPENSATION**

##### ** **

The Company accounts forstock-based awards granted to employees using the intrinsic value methodprescribed in Accounting Principles Board Opinion No. 25, “Accounting forStock Issued to Employees,” and related interpretations, and complies with thedisclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123“Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accountingfor Stock Based Compensation Transition and Disclosure, an Amendment of FASBStatement No. 123.”

 

8

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Had stock based employeecompensation expense been determined based upon the fair values at the grantdates for awards under the Company’s stock plans in accordance with SFAS No. 123,the Company’s pro forma net earnings, basic and diluted earnings per commonshare would have been as follows:

 
| ** **                                                                                            | ** ** | **Three Months Ended**                               | ** ** | **Nine Months Ended**    | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                                            | ** ** | **April 2,  2005**                              | ** ** | **March 31,  2004** | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** | ** ** |
| ** **                                                                                            | ** ** | **(Dollars in thousands, except per share amounts)** | ** ** |
| Net income                                                                                            |       |                                                 |       |                     |       |   |   |   |   |
| As reported                                                                                           |       | $                                                    | 11,131     |                     | $          | 5,464 |   | $ | 46,809 |   | $ | 25,395 |   |
| Add: Stock based  employee compensation, net of income tax                                            |       | 341                                                  |       | 17                       |       | 395 |   | 70 |   |
| Deduct: Stock  based employee compensation determined under the fair value method, net of  income tax |       | (2,057                                               | )          | (985                     | )          | (5,299 | ) | (2,037 | ) |
| Proforma                                                                                              |       | $                                                    | 9,415      |                     | $          | 4,496 |   | $ | 41,905 |   | $ | 23,428 |   |
| Basic EPS                                                                                             |       |                                                 |       |                     |       |   |   |   |   |
| As reported                                                                                           |       | $                                                    | 0.19       |                     | $          | 0.09 |   | $ | 0.79 |   | $ | 0.44 |   |
| Proforma                                                                                              |       | $                                                    | 0.16       |                     | $          | 0.08 |   | $ | 0.70 |   | $ | 0.40 |   |
| Diluted EPS                                                                                           |       |                                                 |       |                     |       |   |   |   |   |
| As reported                                                                                           |       | $                                                    | 0.18       |                     | $          | 0.09 |   | $ | 0.76 |   | $ | 0.43 |   |
| Proforma                                                                                              |       | $                                                    | 0.15       |                     | $          | 0.08 |   | $ | 0.68 |   | $ | 0.39 |   |

 

On December 16,2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFASNo. 123(R)”).  SFAS No. 123(R) will require companies to measureall employee stock-based compensation awards using a fair value method andrecord such expense in its consolidated financial statements.  Inaddition, the adoption of SFAS No. 123(R) requires additional accountingand disclosure related to the income tax and cash flow effects resulting fromshare-based payment arrangements.  SFAS No. 123(R) is effective forthe Company beginning in the first quarter of fiscal 2006.  The Company isin the process of determining the impact of the requirements of SFAS No. 123(R).

 

##### **LEGAL MATTERS**

 

**As of the date of this filing, the Company isinvolved in several ongoing legal proceedings as described below.**

 

Threeformer employees sued bebe on November 20, 2003, in the Superior Court ofthe State of California, County of San Mateo (case No. CIV435794) allegingthat they were misclassified as exempt employees under California law. Theplaintiffs purport to bring this action on behalf of a class of former andpresent California bebe store managers and co-managers. Plaintiffs are seekingcompensatory, statutory and injunctive relief. The parties reached a conditional settlement agreement which wassubsequently approved by the trial court. The court’s approval has since been appealed.

 

Aformer employee sued bebe on January 20, 2004 in the Superior Court of theState of California, County of San Diego (case No. GIC824505) allegingunpaid wages and unfair business practices. The plaintiff purports to bring theaction on behalf of a class of California employees who hold or have held theposition of co-manager or others similarly designated. The lawsuit seekscompensatory, statutory and injunctive relief. This individual plaintiff has opted not to participate in the classsettlement described above and is continuing to pursue the claims made.

 

Aformer employee sued bebe on August 2, 2004 in the Superior Court of theState of California, County of Sacramento (case No. 04AS03109) allegingunlawful wage payment and unfair competition.  The plaintiff purports tobring the action on behalf of a class of California employees who hold or atanytime within the past four years have held a salaried store managementposition.  The lawsuit seeks compensatory, statutory and injunctiverelief.  This

 

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individual plaintiff has opted not to participate inthe class settlement described above and is continuing to pursue the claims made.

 

Aformer candidate for an executive position sued bebe and two other nameddefendants in a First Amended Complaint, filed November 9, 2004 in theSuperior Court of the State of California, County of San Francisco (case No. CGC-04-435517),seeking unspecified monetary damages and other equitable relief.  The claims against bebe allege intentionaland negligent interference with prospective economic advantage and contractualrelations, breach of contract, breach of implied covenant of good faith andfair dealing, fraud, promissory estoppel, negligence, intentional and negligentinfliction of emotional distress, and violation of Labor Code Section 970.  The plaintiff and all defendants arecurrently participating in non-binding mediation.  The Company believes that the claims againstthe Company are without merit, therefore has not made an estimate of potentialliabilities, and will continue to vigorously defend this matter.

 

A former employeefiled a lawsuit in the United States District Court for the NorthernDistrict of California on April 28, 2005 (case No. C 05-01777) forherself and purportedly on behalf of those similarly situated allegingthat bebe failed to pay minimum wages in violation of the Fair Labor StandardsAct as a result of its alleged practice of requiring employees to purchasedefendant’s clothing and accessories and wear them as a uniform.  Theplaintiff seeks unspecified monetary damages and injunctiverelief.  The Company believes that the claims against theCompany are without merit and will vigorously defend this matter.

 

TheCompany intends to defend itself vigorously against these claims.  However, the results of any litigation areinherently uncertain.  The Company cannotassure you that it will be able to successfully defend itself in theselawsuits.  The Company has made anestimate of potential liabilities that management believes are reasonable.  This estimate will be revised as furtherinformation becomes available.  Althoughthe final resolution of these matters may be greater than the Company’srecorded liability, management does not believe the ultimate resolution willhave a material adverse effect on the Company’s business, financial conditionor results of operations.

 

Inaddition to the above, the Company is also involved in various other legalproceedings arising in the normal course of business.  None of these matters are expected,individually or in the aggregate, to have a material adverse effect on theCompany’s business, financial condition or results of operations.

 

##### **SUBSEQUENT EVENT**

##### ** **

On April 26, 2005,the Company’s Board of Directors approved a 3 for 2 stock split of the Company’scommon stock.  Shareholders of record on May 23,2005 will receive one additional share for every 2 shares held, effective on June 3,2005.

 

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** **

**ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

** **

The following Management’sDiscussion and Analysis of Financial Condition and Results of Operations containsforward-looking statements, which involve risks and uncertainties. Our actualresults may differ materially from those anticipated in these forward-lookingstatements.  Statements that arepredictive in nature, that depend upon or refer to future events or conditionsor that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”“estimates,” “thinks,” and similar expressions are forward-looking statements.  Forward looking statements include statementsabout our expected results of operations, capital expenditures and storeopenings.  Although we believe that thesestatements are based upon reasonable assumptions, we cannot assure you that ourgoals will be achieved. These forward-looking statements are made as of thedate of this Form 10-Q, and we assume no obligation to update orrevise them or provide reasons why actual results may differ. Factors thatmight cause such a difference include, but are not limited to, our ability torespond to changing fashion trends, miscalculation of the demand for ourproducts, disruption in supply, difficulties in manufacturing, effectivemanagement of our growth, the success of future store openings, decline incomparable store sales performance, ongoing competitive pressures in theapparel industry, changes in the level of consumer spending or preferences inapparel, our ability to attract and retain key management personnel, adverseeconomic conditions, and/or other factors discussed in “Risks That May AffectResults” and elsewhere in this Form 10-Q.

 

##### **OVERVIEW**

##### ** **

We design, develop andproduce a distinctive line of contemporary women’s apparel and accessories.While we attract a broad audience, our target customers are 21 to 35-year-oldwomen who seek current fashion trends interpreted to suit their lifestyleneeds. The “bebe look,” appeals to a hip, sexy, sophisticated, body-consciouswoman who takes pride in her appearance. The bebe customer expects value in theform of quality at a competitive price.

 

Our distinctive productoffering includes a full range of fashion separates, dresses, activewear, andaccessories for all facets of the customer’s lifestyle:  career, casual, active, evening and weekendwear. We design and develop the majority of our merchandise in-house. Themerchandise is then manufactured to our specifications.  The remainder of our merchandise is selecteddirectly from third party manufacturers’ lines.

 

We market our productsunder the bebe, BEBE SPORT and bebe O brand names through our 206 retailstores, of which 160 are bebe stores, 28 are BEBE SPORT stores, and 18 are bebeoutlet stores.  These stores are locatedin 32 states, the District of Columbia, Puerto Rico and Canada. In addition, wehave an on-line store at www.bebe.com and our licensees operate 13international stores.  During the thirdquarter of fiscal 2005, we opened three BEBE SPORT stores, closed two bebestores, and closed one BEBE SPORT store. During the first nine months of fiscal 2005, we opened five bebe storesand six BEBE SPORT stores, relocated/expanded four bebe stores and one outletstore, converted two bebe stores into BEBE SPORT stores, closed two bebestores, and closed two BEBE SPORT stores. We expect to open approximately eleven bebe stores and ten BEBE SPORTstores during the year.  Additionally, weanticipate closing six stores.

 

*bebestores.*  The Companywas founded by Manny Mashouf, our current Chairman of the Board. We opened ourfirst store in San Francisco, California in 1976, which was also the year weincorporated.

 

*BEBESPORT stores.* The Company launched BEBE SPORT in the firsthalf of fiscal 2003 to satisfy the casual lifestyle needs of the bebe customer.The BEBE SPORT product line is active inspired sportswear featuring cottonknits, fleece, casual active bottoms, sweaters, outerwear and accessories thatare easy, sexy and modern.

 

*bebeoutlet stores.*  TheCompany utilizes the outlets as a clearance vehicle for merchandise from our bebeand BEBE SPORT stores. Additionally, we round out the inventory of these storeswith a strong presentation of logo merchandise and special cuts, which bear thebebe O label, produced specifically for the outlet stores.

 

*On-linestore.* The on-line store offers the customer an extension ofthe bebe store experience and provides an assortment of bebe and BEBE SPORTmerchandise from which the customer can choose. It is also used as a vehicle to communicate with our customers throughadvertising and direct mail.

 

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We reinforce our brandwith an extensive image advertising campaign, which addresses the lifestyleneeds and aspirations of our target customers. An outside advertising agencyworks with our internal marketing department to create edgy, high-impact ads toattract customers who are drawn to the playfully sensual and evocativeimagery.  Image ads are producedquarterly and are featured in fashion and lifestyle magazines, transitshelters, mall kiosks, store windows and online at bebe.com.  We believe that our advertising promotesbrand awareness and supports numerous product line expansion opportunities.

 

##### **CRITICAL ACCOUNTING POLICIES**

##### ** **

Management’sDiscussion and Analysis of Financial Condition and Results of Operations arebased upon our consolidated financial statements, which have been prepared inconformity with accounting principles generally accepted in the United Statesof America.

 

Thepreparation of these financial statements requires the appropriate applicationof certain accounting policies, many of which require us to make estimates andassumptions about future events and their impact on amounts reported in ourfinancial statements and related notes. Since future events and their impactcannot be determined with certainty, the actual results may differ from ourestimates. Such differences could be material to the financial statements. Webelieve our application of accounting policies, and the estimates inherentlyrequired therein, are reasonable. These accounting policies and estimates areconstantly reevaluated, and adjustments are made when facts and circumstancesdictate a change. Our accounting policies are more fully described in Note 1 tothe consolidated financial statements in our annual report on Form 10-Kfor the year ended June 30, 2004.

 

Wehave identified certain critical accounting policies, which are describedbelow:

 

*Inventories.* Our inventories are stated at the lower of weighted average cost ormarket.  Market is determined based onthe estimated net realizable value, which is generally the merchandise sellingprice.  To ensure that our raw materialis properly valued we age the fabric inventory and record a reserve inaccordance with our established policy, which is based on historicalexperience. To ensure our finished goods inventory is properly valued we reviewthe age and turnover of our inventory and record a reserve if the selling priceis marked down below cost.  Theseassumptions can have an impact on current and future operating results andfinancial position.  We estimate shrinkagefor the period between the last physical count and balance sheet date based onhistoric shrinkage trends.

 

*Long-lived assets.* We review long-lived assets forimpairment whenever events or changes in circumstances, such as store closuresor poor performing stores, indicate that the carrying value of an asset may notbe recoverable. If the undiscounted cash flows from a long-lived asset are lessthan the carrying value we record an impairment charge equal to the differencebetween the carrying value and the asset’s fair value.  In addition, at the time a decision is madeto close a store, we record an impairment charge, if appropriate, or acceleratedepreciation over the revised shorter useful life of the asset. Historically,our impairment charges have been immaterial.  During the nine months ended April 2, 2005 and March 31,2004, we recorded impairment charges of approximately $112,000 and $81,000,respectively, for poor performing stores for which the carrying value of theassets will not be recovered. We believe at this time that the long-livedassets’ carrying values and useful lives continue to be appropriate.

 

*SalesReturn Reserve.* We record a reserve for estimated productreturns based on historical return trends. As of April 2, 2005 and March 31, 2004, the reserve was $1,005,000and $653,000, respectively.  If actualreturns are greater than those projected, additional sales returns may berecorded in the future.

 

*AccruedLitigation.*  We accrue liabilities for estimates ofprobable settlements of lawsuits.  Duringfiscal year 2004 two lawsuits alleging misclassification of employment positionwere filed against us and in the first quarter of fiscal year 2005 a similarlawsuit was filed against us.  Theliability for the estimated payment of claims for these lawsuits recorded as ofApril 2, 2005 is an estimate and should a greater amount of claims occur,the recorded liability may not be sufficient.

 

*IncomeTaxes*. We accrueliabilities for estimates of probable settlements of domestic and foreign taxaudits.  At any one time, many tax years may be subject to audit byvarious taxing jurisdictions.  The results of these audits andnegotiations with taxing authorities may affect the ultimate settlement ofthese issues.  Our effective tax rate in a given financial statementperiod may be materially impacted by changes in the mix and level ofearnings.  We also record a valuationallowance against our deferred tax assets arising from foreign tax creditcarryforwards as the utilization of these credits is not assured.

 

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##### **MARKETABLE SECURITIES**

 

TheCompany’s marketable securities are classified as available-for-sale and arecarried at cost which approximates their fair market value.

 

Auctionrate securities have stated maturities beyond one year but are priced andtraded as short-term instruments due to the liquidity provided through theinterest rate reset mechanism and are classified as short-term when theyrepresent investments of cash that are intended for use in current operations. Priorto the third quarter of fiscal 2005, the Company had classified auction ratesecurities as cash equivalents on the consolidated balance sheets.  As of April 2, 2005, auction rate securitiesare classified as investments and to conform to the current periodpresentation, the Company has reclassified $155.2 million and $150.4million of auction rate securities from cash equivalents to short-terminvestments as of June 30, 2004 and March 31, 2004, respectively.There was no impact on the consolidated statements of operations as a result ofthe reclassification. The impact on the consolidated statements of cash flowswas an increase of $32.1 million in cash used in investing activities forthe nine months ended March 31, 2004.

 

##### **LEASE ACCOUNTING**

##### ** **

The Company leasesretail stores and office space under operating leases.  In the third quarter of fiscal 2005, in orderto comply with Financial Accounting Standards Board (“FASB”) Statement No. 13“Accounting for Leases”, FASB Technical Bulletin No. 85-3 “Accountingfor Operating Leases with Scheduled Rent Increases”, and FASB TechnicalBulletin No. 88-1 “Issues Relating to Accounting for Leases”, andconsistent with the views expressed by the Office of the Chief Accountant ofthe Securities and Exchange Commission to the American Institute of CertifiedPublic Accountants on February 7, 2005, the Company corrected the mannerin which it accounts for construction allowances and the period over which itrecognizes rent expense.

 

Historically, the Companyhas recognized straight line expense for leases beginning on the store openingdate which had the effect of excluding the build-out period of its stores fromthe calculation of the period over which it expenses rent.  The Company has corrected its leaseaccounting to begin recording rent expense when it takes possession of a store,which occurs approximately 90 days prior to the opening of the store.

 

Additionally,construction allowances related to store openings prior to September 2002had been recorded as reductions of property and equipment and amortized as areduction of depreciation expense. Construction allowances related to store openings prior to September 2002have been appropriately reclassified as deferred rent and will be amortized as areduction of rent expense.  Constructionallowances related to store openings beginning in September 2002 wereappropriately recorded as deferred rent and amortized as a reduction of rentexpense.

 

The cumulativeimpact of the lease accounting adjustments through April 2, 2005 resultsin an increase to total assets of $5.4 million, an increase to deferred rentand other lease incentives of $8.6 million, and a reduction to net incomebefore income taxes of $3.2 million.  Theeffect of the cumulative adjustment on net income after tax is $2.0 million, or$0.03 per diluted share.  The Company hasrecorded this adjustment as a cumulative, non-cash charge in the third quarterended April 2, 2005.  Prior yearfinancial results will not be restated due to the immateriality of this adjustmentto the results of operations and financial position for the current year or anyindividual prior year.  The adjustmentwill not affect historical or future cash flows or timing of payments under relatedleases.

 

**RECENT ACCOUNTING PRONOUNCEMENT**

 

On December 16,2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFASNo. 123(R)”).  SFAS No. 123(R) will require companies to measureall employee stock-based compensation awards using a fair value method and recordsuch expense in its consolidated financial statements.  In addition, theadoption of SFAS No. 123(R) requires additional accounting and disclosurerelated to the income tax and cash flow effects resulting from share-basedpayment arrangements.  SFAS No. 123(R) is effective for the Companybeginning in the first quarter of fiscal 2006.  The Company is in theprocess of determining the impact of the requirements of SFAS No. 123(R).

 

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##### **SUBSEQUENT EVENT**

 

On April 26, 2005,the Company’s Board of Directors approved a 3 for 2 stock split of the Company’scommon stock.  Shareholders of record on May 23,2005 will receive one additional share for every 2 shares held, effective on June 3,2005.

 

##### **RESULTS OF OPERATIONS**

 

Beginning on July 1, 2004, we changed our monthend to a 4-4-5 week period end. Each period will end on a Saturday. The three months ending April 2, 2005 and March 31, 2004 bothinclude 91 days.  The nine months ending April 2,2005 include one additional day in the reporting period than the comparativeperiod of fiscal year 2004 which was reported on a calendar month basis.  For the three and nine month periods ended April 2,2005, comparable store sales were determined using comparable periods of 91 and276 days, respectively.

 

The following table setsforth certain financial data as a percentage of net sales for the periodsindicated:

 
| ** **                                             | ** ** | **Three Months Ended**  | ** ** | **Nine Months Ended**    | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|
| ** **                                             | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** | ** ** |
| **Statements  of Operations Data:**                    |       |                    |       |                     |       |   |   |   |   |
| Net sales                                              |       | 100.0                   | %          | 100.0                    | %          | 100.0 | % | 100.0 | % |
| Cost of sales,  including production and occupancy (1) |       | 53.2                    |       | 53.7                     |       | 50.9 |   | 53.0 |   |
|                                                   |       |                    |       |                     |       |   |   |   |   |
| Gross profit                                           |       | 46.8                    |       | 46.3                     |       | 49.1 |   | 47.0 |   |
| Selling, general  and administrative expenses (2)      |       | 32.4                    |       | 36.5                     |       | 29.6 |   | 33.0 |   |
|                                                   |       |                    |       |                     |       |   |   |   |   |
| Income from  operations                                |       | 14.4                    |       | 9.8                      |       | 19.5 |   | 14.0 |   |
| Interest and  other income, net                        |       | 1.0                     |       | 0.7                      |       | 0.8 |   | 0.6 |   |
|                                                   |       |                    |       |                     |       |   |   |   |   |
| Earnings before  income taxes                          |       | 15.4                    |       | 10.5                     |       | 20.3 |   | 14.6 |   |
| Provision for  income taxes                            |       | 5.9                     |       | 4.0                      |       | 7.7 |   | 5.5 |   |
|                                                   |       |                    |       |                     |       |   |   |   |   |
| Net earnings                                           |       | 9.5                     | %          | 6.5                      | %          | 12.6 | % | 9.1 | % |

 

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(1)                                  Cost of sales includes the cost of merchandise,occupancy costs and production costs.

(2)                                  Selling, general and administrative expensesprimarily consist of non-occupancy store costs, corporate overhead andadvertising costs.

 

*NetSales.* Net sales increased to $116.9 million during the threemonths ended April 2, 2005 from $83.6 million in the comparable period ofthe prior year, an increase of $33.3 million, or 39.7%. Net sales for thequarter included $96.8 million from stores open more than one year. During thequarter comparable store sales increased 28.5% versus the prior year. Theincrease in comparable store sales performance was largely due to customeracceptance of the product offering. The remaining sales of $20.1 million weregenerated by stores not included in the comparable store sales base, on-linesales, sales to international licensees, and royalty revenue from licensees. 

 

For the nine months endedApril 2, 2005, net sales increased to $372.6 million from $279.2 millionin the comparable period of the prior year, an increase of $93.4 million, or 33.4%.Net sales for the nine-month period included $317.0 million from stores openmore than one year, representing a 23.0% increase in comparable store salesversus the prior year. The

 

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increase in comparable store sales performance was largely due tocustomer acceptance of the product offering. The remaining sales of $55.6million were generated by stores not included in the comparable store salesbase, on-line sales, sales to international licensees, and royalty revenue fromlicensees.

 
| ** **                                            | ** ** | **Three Months Ended**  | ** ** | **Nine Months Ended**    | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|
| ** **                                            | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** | ** ** | **April 2,  2005** | ** ** | **March 31,  2004** |   |
| Net sales (In  thousands)                             |       | $                       | 116,862    |                     | $          | 83,637 |   | $ | 372,590 |   | $ | 279,203 |   |
| Total net sales  increase percentage                  |       | 39.7                    | %          | 21.5                     | %          | 33.4 | % | 14.7 | % |
| Comparable store  sales increase percentage           |       | 28.5                    | %          | 16.7                     | %          | 23.0 | % | 9.7 | % |
| Net sales per  average square foot (In thousands) (1) |       | $                       | 158        |                     | $          | 124 |   | $ | 511 |   | $ | 419 |   |
| Square footage -  at end of period (In thousands)     |       | 736                     |       | 673                      |       | 736 |   | 673 |   |
|                                                  |       |                    |       |                     |       |   |   |   |   |
| Number of Store  Locations:                           |       |                    |       |                     |       |   |   |   |   |
| Beginning of  Period                                  |       | 206                     |       | 188                      |       | 199 |   | 180 |   |
| New store  locations                                  |       | 3                       |       | 2                        |       | 11 |   | 10 |   |
| Closed store  locations                               |       | 3                       |       | 1                        |       | 4 |   | 1 |   |
| End of Period                                         |       | 206                     |       | 189                      |       | 206 |   | 189 |   |

 

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(1)       Net sales per average square foot iscalculated using net store sales and a monthly average store square footage. 

 

*GrossProfit.*Gross profitincreased to $54.7 million during the three months ended April 2, 2005from $38.7 million for the comparable period of the prior year, an increase of$16.0 million, or 41.2%. As a percentage of net sales, gross profit increasedto 46.8% for the three-month period ended April 2, 2005 from 46.3% in thecomparable period of the prior year. The increase in gross profit as apercentage of net sales from the prior year of 0.5% was the result of favorableoccupancy leverage of 3.0 percentage points as a result of higher comparablestore sales and improved merchandise margins of 0.2 percentage points offset bylease accounting adjustments of $3.2 million, or 2.7 percentage points, asdiscussed in “Lease Accounting” above.

 

Gross profit increased to$183.1 million during the nine months ended April 2, 2005 from $131.3million for the comparable period of the prior year, an increase of $51.8million, or 39.5%. As a percentage of net sales, gross profit increased to 49.1%for the nine-month period ended April 2, 2005 from 47.0% in the comparableperiod of the prior year. The increase in gross profit as a percentage of netsales from the prior year of 2.1% resulted from favorable occupancy leverage of2.1 percentage points as a result of higher comparable store sales and improvedmerchandise margins of 0.9 percentage points, offset by lease accountingadjustments of $3.2 million, or 0.9 percentage points, as discussed in “LeaseAccounting” above.

 

*Selling,General and Administrative Expenses.*Selling, general and administrative expenses, whichprimarily consist of non-occupancy store costs, corporate overhead andadvertising costs, increased to $37.8 million during the three months ended April 2,2005 from $30.5 million in the comparable period of the prior year, an increaseof $7.3 million, or 24.1%. As a percentage of net sales, these expensesdecreased to 32.4% during the three-month period from 36.5% in the comparableperiod of the prior year. This decrease as a percentage of net sales wasprimarily due to increased leverage on compensation and fixed expenses as aresult of higher comparable store sales.

 

For the nine months endedApril 2, 2005, selling, general and administrative expenses increased to $110.7million from $92.1 million in the comparable period of the prior year, anincrease of $18.6 million, or 20.1%. As a percentage of net sales, theseexpenses decreased to 29.6% during the nine-month period from 33.0% in thecomparable period of the prior year. This decrease as a percentage of net sales was primarily due toincreased leverage on compensation and fixed expenses as a result of highercomparable store sales.

 

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*Interestand Other Income, Net.* We generated $1.1 million of interest income during the three monthsended April 2, 2005 compared to $0.5 million in the comparable period ofthe prior year. For the nine months ended April 2, 2005, we generated $3.0million of interest income compared to $1.5 million in the comparable period ofthe prior year. The increases are the result of higher average cash equivalentand marketable securities balances and higher interest rates.

 

*Provisionfor Income Taxes.*The effective tax rate was 38.0% for thethree and nine month periods ended April 2, 2005 compared to 37.6% and 37.5%,respectively, for three and nine months ended March 31, 2004 andrepresents the Company’s estimate of the annual effective rate for theseperiods.

 

**Seasonality of Business and QuarterlyResults**

 

Our business varies withgeneral seasonal trends that are characteristic of the retail and apparelindustries. As a result, our typical store generates a higher percent of ourannual net sales and profitability in the second quarter of our fiscal year(which includes the holiday selling season) compared to the other quarters ofour fiscal year. If for any reason our sales were below seasonal norms duringthe second quarter of our fiscal year, our annual operating results would benegatively impacted. Because of the seasonality of our business, results forany quarter are not necessarily indicative of results that may be achieved fora full fiscal year.

 

### **LIQUIDITYAND CAPITAL RESOURCES**

 

Ourworking capital requirements vary widely throughout the year and generally peakin the first and second fiscal quarters. At April 2, 2005, we hadapproximately $258.2 million of cash and equivalents, short-term marketablesecurities and long-term marketable securities on hand. In addition, we had arevolving line of credit, under which we could borrow or issue letters ofcredit up to a combined total of $25.0 million. As of April 2, 2005, therewere no borrowings under the line of credit and letters of credit outstandingtotaled $2.6 million.

 

Netcash provided by operating activities for the nine months ended April 2, 2005was $71.5 million versus $40.0 million for the nine months ended March 31,2004. Cash provided by operating activities for these periods was primarilygenerated by earnings adjusted for depreciation, deferred rent, and changes inworking capital.  The increase of $31.5million for the nine-month period over the comparable period of the prior yearis primarily due to an increase in net earnings of $21.4 million, changes inworking capital of $6.2 million and an increase in deferred rent of $3.8million, resulting primarily from lease accounting adjustments as described in “LeaseAccounting” above.  We are currentlyplanning our July inventory to be 20% to 30% per square foot higher thanthe prior year, therefore anticipate an increase in cash used for inventorypurchases in the fourth quarter.

 

Netcash used by investing activities for the nine months ended April 2, 2005was $70.4 million, primarily for the purchase of marketable securities, as wellas expenditures related to the opening of eleven new stores, the relocation andexpansion of existing stores, and improvements made to our new productionfacility and design studio.  For the nine-monthperiod ended March 31, 2004, $39.5 million was used primarily for thepurchase of marketable securities as well as expenditures related to our newproduction and design studio and the opening of ten new stores. We expect toopen approximately 21 stores during fiscal 2005 and estimate that total capitalexpenditures will be approximately $20.0 million.

 

Net cash provided byfinancing activities was $7.7 million for the nine months ended April 2,2005 compared to $4.9 million for the nine months ended March 31, 2004,and was derived from proceeds from stock option exercises, partially offset infiscal 2005 by the payment of three quarterly cash dividends of approximately $2.0million each.

 

Webelieve that our cash on hand, together with our cash flows from operations,will be sufficient to meet our capital and operating requirements for at leastthe next twelve months. Our future capital requirements, however, will dependon numerous factors, including without limitation, the size and number of newand expanded stores and/or store concepts, investment costs for managementinformation systems, potential acquisitions and/or joint ventures, repurchaseof stock and future results of operations.

 

### **Inflation**

 

Wedo not believe that inflation has had a material effect on the results ofoperations in the recent past. However, we cannot assure that our business willnot be affected by inflation in the future.

 

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### **RISKSTHAT MAY AFFECT RESULTS**

 

Factorsthat might cause our actual results to differ materially from the forwardlooking statements discussed elsewhere in this report, as well as affect ourability to achieve our financial and other goals, include, but are not limitedto, the following:

 

RISKS RELATING TO OURBUSINESS:

 

**1.  The success of our business depends in largepart on our ability to identify fashion trends as well as to react to changingcustomer demand in a timely manner.** Consequently, we depend in part upon thecustomer response to the creative efforts of our merchandising, design andmarketing teams and their ability to anticipate trends and fashions that willappeal to our consumer base. If we miscalculate our customers’ productpreferences or the demand for our products, we may be faced with excessinventory. Historically, this type of occurrence has resulted in excess fabricfor some products and markdowns and/or write-offs, which has impaired ourprofitability, and may do so in the future. Similarly, any failure on our partto anticipate, identify and respond effectively to changing consumer demandsand fashion trends will adversely affect our sales.

 

**2.  If we are unable to obtain raw materials,unable to find manufacturing facilities or our manufacturers performunacceptably, our sales may be negatively affected and our financial conditionmay be harmed**. We do not own any manufacturing facilities andtherefore depend on contractors and third parties to manufacture our products.We place all of our orders for production of merchandise and raw materials bypurchase order and do not have any long-term contracts with any manufacturer orsupplier. If we fail to maintain favorable relationships with our manufacturersand suppliers or are unable to obtain sufficient quantities of quality rawmaterials on commercially reasonable terms, it could harm our business andresults of operations.  We cannot assureyou that contractors and third party manufacturers (1) will not supplysimilar products to our competitors, (2) will not stop supplying productsto us completely, or (3) will supply products in a timely manner.  Untimely receipt of products may result inmarkdowns which would have a negative impact on earnings.  Furthermore, we have received in the past,and may receive in the future, shipments of products from manufacturers thatfail to conform to our quality control standards. In such event, unless we areable to obtain replacement products in a timely manner, we may lose sales.  Certain of our third party manufacturersstore our raw materials.  In the eventour inventory was damaged or destroyed and we were unable to obtain replacementraw materials, our earnings may be negatively impacted.

 

**3.  Our success depends on our ability to attractand retain key employees in order to support our existing business and futureexpansion.** From time to time we actively recruit qualifiedcandidates to fill key executive positions from within the Company. There issubstantial competition for experienced personnel, which we expect willcontinue. We compete for experienced personnel with companies who have greaterfinancial resources than we do. In the past, we have experienced significantturnover of our executive management team and retail store personnel. We arealso exposed to employment practice litigation due to the large number ofemployees and high turnover of our sales associates. If we fail to attract,motivate, and retain qualified personnel, it could harm our business and limitour ability to expand.

 

In addition, we dependupon the expertise and execution of our key employees, particularly MannyMashouf, the founder, Chairman of the Board, and majority shareholder, and GregoryScott, our Chief Executive Officer and member of the Board of Directors. We donot carry “key person” life insurance policies on any of our employees. If welose the services of Mr. Mashouf, Mr. Scott, or any key officers oremployees, it could harm our business and results of operations.

 

**4.  If we are not able to successfully developand expand our bebe and BEBE SPORT stores our revenue base and earnings may beimpaired**. As part of our growth strategy, we may open largerbebe stores.  If these stores are notsuccessful, our financial condition may be harmed.  In addition, we launched a new store concept,BEBE SPORT, during fiscal 2003 for which we have committed significantfinancial and human resources to develop and expand. The failure of the BEBESPORT concept might result in a negative impact to earnings.

 

**5.  There can be no assurance that future storeopenings will be successful. **Weexpect to open approximately 21 stores in fiscal 2005, of which approximatelyten will be BEBE SPORT stores and approximately eleven will be bebestores.  In the past, we have closedstores as a result of poor performance, and there can be no assurance that thestores that we plan to open in fiscal 2005, or any other stores that we mightopen in the future, will be successful or that our overall operating profitwill increase as a result of opening these stores.  During fiscal 2005, we anticipate closing sixstores.  In addition, most of our newstore openings in fiscal 2005 will be in existing markets. These openings mayaffect the existing stores’ net sales and

 

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profitability.  Our failure to predict accurately thedemographic or retail environment at any future store location could have amaterial adverse effect on our business, financial condition and results ofoperations.

 

**6.  Any serious disruption at our majorfacilities could have a harmful effect on our business.** Wecurrently operate our corporate office in Brisbane, California, a distributionfacility in Benicia, California, and a design studio and production facility inLos Angeles, California. ** **Any serious disruption at thesefacilities whether due to construction, relocation, fire, earthquake, terroristacts or otherwise would harm our operations and could have a harmful affect onour business and results of operations. Furthermore, we have little experienceoperating essential functions away from our main corporate offices and areuncertain what effect operating such satellite facilities might have onbusiness, personnel and results of operations. We are in the process of implementing a business continuity plan thatwill address recovery in the event of a serious disruption at one of our majorfacilities.

 

**7.  We face significant competition in the retailand apparel industry, which could harm our sales and profitability.**The retail and apparel industries are highly competitive and are characterizedby low barriers to entry. Key competitors include, but are not limited to ArdenB, BCBG, Express, Guess, and the t.b.d. and Savvy Departments within Nordstrom.We expect competition in our markets to increase. The primary competitivefactors in our markets are:  brand namerecognition, sourcing strategies, product styling, quality, presentation andpricing, timeliness of product development and delivery, store ambiance,customer service, and convenience.

 

We compete withtraditional department stores, specialty store retailers, business to consumerwebsites, off-price retailers and direct marketers for, among other things, rawmaterials, market share, retail space, finished goods, sourcing and personnel.Because many of these competitors are larger and have substantially greaterfinancial, distribution and marketing resources than we do, we may lack theresources to adequately compete with them. If we fail to compete in any way, itcould harm our business, financial condition, and results of operations.

 

**8.  Purchases of the merchandise we sell aregenerally discretionary and are therefore particularly susceptible to economicslowdowns.**If economic conditions change, our business,financial condition and results of operations could be adversely affected.Consumers are generally more willing to make discretionary purchases, includingpurchases of fashion products, during periods in which favorable economicconditions prevail.

 

The outlook for theUnited States economy is uncertain and is directly affected by global politicalfactors that are beyond our control. Any escalation of military actioninvolving the United States could cause increased volatility in financialmarkets, further adversely affecting consumer confidence and spending habits.

 

**9.  If we are not able to successfully protectour intellectual property our ability to capitalize on the value of our brandname may be impaired.**Even though we takeactions to establish, register and protect our trademarks and other proprietaryrights, we cannot assure you that we will be successful or that others will notimitate our products or infringe upon our intellectual property rights. Inaddition, there is no assurance that others will not resist or seek to blockthe sale of our products as infringements of their trademark and proprietaryrights.

** **

**Weare seeking to register our trademarks domestically and internationally.  Obstacles may exist that may prevent us fromobtaining a trademark for the bebe name or related names. We may not be able toregister certain trademarks, purchase the right or obtain a license to use thebebe name on commercially reasonable terms. If we fail to obtain trademark,ownership or license the requisite rights, it would limit our ability to expand. In some jurisdictions, despitesuccessful registration of our trademarks, third parties may allegeinfringement and bring actions against us. In addition, if our licensees failto use our intellectual property correctly, the goodwill associated with ourtrademarks may be diluted.**

** **

**Furthermore,if we do not demonstrate use of our trademarks, our trademark rights may lapseover time.**

** **

**10.  If an independent manufacturer violates laboror other laws, or is accused of violating any such laws, or if their laborpractices diverge from those generally accepted as ethical, it could harm ourbusiness and brand image.** While we maintain a policy tomonitor the operations of our independent manufacturers by having anindependent firm inspect these manufacturing sites, and all manufacturers arecontractually required to comply with such labor practices, we cannot controlthe actions or the public’s perceptions of such manufacturers, nor can weassure that these manufacturers will conduct their businesses using ethical orlegal labor practices. Apparel companies can be held jointly liable for thewrongdoings of the manufacturers of their products.  While we do not control their employees’employment conditions or the manufacturers’

 

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business practices, andthe manufacturers act in their own interest, they may act in a manner thatresults in negative public perceptions of us and/or employee allegations orcourt determinations that we are jointly liable.

 

RISKS RELATING TO OURCOMMON STOCK:

 

**1.  Our stock price may fluctuate because of thesmall number of shares that can be publicly traded and the low average dailytrading volumes**. The vast majority of our outstanding sharesof our common stock are subject to trading restrictions. As of April 2,2005, approximately 15,800,000 shares, of the 60,455,277 total outstandingshares of our common stock, were available to be publicly traded, and as aresult, our average daily trading volumes are relatively low, and our stockprice is vulnerable to market swings due to large purchases, sales and shortsales of our common stock.

 

**2.  Because a principal shareholder controls theCompany, other shareholders may not be able to influence the direction theCompany takes**. As of April 2, 2005, Manny Mashouf, theChairman of the Board, beneficially owned****approximately75% of the outstanding shares of our common stock. As a result, he alone can controlthe election of directors and the outcome of all issues submitted to theshareholders. This may make it more difficult for a third party to acquireshares, may discourage acquisition bids, and could limit the price that certaininvestors might be willing to pay for shares of common stock. Thisconcentration of stock ownership may have the effect of delaying, deferring orpreventing a change in control of our Company.

 

##### **3.  Investor confidence and share value may beadversely impacted if we are unable to favorably assess, or if we do notreceive an unqualified attestation report on our assessment of, theeffectiveness of our internal control over financial reporting as of the end ofour 2005 fiscal year as required by Section 404 of the Sarbanes-Oxley Actof 2002.**An effective system of internal control overfinancial reporting is necessary for us to provide reliable financialreports.  Rules adopted by theSecurities and Exchange Commission pursuant to Section 404 of theSarbanes-Oxley Act of 2002 require annual assessment of our internal controlover financial reporting, and attestation of our assessment by our independentregistered public accountants.  Thisrequirement will first apply to our Annual Report on Form 10-K forthe fiscal year ending July 2, 2005. The rules governing the standards that must be met for managementto assess the internal control over financial reporting as effective are newand complex, and require significant documentation, testing and possibleremediation to meet the detailed standards under the new rules.  We are diligently reviewing, documenting andtesting our internal control over financial reporting, which has and maycontinue to result in increased expenses and the devotion of significantmanagement resources.  We may encounterproblems or delays in completing the implementation of any changes necessary tomake a favorable assessment of our internal control over financial reportingunder the new standards.  In addition,the evaluation and attestation process by our independent registered publicaccountants is new and we may encounter problems or delays in completing theimplementation of any requested improvements and receiving a favorable reviewand attestation by our independent registered public accountants.  If we cannot favorably assess, or if we donot receive an unqualified attestation report on our assessment of, theeffectiveness of our internal control over financial reporting, investorconfidence and share value may be negatively impacted.

 

##### **ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Weare exposed to market risks, which include changes in U.S. interest rates and,to a lesser extent, foreign exchange rates. We do not engage in financialtransactions for trading or speculative purposes.

 

*Interest Rate Risk*

* *

We currently maintain aportfolio of variable interest rate investments consisting of cash equivalents,short-term marketable securities and long-term marketable securities.  Marketable securities are comprised of closed-endvariable interest rate funds that invest primarily in tax-exempt municipalbonds.  Due to the variable nature ofthese investments, their value is typically not subject to market ratechanges.  According to our investmentpolicy, we may invest in taxable and tax exempt instruments.  In addition, the policy establishes limits oncredit quality, maturity, issuer and type of instrument.  Marketable securities are classified as “availablefor sale”.  We do not use derivativefinancial instruments in our investment portfolio.

 

All highly liquidinvestments with a maturity of three months or less at the date of purchase areconsidered to be cash equivalents. 

 

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Auction rate securities have stated maturities beyond one year but arepriced and traded as short-term instruments due to the liquidity providedthrough the interest rate reset mechanism and are classified as short-term whenthey represent investments of cash that are intended for use in currentoperations.  Prior to the third quarterof fiscal 2005, the Company had classified auction rate securities as cashequivalents on the consolidated balance sheets. As of April 2, 2005, auction rate securities are classified asinvestments and to conform to the current period presentation, the Company hasreclassified $155.2 million and $150.4 million of auction rate securitiesfrom cash equivalents to short-term investments as of June 30, 2004 and March 31,2004, respectively.

 

Thefollowing table lists our cash equivalents, short-term marketable securitiesand long-term marketable securities at April 2, 2005:

 
| ** **                        | ** ** | **Book Value**             | ** ** | **Fair Value** | ** ** |
|-----------------------------------|------------|----------------------------|------------|----------------|------------|
| ** **                        | ** ** | **(Dollars in thousands)** | ** ** |
| Cash equivalents                  |       | $                          | 18,136     |           | $          | 18,136 |   |
| Weighted average  interest rate   |       | 1.84                       | %          |           |       |
| Short-term  marketable securities |       | 220,602                    |       | 220,602        |       |
| Weighted average  interest rate   |       | 2.36                       | %          |           |       |
| Long term  marketable securities  |       | 2,000                      |       | 2,000          |       |
| Weighted average  interest rate   |       | 2.45                       | %          |           |       |
| Total                             |       | $                          | 240,738    |           | $          | 240,738 |   |

 

Theinterest payable on our bank line of credit is based on variable interest ratesand therefore affected by changes in market interest rates. If interest ratesrose significantly, our results from operations and cash flows would not beaffected as we have no outstanding borrowings.

 

*ForeignCurrency Risks*

* *

Weenter into a significant amount of purchase obligations outside of the United States,substantially all of which are settled in U.S. Dollars and, therefore, haveonly minimal exposure to foreign currency exchange risks. We also operate asubsidiary with a base currency other than the U.S. Dollar. Fluctuationsin exchange rates therefore impact our financial condition and results ofoperations, as reported in U.S. Dollars.  To date, we have not experiencedany significant negative impact as a result of fluctuations in foreign currencymarkets. We do not hedge against foreigncurrency risks and believe that foreign currency exchange risk is immaterial.

 

##### **ITEM 4.  CONTROLSAND PROCEDURES**

 

Underthe supervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, we evaluated the effectivenessof our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and15d-15(e) promulgated under the Securities Exchange Act of 1934, asamended (“the Exchange Act”).  Based onthis evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective as of April 2,2005.

 

Wealso maintain a system of internal control over financial reporting, as suchterm as defined in Rules 13a-15(f) and 15d-15(f) ofthe Exchange Act.  No changes in ourinternal control over financial reporting occurred during the quarter ending April 2,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

##### **PART II  OTHER INFORMATION**

 

**ITEM 1.**  **LEGALPROCEEDINGS**

 

**As of the date of this filing, the Company isinvolved in several ongoing legal proceedings as described below.**

** **

Threeformer employees sued bebe on November 20, 2003, in the Superior Court ofthe State of California, County of San Mateo (case No. CIV435794) allegingthat they were misclassified as exempt employees under California law. Theplaintiffs purport to bring this action on behalf of a class of former andpresent California bebe store managers and co-managers. Plaintiffs are seekingcompensatory, statutory and injunctive relief. The parties reached a conditional settlement agreement which wassubsequently approved by the trial court. The court’s approval has since been appealed.

 

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Aformer employee sued bebe on January 20, 2004 in the Superior Court of theState of California, County of San Diego (case No. GIC824505) allegingunpaid wages and unfair business practices. The plaintiff purports to bring theaction on behalf of a class of California employees who hold or have held theposition of co-manager or others similarly designated. The lawsuit seekscompensatory, statutory and injunctive relief. This individual plaintiff has opted not to participate in the classsettlement described above and is continuing to pursue the claims made.

 

A former employee suedbebe on August 2, 2004 in the Superior Court of the State of California, Countyof Sacramento (case No. 04AS03109) alleging unlawful wage payment andunfair competition.  The plaintiff purports to bring the action on behalfof a class of California employees who hold or at anytime within the past fouryears have held a salaried store management position.  The lawsuit seekscompensatory, statutory and injunctive relief. This individual plaintiff has opted not to participate in the classsettlement described above and is continuing to pursue the claims made.

 

Aformer candidate for an executive position sued bebe and two other nameddefendants in a First Amended Complaint, filed November 9, 2004 in theSuperior Court of the State of California, County of San Francisco (case No. CGC-04-435517),seeking unspecified monetary damages and other equitable relief.  The claims against bebe allege intentionaland negligent interference with prospective economic advantage and contractualrelations, breach of contract, breach of implied covenant of good faith andfair dealing, fraud, promissory estoppel, negligence, intentional and negligentinfliction of emotional distress, and violation of Labor Code Section 970.  The plaintiff and all defendants arecurrently participating in non-binding mediation.  The Company believes that the claims againstthe Company are without merit, therefore has not made an estimate of potentialliabilities, and will continue to vigorously defend this matter.

 

A former employeefiled a lawsuit in the United States District Court for the NorthernDistrict of California on April 28, 2005 (case No. C 05-01777) forherself and purportedly on behalf of those similarly situated allegingthat bebe failed to pay minimum wages in violation of the Fair LaborStandards Act as a result of its alleged practice of requiring employees topurchase defendant’s clothing and accessories and wear them asa uniform.  The plaintiff seeks unspecified monetary damagesand injunctive relief.  The Company believes that theclaims against the Company are without merit and will vigorouslydefend this matter.

 

TheCompany intends to defend itself vigorously against these claims.  However, the results of any litigation areinherently uncertain.  The Company cannotassure you that it will be able to successfully defend itself in theselawsuits.  The Company has made anestimate of potential liabilities that management believes are reasonable.  This estimate will be revised as furtherinformation becomes available.  Althoughthe final resolution of these matters may be greater than the Company’s recordedliability, management does not believe the ultimate resolution will have amaterial adverse effect on the Company’s business, financial condition orresults of operations.

 

Inaddition to the above, the Company is also involved in various other legal proceedingsarising in the normal course of business. None of these matters are expected, individually or in the aggregate, tohave a material adverse effect on the Company’s business, financial conditionor results of operations.

 

##### **ITEM2.  UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

Not applicable.

 

##### **ITEM3.  DEFAULTS UPON SENIOR SECURITIES**

##### ** **

Not applicable.

 

##### **ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

##### ** **

Not applicable.

 

##### **ITEM5.  OTHER INFORMATION**

##### ** **

Not applicable.

 

##### **ITEM 6.  EXHIBITS**

##### ** **

(a) Exhibits.  The following is a listof exhibits filed as part of this Report on Form 10 Q.

 
| **Exhibit** |   | **Description**                                             |
|-------------|--------|-------------------------------------------------------------|
| 31.1        |   | Section 302  Certification of Chief Executive Officer. |
| 31.2        |   | Section 302  Certification of Chief Financial Officer. |
| 32.1        |   | Section 906  Certification of Chief Executive Officer. |
| 32.2        |   | Section 906  Certification of Chief Financial Officer. |

** **

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**SIGNATURE**

** **

Pursuant to the requirements of the SecuritiesExchange Act of 1934, as amended, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
|   | Dated May 12, 2005                |
|--------|----------------------------------------|
|   |                                   |
|   | bebe stores, inc.                      |
|   |                                   |
|   | /s/  Walter  Parks           |   |
|   | Walter Parks, Chief  Financial Officer |

 

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EXHIBIT INDEX

 
| **Exhibit Number** | ** ** | **Description**                                            |
|-------------------------|------------|------------------------------------------------------------|
| 31.1                    |       | Section 302  Certification of Chief Executive Officer |
| 31.2                    |       | Section 302  Certification of Chief Financial Officer |
| 32.1                    |       | Section 906  Certification of Chief Executive Officer |
| 32.2                    |       | Section 906  Certification of Chief Financial Officer |

 

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