SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------------------
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 0-935
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BELL NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
California 94-1451828
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
4209 Vineland Road, Orlando, Florida 32811
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (407) 849-0290
--------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-------- -------
As of November 10, 1995, the number of shares of the registrant's common stock
outstanding is 5,283,114
<PAGE>
Part I - Financial Information
ITEM 1. Financial Statements.
<TABLE>
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
<CAPTION>
September 30, December 31,
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ -- $ --
Accounts receivable, net 1,295 1,085
Inventory, net 4,433 4,473
Prepaid expenses and other current assets 202 113
----------- -----------
Total current assets 5,930 5,671
Property and equipment, net 208 199
Goodwill, net 688 703
Deferred sample books, net 1,550 924
Other assets 44 8
----------- -----------
$ 8,420 $ 7,505
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 2,033 $ 1,589
Current portion of capitalized lease obligations 3 3
Current portion of long-term debt 400 300
Accrued compensation and employee benefits 497 515
Accrued expenses 371 335
----------- -----------
Total current liabilities 3,304 2,742
Long-term debt 3,042 2,621
Accrued stock appreciation rights 356 356
Capital lease obligations, less current portion 4 6
Other liabilities 201 254
----------- -----------
6,907 5,979
Stockholders' equity:
Common stock, no par value; authorized 12,000,000
shares, issued and outstanding 5,283,114 shares at
September 30, 1995 and December 31, 1994 15,800 15,800
Additional paid-in capital 10 10
Accumulated deficit (14,297) (14,284)
----------- -----------
Total stockholders' equity 1,513 1,526
----------- -----------
$ 8,420 $ 7,505
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 3,316 $ 3,531 $ 10,319 $ 10,400
Costs and expenses:
Cost of sales 1,723 1,825 5,369 5,312
Selling, general and administrative 1,555 1,541 4,638 4,727
--------- --------- --------- ---------
Operating income 38 165 312 361
Other income (expense):
Interest expense (87) (84) (259) (227)
Other (6) (8) (31) (35)
--------- --------- --------- ---------
Income before income taxes
and extraordinary item (55) 73 22 99
Provision for income taxes -- (1) (35) (14)
--------- --------- --------- ---------
Income before extraordinary item (55) 72 (13) 85
Extraordinary item, net of taxes of $10 -- -- -- 241
--------- --------- --------- ---------
Net income $ (55) $ 72 $ (13) $ 326
========= ========= ========= =========
Earnings per share and weighted average
number of common shares outstanding:
Net income before extraordinary item $ (.01) $ .01 $ -- $ .01
Extraordinary item -- -- -- .05
--------- --------- --------- ---------
Net income $ (.01) $ .01 $ -- $ .06
========= ========= ========= =========
Weighted average number of common
shares outstanding 5,283,114 5,283,114 5,283,114 5,280,007
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Common Stock Additional Accum- Total
---------------------- Paid-in ulated Stockholders'
Shares Dollars Capital Deficit Equity
------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 5,283,114 $ 15,800 $ 10 $(14,284) $ 1,526
Net income -- -- -- (13) (13)
--------- ----------- --------- -------- ---------
Balance at
September 30, 1995 5,283,114 $ 15,800 $ 10 $(14,297) $ 1,513
========= =========== ========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1995 1994
---- ----
<S> <C> <C>
Operating activities:
Net (loss) income $ (13) $ 326
Adjustments to reconcile net (loss) income to
cash provided by operating
activities:
Depreciation 48 63
Amortization of goodwill 15 15
Amortization of deferred sample books 660 825
Extraordinary item - forgiveness of interest -- --
Accretion of discount on notes payable
to Azimuth -- 14
Amortization of deferred debt commitment fee 16 13
(Increase) decrease in assets:
Accounts receivable (210) (181)
Inventory 40 (38)
Prepaid expenses and other current assets (89) (128)
Increase (decrease) in liabilities:
Accounts payable 444 (307)
Accrued compensation and employee benefits (18) 20
Accrued expenses 36 (269)
Accrued stock appreciation rights -- 146
Other liabilities (53) --
----------- -----------
Net cash provided by operating activities 876 499
----------- -----------
Investing activities:
Acquisition of property and equipment (57) (15)
Purchase of deferred sample books (1,286) (525)
----------- -----------
Net cash used in investing activities (1,343) (540)
----------- -----------
Financing activities:
Net borrowings on long-term bank debt 521 621
Net payments on long-term subordinated debt -- (570)
Payment of deferred debt commitment fee (52) --
Principal payments on capital lease obligations (2) (10)
----------- -----------
Net cash provided by financing activities $ 467 $ 41
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Net decrease in cash and cash equivalents $ -- $ --
Cash and cash equivalents at beginning of period -- --
----------- -----------
Cash and cash equivalents at end of period $ -- $ --
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 290 $ 213
Income taxes 59 53
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
BELL NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
Note 1. The Company
General. The information contained in this report is unaudited but, in
management's opinion, all adjustments necessary for a fair presentation have
been included and were of a normal and recurring nature. The results for the
three and nine months ended September 30, 1995 are not necessarily indicative of
results to be expected for the entire year. These financial statements and notes
should be read in conjunction with Bell National Corporation's (the "Company")
Annual Report on Form 10-K for the year ended December 31, 1994.
The Company's wholly owned subsidiary Payne Fabrics, Inc. ("Payne") is a
designer and distributor of decorative drapery and upholstery fabrics. Payne
was acquired by the Company on June 15, 1990.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations The Company's revenues and expenses result from the
operations of Payne Fabrics, Inc.
Nine Months Ended September 30, 1995 The Company had net sales of $10,319,000,
cost of goods sold of $5,369,000, selling, general and administrative expenses
of $4,638,000 and operating income of $312,000 during the first nine months of
1995. Operating income was reduced by interest expense of $259,000, other
expense of $31,000, income taxes of $35,000 resulting in a net loss of $13,000.
Nine Months Ended September 30, 1994 The Company had net sales of $10,400,000,
cost of goods sold of $5,312,000, selling, general and administrative expenses
of $4,727,000 and operating income of $361,000 during the first half of 1994.
Operating income was reduced by interest expense of $227,000, other expense of
$35,000, income taxes of $14,000, and increased by an extraordinary item net of
tax of $241,000 resulting in net income of $326,000.
Comparison Of Nine Month 1995 Results To 1994 Sales for the first nine months of
1995 decreased by $81,000 compared to the corresponding period in 1994. Sales of
woven and multipurpose cut fabric for upholstery decreased by approximately
$490,000 or 12%, while sales of sheer fabrics used mainly for draperies
increased by approximately $83,000 or 3% compared to the prior year. Weakness in
printed fabric sales over the last few years has caused more intense competition
in the woven fabric market, leading to the Company's declining sales volume of
woven fabrics. Printed fabric sales to residential clients continues to be weak.
During the first nine months of 1995, the volume loss to residential clients was
partially offset by an increased use of printed fabric in manufactured
draperies.
Partially offsetting the decline in sales of cut fabric during the first nine
months was an increase in sales of manufactured draperies and drapery rods. The
increase in contract sales is the result of a focused marketing effort to
increase revenues from commercial customers, considered to be a less cyclical
customer base. These efforts have been successful to date but bring with them
certain risks including the possible loss of current clients and a greater
concentration of revenue in a smaller customer base. Management anticipates that
revenue related to contract sales for the remainder of 1995 will be flat in
comparison to 1994 and will not offset the expected decrease in cut fabric
volume.
In addition to the decrease in sales, the gross profit percentage decreased by a
.9% from 48.9% in 1994 to 48.0% in 1995. Material costs increased by .8% in 1995
due mainly to the mix of products sold and workroom costs increased by .3% due
to the increased sales volume of manufactured draperies.
The resulting $138,000 decrease in gross profit during the first nine months of
1995 compared to 1994, was partially offset by a decrease in selling, general
and administrative expenses of $89,000. The decrease in selling, general and
administrative costs was the result of $146,000 of expense in 1994 for
compensation related to the Company's issued and outstanding stock appreciation
rights. There has been no such expense recognized in 1995. The 1994 expense was
a result of the increase in the average of the bid and ask prices for the
Company's common stock in the first half of 1994. The decrease in SAR
compensation
<PAGE>
expense was partially offset by an increase in Payne's selling, general and
administrative costs of $46,000. As a result of the above, operating income
decreased by $49,000 during the first nine months of 1995 compared to 1994.
Interest expense increased by $32,000 from $227,000 in 1994 to $259,000 in 1995
due to an increase in the bank interest of $46,000 partially offset by a
decrease in subordinated debt interest of $14,000. Other expense decreased
$4,000 in 1995 and the provision for income taxes increased by $21,000.
The Company had a net loss before the extraordinary item of $13,000 or $0.00 per
share in the first nine months of 1995 compared to net income and earnings per
share before the extraordinary item of $85,000 or $0.01 per share in 1994.
In the second quarter of 1994, the Company recorded an extraordinary item of
$241,000, net of income taxes of $10,000, representing the forgiveness of
accrued interest on the subordinated debt. The forgiveness of the accrued
interest was related to the April 1994 prepayment of the subordinated debt
payable to Azimuth Corporation.
Net income after the extraordinary item was $326,000 in the first nine months of
1994 compared to a net loss of $13,000 for the same period in 1995. Earnings per
share after the extraordinary item in 1994 were $0.06 compared to a loss per
share of $0.00 in 1995.
Quarter Ended September 30, 1995 The Company had net sales of $3,316,000, cost
of goods sold of $1,723,000, selling, general and administrative expenses of
$1,555,000 and operating income of $38,000 during the third quarter of 1995.
Operating income was reduced by interest expense of $87,000, other expense of
$6,000 resulting in a net loss of $55,000.
Quarter Ended September 30, 1994 The Company had net sales of $3,531,000, cost
of goods sold of $1,825,000, selling, general and administrative expenses of
$1,541,000 and operating income of $165,000 during the third quarter of 1994.
Operating income was reduced by interest expense of $84,000, other expense of
$8,000 and income taxes of $1,000 resulting in net income of $72,000.
Comparison Of Third Quarter 1995 Results To 1994 The sales for the third quarter
of 1995 decreased by $215,000 compared to the corresponding period in 1994.
Sales of woven and multipurpose cut fabric for upholstery decreased by
approximately $117,000 or 9%, while sales of sheer fabrics used mainly for
draperies increased by approximately $153,000 or 13% compared to the prior year.
Partially offsetting the decline in sales of cut fabric during the third quarter
was an increase in sales of manufactured draperies. The bulk of the 1995
increase in contract sales occurred in the second quarter when sales increased
180% reflecting the additional effort and capital expended in this line of
business. Contract sales in the third quarter increased $170,000 or 98%.
Management does not anticipate that increases in the sale of completed draperies
will offset future declines in cut fabric sales.
The third quarter gross profit percentage decreased by .3% from 48.3% in 1994 to
48.0% in 1995 due to an increase in material costs as a result of the mix of
products sold in 1995 compared to 1994. As a result gross profit decreased by
$113,000 in the third quarter of 1995 compared to 1994.
Selling, general and administrative expense increased by $14,000. As a result of
the above, 1995 operating income decreased by $127,000 during the third quarter
of 1995 compared to 1994.
Interest expense decreased by $3,000 from $84,000 in 1994 to $87,000 in 1995.
Other expense decreased $2,000 in 1995 and the provision for income taxes
decreased by $1,000.
The Company had a net loss of $55,000 in the third quarter of 1995 compared to
net income of $72,000 for the same period in 1994. In the third quarter of 1995
the company had a loss of $.01 per share compared to earnings of $0.01 per share
in the corresponding period of 1994.
Liquidity and Capital Resources
Available Resources. Management believes that cash to be provided by operations,
a managed decrease in inventory and funds available under its line of credit
will be sufficient to fund the Company's, 1995 cash needs.
In connection with the bank loan Agreement, the Company instituted a cash
management
<PAGE>
system whereby the net cash generated by operations is immediately used to
reduce bank debt. The immediate reduction of outstanding bank debt provides the
Company with a greater reduction in interest expense than could be offset with
interest income from alternative investments. In the absence of a bank agreement
requiring such a system, the Company would continue to use excess funds to
immediately reduce bank debt. A review of the financial statements, summary
data, working capital and discussion of liquidity must take into consideration
the fact that the Company does not maintain any cash balances in any of its
accounts by design. Working capital needs, when they arise, are met by daily
borrowings.
Future Needs For and Sources of Capital.
During the first nine months of 1995, the Company generated $876,000 of cash
from operations compared to $499,000 during the corresponding period in 1994.
Greater cash was generated from operations in 1995 primarily as a result of an
increase in account payable and accrued expenses during the first nine months of
1995 compared to a decrease in accounts payable and accrued expenses in the
first nine months of 1994 partially offset by lower earnings in 1995. Accounts
receivable, inventory and prepaid expenses and other current assets increased by
$259,000 in 1995. The increase in current assets was offset by an increase in
current liabilities (excluding the current portion of debt and capital lease
obligations) of $462,000 in 1995. The increase in current liabilities was
primarily the result of an increase in accounts payable balance at September 30,
1995 compared to December 31, 1994. The operating cash generated in 1995 and
borrowing on long term bank debt of $521,000 was used to purchase $1,286,000 of
inventory sample books, purchase property and equipment of $57,000 reduce
capitalized lease obligations by $2,000 and pay bank refinancing and associated
costs of $52,000.
A decision that the Company faces annually is the proper amount of capital to
devote to the Spring and Fall new line introductions. This is the Companies most
substantial continuing investment decision and has a direct impact on levels of
both inventory and sampling expense associated with the new line. The Spring
1995 introduction was similar in size to the Spring 1994 introduction, both of
which were about 30% higher than the five previous Spring introductions. The
Company has committed to a Fall 1995 introduction level similar to the Spring
1995 level, which is approximately 30% above the three previous Fall
introductions. On an annual basis the 1995 introduction level exceeds all years
since 1986. In addition to the difficulties of predicting the new introductions
market acceptance, revenues are subject to a number of factors including general
economic trends which make forecasting the outcome of this investment extremely
difficult. As the market has not yet fully absorbed the 1995 new line, it is
uncertain what impact the increased investment will have on future revenues.
During the first nine months of 1994, the Company generated $499,000 of cash
from operations. Accounts receivable, inventory and prepaid expenses and other
current assets increased by $347,000 in 1994 and current liabilities (excluding
the current portion of debt and capital lease obligations) decreased by $556,000
in 1994 of which $251,000 related to the forgiveness of subordinated debt
interest. The operating cash generated in 1994 and borrowing on long term bank
debt of $621,000 was used to purchase $525,000 of inventory sample books,
purchase $15,000 of equipment, reduce capitalized lease obligations by $10,000
and refinance the subordinated debt of $570,000.
PART II. OTHER INFORMATION
- -none-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BELL NATIONAL CORPORATION
------------------------------------------
(Registrant)
Date: November 10, 1995 /s/ Alexander M. Milley
------------------------------------------
Alexander M. Milley, Chairman of the Board
and Secretary
Date: November 10, 1995 /s/ Thomas R. Druggish
------------------------------------------
Thomas R. Druggish, Chief Financial Officer
(Principal Financial Officer and
Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,295,000
<ALLOWANCES> 0
<INVENTORY> 4,433,000
<CURRENT-ASSETS> 5,930,000
<PP&E> 208,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,420,000
<CURRENT-LIABILITIES> 3,304,000
<BONDS> 0
<COMMON> 15,800,000
0
0
<OTHER-SE> (14,287,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,420,000
<SALES> 10,319,000
<TOTAL-REVENUES> 10,319,000
<CGS> 5,369,000
<TOTAL-COSTS> 10,007,000
<OTHER-EXPENSES> 31,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259,000
<INCOME-PRETAX> 22,000
<INCOME-TAX> 35,000
<INCOME-CONTINUING> (13,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
