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 June 30, 1996
--------------------------------------------
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
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
4209 Vineland Road, Suite J-1, Orlando, Florida 32811
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (407) 849-1090
--------------------------
- --------------------------------------------------------------------------------
(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
----- ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
----- ------
As of August 9, 1996, the number of shares of the registrant's common stock
outstanding is 5,283,114.
<PAGE>
Part I - Financial Information
ITEM 1. Financial Statements.
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
June 30, December 31,
1996 1995
---- ----
(Unaudited)
Cash and cash equivalents $ -- $ --
Accounts receivable, net 1,197 1,082
Inventory, net 2,954 4,083
Prepaid expenses and other current assets 72 114
--------- ---------
Total current assets 4,223 5,279
Property and equipment, net 185 212
Goodwill, net 673 683
Deferred sample books, net 1,592 1,696
Other assets 32 40
--------- ---------
$ 6,705 $ 7,910
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1996 1995
---- ----
(Unaudited)
Current Liabilities:
Accounts payable $ 1,653 $ 1,901
Current portion of capitalized
lease obligations 3 3
Current portion of long-term debt 325 400
Accrued compensation and employee benefits 547 449
Accrued expenses 452 381
--------- ---------
Total current liabilities 2,980 3,134
Long-term debt 1,875 2,642
Accrued stock appreciation rights 356 356
Capital lease obligations,
less current portion 2 3
Other liabilities 201 201
--------- ---------
5,414 6,336
Stockholders' equity:
Common stock, no par value;
authorized 12,000,000 shares, issued and
outstanding 5,283,114 shares at June 30,
1996 and December 31, 1995 15,800 15,800
Additional paid-in capital 10 10
Accumulated deficit (14,519) (14,236)
--------- ---------
Total stockholders' equity 1,291 1,574
--------- ---------
$ 6,705 $ 7,910
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $3,383 $3,608 $6,550 $7,003
Costs and expenses:
Cost of sales 1,978 1,878 3,661 3,646
Selling, general and
administrative 1,527 1,589 3,018 3,083
------ ------ ------ ------
Operating income (loss) (122) 141 (129) 274
Other expense:
Interest expense (70) (87) (142) (172)
Other (17) (7) (10) (25)
------ ------ ------ ------
Income (loss) before income taxes (209) 47 (281) 77
Provision for income taxes -- (29) (2) (35)
------ ------ ------ ------
Net income (loss) $(209) $ 18 $(283) $ 42
====== ====== ====== ======
Net income (loss) per common share $(0.04) $ 0.01 $(0.05) $ 0.01
======= ====== ======= ======
Weighted average number of common
shares outstanding 5,283,114 5,283,114 5,283,114 5,283,114
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
<TABLE>
<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, 1995 5,283,114 $ 15,800 $ 10 $ (14,236) $ 1,574
Net income -- -- -- (283) (283)
----------- ------------- ----------- ------------ ------------
Balance at
June 30, 1996 5,283,114 $ 15,800 $ 10 $ (14,519) $ 1,291
=========== ============= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
Operating activities:
Net income (loss) $ (283) $ 42
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 29 33
Amortization of goodwill 10 10
Amortization of deferred sample books 607 429
Amortization of deferred debt commitment fee 8 11
(Increase) decrease in assets:
Accounts receivable (115) (378)
Inventory 1,129 (364)
Prepaid expenses and other current assets 42 (136)
Increase (decrease) in liabilities:
Accounts payable (248) 848
Accrued compensation and employee benefits 98 (13)
Accrued expenses 71 46
Other liabilities -- (47)
--------- ----------
Net cash provided by operating activities 1,348 481
--------- ---------
Investing activities:
Acquisition of property and equipment (2) (46)
Purchase of deferred sample books (503) (723)
---------- ---------
Net cash used in investing activities (505) (769)
---------- ---------
Financing activities:
Net (payments) borrowings on bank debt (842) 341
Payment of deferred debt commitment fee -- (52)
Principal payments on capital lease
obligations (1) (1)
--------- ---------
Net cash (used for) provided by financing
activities $ (843) $ 288
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
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 $ 142 $ 201
Income taxes -- 45
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
BELL NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(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 six months ended June 30, 1996 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, 1995.
Bell National Corporation'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.
Six Months Ended June 30, 1996 The Company had net sales of $6,550,000, cost of
goods sold of $3,661,000, selling, general and administrative expenses of
$3,018,000 and an operating loss of $129,000 during the first six months of
1996. The operating loss was increased by interest expense of $142,000, other
expense of $10,000 and income taxes of $2,000, resulting in a net loss of
$283,000.
Six Months Ended June 30, 1995 The Company had net sales of $7,003,000, cost of
goods sold of $3,646,000, selling, general and administrative expenses of
$3,083,000 and operating income of $274,000 during the first six months of 1995.
Operating income was reduced by interest expense of $172,000, other expense of
$25,000, income taxes of $35,000 resulting in net income of $42,000.
Comparison Of Six Months 1996 Results to 1995 Sales for the first six months of
1996 decreased by $453,000 compared to the corresponding period in 1995. This
first six months of 1996 decrease is identifiable to sales declines in
upholstery fabric of $251,000, drapery fabric of $180,000, Warner fabric of
$170,000, wallpaper of $57,000 and other of $42,000, offset by an increase in
multipurpose fabric of $224,000 in comparison to the same period of the prior
year.
The gross profit for the first six months of 1996 was 44.1% compared to 47.9%
for the same period in 1995. In the second quarter of 1996 a reserve
approximating 2.0% of the six month margin drop- off was booked. The reserve
relates to expenditures made in 1995 but not
8
<PAGE>
recognized until the second quarter of 1996. Further review is required to
accurately determine the final accounting for these items. The remaining gross
profit percentage decrease results from a change in product mix due to a larger
segment of sales from the drapery manufacturing and outlet store areas.
Selling, general and administrative costs for the first six months of 1996 were
$65,000 lower than the same period of 1995. Reduced sales management salaries of
$20,000, administrative supplies and maintenance of $15,000, administrative
salaries of $10,000 and various other of $20,000 account for the decrease in the
first six months of 1996 versus 1995.
Interest expense decreased by $30,000 for the first six months of 1996 due to
the lower debt balance in comparison to the same period of the prior year. Other
expenses, primarily the foreign currency exchange, were $15,000 lower in the
first six months of 1996 versus 1995. Also in the first six months of 1996
provisions for income taxes were $33,000 lower than in 1995 due to lack of
profitability in the period.
The net loss of $283,000 in the first six months of 1996 compared to net income
of $42,000 for the same period in 1995 resulted in a loss per share of $0.05 for
the first six months of 1996 compared to earnings per share of $0.01 for the
same period on 1995.
Quarter Ended June 30, 1996 The Company had net sales of $3,383,000, cost of
goods sold of $1,978,000, selling, general and administrative expenses of
$1,527,000 and an operating loss of $122,000 during the second quarter of 1996.
The operating loss together with interest expense of $70,000 and other expense
of $17,000 resulted in a net loss of $209,000.
Quarter Ended June 30, 1995 The Company had net sales of $3,608,000, cost of
goods sold of $1,878,000, selling, general and administrative expenses of
$1,589,000 and operating income of $141,000 during the second quarter of 1995.
Operating income was reduced by interest expense of $87,000, other expense of
$7,000 and income taxes of $29,000 resulting in net income of $18,000.
Comparison of Second Quarter 1996 Results to 1995 Sales for the second quarter
of 1996 decreased by $225,000 compared to the corresponding period in 1995. The
second quarter 1996 decrease is identifiable to Warner fabric of $121,000,
upholstery fabric of $71,000, drapery fabric of $59,000, sample books and
lengths of $41,000, wallpaper of $22,000 and other of $15,000, offset by an
increase in multipurpose fabric of $104,000 in comparison to the same period of
the prior year.
The gross profit for the second quarter of 1996 was 41.5% compared to 47.9% for
the same period in 1995. In the second quarter of 1996 a reserve approximating
4.0% of the six month margin drop- off was booked. The reserve relates to
expenditures made in 1995 but not recognized until the second quarter of 1996.
Further review is required to accurately determine the final accounting for
these items. The remaining gross profit percentage decrease results from a
change in the product mix due to the larger segment of sales from the drapery
manufacturing and outlet store areas.
9
<PAGE>
Selling, general and administrative costs for the second quarter of 1996 were
$62,000 lower than the same period of 1995. Reduced sales management salaries of
$17,000, administrative supplies and maintenance of $15,000, administrative
salaries of $10,000, and various other of $20,000 account for the decrease in
the second quarter of 1996 versus 1995.
Interest expense decreased by $17,000 for the second quarter of 1996 due to the
lower debt balance in comparison to the same period of the prior year. Other
expenses were $10,000 higher in the second quarter of 1996 versus 1995. Also in
the second quarter of 1996 provisions for income taxes were $29,000 lower than
in 1995 due to the lack of profitability in the period.
The net loss of $209,000 in the second quarter of 1996 compared to the net
income of $18,000 for the same period in 1995 resulted in a loss per share of
$0.04 for the second quarter of 1996 compared to earnings per share of $0.01
for the same period of 1995.
10
<PAGE>
Liquidity and Capital Resources
Available Resources In connection with the bank loan agreement, the Company
instituted a cash management 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 six months of 1996, the Company generated $1,348,000 of cash
from operations compared to $481,000 during the first six months of 1995.
Greater cash was generated from operations in 1996 primarily as a result of a
significant decrease in working capital during the first six months of 1995.
Accounts receivable, inventory, prepaid expenses and other current assets
decreased in net by $1,056,000 in 1996 due to efforts in reducing inventory
levels. The decrease in current assets was slightly offset by a decrease in
current liabilities (excluding the current portion of debt and capital lease
obligations) of $79,000 in 1996. The operating cash generated in the first six
months of 1996 was used to purchase $503,000 of sample book inventory, purchase
$2,000 of equipment and to pay down bank debt by $842,000.
During the first half of 1995, the Company generated $481,000 of cash from
operations compared to $196,000 during the first half of 1994. Greater cash was
generated from operations in 1995 primarily as a result of an increase in
working capital during the first half of 1994 compared to relatively no change
in working capital in the first half of 1995. Accounts receivable, inventory and
prepaid expenses and other current assets increased by $878,000 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
$881,000 in 1995. The increase in current liabilities was primarily the result
of an increase in accounts payable balance at June 30, 1995 compared to December
31, 1994. The operating cash generated in 1995 and borrowing in long term bank
debt of $341,000 was used to purchase $723,000 of inventory sample books,
purchase property and equipment of $46,000 and pay bank refinancing and
associated costs of $52,000.
Management believes that cash to be provided by operations and funds available
under its line of credit will be sufficient to fund the Company's 1996 cash
needs.
The Company has entered into discussions with the bank to extend the termination
date, modify the amortization of the term debt, reset the financial ratio
covenants and waive violations of certain financial covenants. Management can
make no assertion as to the outcome of these discussions.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports
(a) Exhibits
27.0 Financial Data Schedule
12
<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: August 12, 1996 /s/ Alexander M. Milley
--------------------------------------------
Alexander M. Milley, Chairman of the Board
and Secretary
Date: August 12, 1996 /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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,197,000
<ALLOWANCES> 77,000
<INVENTORY> 2,954,000
<CURRENT-ASSETS> 4,223,000
<PP&E> 185,000
<DEPRECIATION> 912,000
<TOTAL-ASSETS> 6,705,000
<CURRENT-LIABILITIES> 2,980,000
<BONDS> 0
0
0
<COMMON> 15,800,000
<OTHER-SE> (14,509,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,705,000
<SALES> 6,550,000
<TOTAL-REVENUES> 6,550,000
<CGS> 3,661,000
<TOTAL-COSTS> 6,679,000
<OTHER-EXPENSES> 10,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,000
<INCOME-PRETAX> (281,000)
<INCOME-TAX> 2,000
<INCOME-CONTINUING> (283,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283,000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
