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, 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 November 11, 1996, the number of shares of the registrant's common stock
outstanding is 5,283,114.
<PAGE>
<TABLE>
Part I - Financial Information
ITEM 1. Financial Statements.
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
<CAPTION>
September 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ -- $ --
Accounts receivable, net 1,241 1,082
Inventory, net 2,939 4,083
Prepaid expenses and other current assets 26 114
-------------- -------------
Total current assets 4,206 5,279
Property and equipment, net 173 212
Goodwill, net 668 683
Deferred sample books, net 1,366 1,696
Other assets -- 40
-------------- -------------
$ 6,413 $ 7,910
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
2
<PAGE>
<TABLE>
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September 30, December 31,
1996 1995
---- ----
(Unaudited)
Current Liabilities:
<S> <C> <C>
Accounts payable $ 1,420 $ 1,901
Current portion of capitalized lease obligations -- 3
Current portion of long-term debt 400 400
Accrued compensation and employee benefits 547 449
Accrued expenses 383 381
-------------- -------------
Total current liabilities 2,750 3,134
Long-term debt 1,825 2,642
Accrued stock appreciation rights 356 356
Capital lease obligations, less current portion 1 3
Other liabilities 201 201
-------------- -------------
5,133 6,336
Stockholders' equity:
Common stock, no par value; authorized 12,000,000 shares,
issued and outstanding 5,283,114 shares at September 30,
1996 and December 31, 1995 15,800 15,800
Additional paid-in capital 10 10
Accumulated deficit (14,530) (14,236)
-------------- -------------
Total stockholders' equity 1,280 1,574
-------------- -------------
$ 6,413 $ 7,910
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
3
<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,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 3,093 $ 3,316 $ 9,643 $ 10,319
Costs and expenses:
Cost of sales 1,544 1,723 5,205 5,369
Selling, general and administrative 1,411 1,555 4,429 4,638
----------- ----------- ----------- -----------
Operating income 138 38 9 312
Other income (expense):
Interest expense (57) (87) (199) (259)
Other (92) (6) (102) (31)
----------- ------------ ----------- -----------
Income (loss) before income taxes (11) (55) (292) 22
Provision for income taxes -- -- (2) (35)
----------- ----------- ----------- -----------
Net income (loss) $ (11) $ (55) $ (294) $ (13)
============ ============ ============ ============
Net income (loss) per common share $ (0.01) $ (0.01) $ (.06) $ --
============ ============ ============ ============
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.
</TABLE>
4
<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
------ ------- ------- ------- ------
Balance at
<S> <C> <C> <C> <C> <C>
December 31, 1995 5,283,114 $ 15,800 $ 10 $ (14,236) $ 1,574
Net income -- -- -- (294) (294)
---------------- ------------- ----------- ----------- -----------
Balance at
September 30, 1996 5,283,114 $ 15,800 $ 10 $ (14,530) $ 1,280
================ ============= =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
5
<PAGE>
<TABLE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Operating activities:
<S> <C> <C>
Net (loss) income $ (294) $ (13)
Adjustments to reconcile net (loss) income to cash
provided by operating
activities:
Depreciation 43 48
Amortization of goodwill 15 15
Amortization of deferred sample books 904 660
Amortization of deferred debt commitment fee 40 16
(Increase) decrease in assets:
Accounts receivable (159) (210)
Inventory 1,144 40
Prepaid expenses and other current assets 88 (89)
Increase (decrease) in liabilities:
Accounts payable (481) 444
Accrued compensation and employee benefits 98 (18)
Accrued expenses 2 36
Other liabilities -- (53)
---------- ----------
Net cash provided by operating activities 1,400 876
---------- ---------
Investing activities:
Acquisition of property and equipment (4) (57)
Purchase of deferred sample books (574) (1,286)
---------- ---------
Net cash used in investing activities (578) (1,343)
---------- ---------
Financing activities:
Net (repayments) borrowings on long-term bank debt (817) 521
Payment of deferred debt commitment fee -- (52)
Principal payments on capital lease obligations (5) (2)
---------- ---------
Net cash (used for) provided by financing activities $ (822) $ 467
----------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
6
<PAGE>
<TABLE>
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
<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 $ 199 $ 290
Income taxes -- 59
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
7
<PAGE>
BELL NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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.
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, 1996 The Company had net sales of $9,643,000,
cost of goods sold of $5,205,000, selling, general and administrative expenses
of $4,429,000 and operating income of $9,000 during the first nine months of
1996. Operating income was reduced by interest expense of $199,000, other
expense of $102,000 and income taxes of $2,000 resulting in a net loss of
$294,000.
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.
Comparison of Nine Months 1996 Results to 1995 Sales for the first nine months
of 1996 decreased by $676,000 compared to the corresponding period in 1995. The
first nine months of 1996 decrease is identifiable to declines in upholstery
fabric of $433,000, Warner Fabric $252,000, samples $114,000, other of $110,000
and drapery of $77,000, offset by an increase in multipurpose fabric of $310,000
in comparison to the same period of the prior year.
The gross profit for the first nine months of 1996 was 46.0% compared to 48.0%
for the same period in 1995. In the second quarter of 1996 a reserve
approximating 1.4% of the nine months margin drop-off was booked. The remaining
gross profit percentage decrease results from a change in product mix due to a
larger segment of sales from the drapery manufacturing area and fixed
manufacturing costs becoming a larger component of overall costs with decreased
revenue.
8
<PAGE>
Selling, general and administrative costs for the first nine months of 1996 were
$209,000 lower than the same period of 1995. Reduced sampling expenses in the
sales and marketing area account for most of this decrease.
Interest expense decreased by $60,000 in 1996 primarily due to a lower debt
balance in comparison to the same period of the prior year. Other expenses were
$71,000 higher in the first nine months of 1996 versus 1995. This includes
$25,000 of accelerated debt amortization with the remainder falling into other
categories.
The net loss of $294,000 in the first nine months of 1996 compared to a net loss
of $13,000 for the same period of 1995 resulted in a loss per share of $0.06 for
the first nine months of 1996 compared to $0.00 for the same period in 1995.
Quarter Ended September 30, 1996 The Company had net sales of $3,093,000, cost
of goods sold of $1,543,000, selling, general and administrative expenses of
$1,414,000 and operating income of $136,000 during the third quarter of 1996.
Operating income was reduced by interest expense of $58,000, other expense of
$91,000 and income taxes of $(2,000) resulting in a net loss of $11,000.
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.
Comparison of Third Quarter 1996 Results to 1995 Sales for the third quarter of
1996 decreased by $223,000 compared to the corresponding period in 1995. The
third quarter 1996 decrease is identifiable to declines in upholstery fabric of
$157,000, Warner Fabric $81,000, samples $55,000, other of $53,000, offset by an
increase in multipurpose fabric of $85,000 and draperies of $38,000 in
comparison to the same period of the prior year.
The gross profit for the third quarter of 1996 was 50.1% compared to 48.0% for
the same period in 1995.
Selling general and administrative costs for the third quarter of 1996 were
$144,000 lower than the same period of 1995. This is mostly related to reduced
sampling expenses in the sales and marketing area.
Interest expense decreased by $30,000 in the third quarter of 1996 primarily due
to a lower debt balance in comparison to the same period of the prior year.
Other expenses were $86,000 higher in the third quarter of 1996 versus 1995.
This includes $27,000 of accelerated amortization with the remainder falling
into other categories.
The net loss of $11,000 in the third quarter of 1996 compared to a net loss of
$55,000 for the same period of 1995 resulted in a loss per share of $0.01 for
the third quarter of 1996 compared to a similar loss of $0.01 for the same
period in 1995.
9
<PAGE>
Liquidity and Capital Resources
Available Resources. 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.
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. 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 1996 the Company generated $1,400,000 of cash
from operations compared to $876,000 during the corresponding period in 1995.
The larger cash flow from operations in 1996 resulted from a decrease in
inventory somewhat offset by a decrease in accounts payable. The cash generated
from operations in 1996 was used to purchase $574,000 of deferred sample book
inventory, purchase $4,000 of equipment and to pay down bank debt by $817,000.
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.
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 assertions as to the outcome of these discussions.
PART II. OTHER INFORMATION
-none-
10
<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 11, 1996 /s/ Alexander M. Milley
--------------------------------------------
Alexander M. Milley, Chairman of the Board
and Secretary
Date: November 11, 1996 /s/ Thomas R. Druggish
--------------------------------------------
Thomas R. Druggish, Chief Financial Officer
(Principal Financial Officer and Accounting
Officer)
11
<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 11, 1996 /s/ Alexander M. Milley
--------------------------------------------
Alexander M. Milley, Chairman of the Board
and Secretary
Date: November 11, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,241,000
<ALLOWANCES> 94,000
<INVENTORY> 2,939,000
<CURRENT-ASSETS> 4,206,000
<PP&E> 173,000
<DEPRECIATION> 926,000
<TOTAL-ASSETS> 6,413,000
<CURRENT-LIABILITIES> 2,750,000
<BONDS> 0
0
0
<COMMON> 15,800,000
<OTHER-SE> (14,520,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,413,000
<SALES> 9,643,000
<TOTAL-REVENUES> 9,643,000
<CGS> 5,205,000
<TOTAL-COSTS> 9,634,000
<OTHER-EXPENSES> 102,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199,000
<INCOME-PRETAX> (292,000)
<INCOME-TAX> 2,000
<INCOME-CONTINUING> (294,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (294,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
