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, 1997
-----------------------------
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 (I.R.S. employer
of incorporation or organization) identification no.)
3600 Rio Vista Avenue, Suite A, Orlando, Florida 32805
- --------------------------------------------------------------------------------
(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
----- ------
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
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As of November 11, 1997, the number of shares of the registrant's common stock
outstanding is 5,934,542.
<PAGE>
Part I - Financial Information
ITEM 1. Financial Statements.
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
September 30, December 31,
1997 1996
------------- -------------
(Unaudited)
Cash and cash equivalents $ 1,362 $ --
Accounts receivable, net -- 1,222
Inventory, net -- 2,740
Prepaid expenses and other current assets 7 95
-------------- -------------
Total current assets 1,369 4,057
Property and equipment, net -- 157
Goodwill, net -- 663
Deferred sample books, net -- 1,242
-------------- -------------
$ 1,369 $ 6,119
============== =============
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
September 30, December 31,
1997 1996
-------------- -------------
(Unaudited)
Current Liabilities:
Accounts payable $ -- $ 1,047
Current portion of long-term debt -- 2,225
Accrued compensation and employee benefits 502 444
Accrued expenses 576 512
-------------- -------------
Total current liabilities 1,078 4,228
Accrued stock appreciation rights 159 268
Other liabilities 49 48
-------------- -------------
1,286 4,544
Stockholders' equity:
Common stock, no par value;
authorized 12,000,000 shares,
issued and outstanding 5,934,542
shares at September 30, 1997
and 5,488,114 shares at
December 31, 1996 15,849 15,815
Additional paid-in capital 10 10
Accumulated deficit (15,776) (14,250)
-------------- -------------
Total stockholders' equity 83 1,575
-------------- -------------
$ 1,369 $ 6,119
============== =============
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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,142 $ 3,093 $ 6,576 $ 9,643
Costs and expenses:
Cost of sales 513 1,544 3,521 5,205
Selling, general and administrative 565 1,411 3,150 4,429
----------- ----------- ----------- -----------
Operating income 64 138 (95) 9
Other income (expense):
Interest expense (1) (57) (134) (199)
Other 17 (92) 25 (102)
----------- ----------- ----------- -----------
Income (loss) before income taxes 80 (11) (204) (292)
Provision for income taxes -- -- -- (2)
----------- ----------- ----------- -----------
Net income (loss) before sale of assets $ 80 $ (11) $ (204) $ (294)
Loss on sale of assets (1,322) -- (1,322) --
----------- ----------- ----------- -----------
Net loss $ (1,242) $ (11) $ (1,526) $ (294)
=========== =========== =========== ===========
Net loss per common share $ (0.22) $ (0.01) $ (0.27) $ (0.06)
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding 5,934,543 5,283,114 5,687,614 5,283,114
----------- ----------- ----------- -----------
</TABLE>
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
---------------- ------------- ----------- ----------- -----------
Balance at
<S> <C> <C> <C> <C> <C>
December 31, 1996 5,488,114 $ 15,815 $ 10 $ (14,250) $ 1,575
Exercise of SAR's 446,428 34 -- -- 34
Net income -- -- -- (1,526) (1,526)
---------------- ------------- ----------- ----------- -----------
Balance at
September 30, 1997 5,934,542 $ 15,849 $ 10 $ (15,776) $ 83
================ ============= =========== =========== ===========
</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)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Operating activities:
Net (loss) income $ (1,526) $ (294)
Adjustments to reconcile net (loss) income
to cash provided by operating activities:
Depreciation 32 43
Amortization of goodwill 11 15
Amortization of deferred sample books 624 904
Amortization of deferred debt commitment fee -- 40
(Increase) decrease in assets:
Accounts receivable 170 (159)
Inventory 64 1,144
Prepaid expenses and other current assets 17 88
Increase (decrease) in liabilities:
Accounts payable 155 (481)
Accrued compensation and employee benefits 321 98
Accrued expenses 313 2
Accrued stock appreciation rights (109) --
-------------- -------------
Net cash provided by operating activities 72 1,400
-------------- -------------
Investing activities:
Acquisition of property and equipment -- (4)
Purchase of deferred sample books (369) (574)
-------------- -------------
Net cash used in investing activities (369) (578)
-------------- -------------
Financing activities:
Net (repayments) borrowings on long-term bank debt (2,225) (817)
Proceeds from asset sale 3,850 --
Issuance of common stock from SAR agreements 34 --
Principal payments on capital lease obligations -- (5)
-------------- -------------
Net cash (used for) provided by financing activities $ 1,659 $ (822)
-------------- -------------
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Net increase in cash and cash equivalents $ 1,362 $ --
Cash and cash equivalents at beginning of period -- --
-------------- -------------
Cash and cash equivalents at end of period $ 1,362 $ --
============== =============
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 133 $ 199
Income taxes -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
BELL NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(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, 1997 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, 1996.
On August 5, 1997 Payne Fabrics, Inc. ("Payne") sold substantially all of its
assets and most of its liabilities related to the business of designing and
distributing decorative drapery and upholstery fabrics. The sale included the
transfer to the buyer of the use and rights to the Payne name and simultaneous
to the closing of the transaction the remaining entity changed its name to PFI
National Corporation ("PFI"). This sale left PFI without any substantially
assets and at the end of business on August 4, 1997 all operations were ceased.
A reading of the financial statements must therefore take into account that Bell
and its subsidiary PFI have not ongoing operations.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations The Company's revenues and expenses had, previous to the
sale of substantially all of PFI's assets, resulted from the operations of PFI.
The comparisons included in this discussion and analysis of financial condition
and results of operation therefore include the Company's ownership interest in
PFI's results up to the date of sale. The Company's last day of ownership was
August 4, 1997.
Nine Months Ended September 30, 1997 The Company had net sales of $6,576,000,
cost of goods sold of $3,521,000, selling, general and administrative expenses
of $3,150,000 resulting in an operating loss of $95,000 during the first nine
months of 1997. The operating loss was increased by interest expense of $134,000
partly offset by other income of $25,000, resulting in a net loss before the
sale of assets of $204,000. These results include the Company's ownership of PFI
through August 4, 1997.
In connection with the sale of PFI's assets, PFI recorded a loss on the sale of
assets of $1,322,000. This loss together with the net loss before the asset sale
resulted in a net loss of $1,526,000.
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
8
<PAGE>
$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.
Comparison of Nine Months 1997 Results to 1996 Sales for the first nine months
of 1997 decreased by $3,067,000 compared to the corresponding period in 1996.
The first nine months of 1997 decrease is identifiable to all fabric and
workroom categories. In addition the 1997 results include only about seven
months of results while the 1996 results include a full nine months of results
due to the cessation of operations on August 4, 1997.
The gross profit for the first nine months of 1996 was 46.5% compared to 46.0%
for the same period in 1996. Selling, general and administrative costs for the
first nine months of 1997 were $1,279,000 lower than the same period of 1996.
Again the 1997 selling general and administrative results include only about
seven months of expenses while the 1996 results include a full nine months of
expenses due to the cessation of operations on August 4, 1997.
Interest expense decreased by $65,000 in 1997 primarily due to the debt being
paid off on August 4, 1997 from the proceeds of the asset sale. Other expenses
were down $127,000 in the first nine months of 1997 versus 1996. The shortened
1997 period also accounts for most of this change.
The net loss of $1,526,000 in the first nine months of 1997 compared to a net
loss of $294,000 for the same period of 1996 resulted in a loss per share of
$0.27 for 1997 compared to a loss of $0.06 for the same period in 1996. The loss
on the sale of assets accounts for $0.23 per share in 1997 resulting in a
pre-loss comparison per share of a loss of $0.04 in 1997 and $0.06 in 1996 for
the first nine months of each year.
Quarter Ended September 30, 1997 The Company had net sales of $1,142,000, cost
of goods sold of $513,000, selling, general and administrative expenses of
$565,000 and operating income of $64,000 during the third quarter of 1997.
Operating income was effected by interest expense of $1,000 and other income of
$17,000, resulting in net income before the sale of assets of $80,000. Factoring
in the loss on the sale of assets of $1,322,000 results in a net loss for the
period of $1,242,000.
Quarter Ended September 30, 1996 The Company had net sales of $3,093,000, cost
of goods sold of $1,544,000, selling, general and administrative expenses of
$1,411,000 and operating income of $138,000 during the third quarter of 1996.
Operating income was reduced by interest expense of $57,000 and other expense of
$92,000 resulting in a net loss of $11,000.
Comparison of Third Quarter 1997 Results to 1996 Sales for the third quarter of
1997 decreased by $1,951,000 compared to the corresponding period in 1996. The
third quarter 1996 decrease is identifiable to all fabric and workroom
categories. In addition the 1997 results include roughly one month of results
while the 1996 results include a full three months of results due to the
cessation of operations on August 4, 1997.
The gross profit for the third quarter of 1997 was 55.1% compared to 50.1% for
the same period in 1996.
Selling general and administrative costs for the third quarter of 1997 were
$846,000 lower than the same period of 1996. Again the 1997 selling general and
administrative results include only about one
9
<PAGE>
month of expenses while the 1996 results include a full three months of expenses
due to the cessation of operations on August 4, 1997.
Interest expense decreased by $56,000 in the third quarter of 1997 primarily due
to the debt being paid off on August 4, 1997 from the proceeds of the asset
sale. Other expenses were $109,000 lower in the third quarter of 1997 versus
1996. The shortened 1997 period also accounts for most of this change.
The net loss of $1,242,000 in the third quarter of 1997 compared to a net loss
of $11,000 for the same period of 1996 resulted in a loss per share of $0.22 for
1997 compared to a loss of $0.01 for the same period in 1996. The loss on the
sale of assets accounts for $0.22 per share in 1997 (a difference in the
weighted average number of shares outstanding accounts for the variance between
this per share basis and the $0.23 per share for nine months for the same item)
resulting in a per share comparison of $0.00 in 1997 and a loss of $0.01 in 1996
for the same quarter of each year.
10
<PAGE>
Liquidity and Capital Resources
Available Resources. Management believes that cash on hand will be sufficient to
fund the Company's 1997 administrative cash needs. There is not a sufficient
amount of cash or an existing line of credit that would allow the Company to
make a major acquisition. The Company's review of it's future direction will
factor in this very important component. The Company has begun to look at
various alternatives for its future direction.
The Company has made provisions for the remaining liabilities it is responsible
for. These include a provision for the final settlement related to the asset
sale, legal and accounting fees related to the sale and a reserve to make
payments to former employees for pension funds they are entitled to under PFI's
defined benefit plan. Management believes that it has made adequate reserves to
account for any contingency related to these matters and does not expect to book
any further loss on the sale of assets in excess of the $1,322,000 booked in the
third quarter of 1997. However, these matters have not been completely resolved
and the risk exists that provisions may not be adequate to cover unforeseen
events.
Future Needs For and Sources of Capital.
During the first nine months of 1997 the Company generated $72,000 of cash from
operations compared to $1,400,000 during the corresponding period in 1996. The
lower cash flow from operations in 1997 was primarily driven by the loss on the
sale of assets of 1,322,000 in 1997. Before the asset sale, $369,000 was used to
purchase sample books and $5,000 was used to make a principal payment on the
then existing line of credit. The $3,850,000 gross proceeds from the sale of
assets on August 4, 1997 were used to extinguish the then existing bank debt
balance of $2,220,000. Net of the other working capital sources and uses the
Company ended the first nine months of 1997 with $1,362,000 in cash.
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 than in 1995 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.
PART II. OTHER INFORMATION
Exhibits 6. Exhibits and Reports
(a) Exhibits
27 Financial Data Schedule
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, 1997 /s/ Alexander M. Milley
--------------------------------------------
Alexander M. Milley, Chairman of the Board
and Secretary
Date: November 11, 1997 /s/ Thomas R. Druggish
--------------------------------------------
Thomas R. Druggish, Chief Financial Officer
(Principal Financial Officer and Accounting
Officer)
12
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOs
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,362,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,369,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,369,000
<CURRENT-LIABILITIES> 1,078,000
<BONDS> 0
<COMMON> 15,849,000
0
0
<OTHER-SE> (15,766,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,369,000
<SALES> 6,576,000
<TOTAL-REVENUES> 6,576,000
<CGS> 3,521,000
<TOTAL-COSTS> 6,671,000
<OTHER-EXPENSES> (25,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,000
<INCOME-PRETAX> (204,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (204,000)
<DISCONTINUED> (1,322,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,526,000)
<EPS-PRIMARY> (0.27)
</TABLE>
