SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1995
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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
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(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
incorporation or organization) no.) identification
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
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(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 August 7, 1995, the number of shares of the registrant's
common stock outstanding is 5,283,114
Part I - Financial Information
ITEM 1. Financial Statements.
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
June 30, December 31,
1995 1994
(Unaudited)
Cash and cash equivalents $ -- $ --
Accounts receivable, net 1,463 1,085
Inventory, net 4,837 4,473
Prepaid expenses and other
current assets 249 113
---------- ----------
Total current assets 6,549 5,671
Property and equipment, net 212 199
Goodwill, net 693 703
Deferred sample books, net 1,218 924
Other assets 49 8
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$ 8,721 $ 7,505
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1995 1994
(Unaudited)
Current Liabilities:
Accounts payable $ 2,437 $ 1,589
Current portion of
capitalized lease
obligations 3 3
Current portion of
long-term debt 400 300
Accrued compensation and
employee benefits 502 515
Accrued expenses 381 335
---------- --------
Total current liabilities 3,723 2,742
Long-term debt 2,862 2,621
Accrued stock appreciation rights 356 356
Capital lease obligations, less
current portion 5 6
Other liabilities 207 254
---------- --------
7,153 5,979
Stockholders' equity:
Common stock, no par value;
authorized 12,000,000 shares,
issued and outstanding 5,283,114
shares at June 30, 1995 and
December 31, 1994 15,800 15,800
Additional paid-in capital 10 10
Accumulated deficit (14,242) (14,284)
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Total stockholders' equity 1,568 1,526
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$ 8,721 $ 7,505
======== =======
The accompanying notes are an integral part of these consolidated
financial statements.
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
------------------
June 30,
------------------
1995 1994
---- ----
Net sales $ 3,608 $ 3,686
Costs and expenses:
Cost of sales 1,878 1,862
Selling, general and administrative 1,589 1,715
--------- ---------
Operating income 141 109
Other income (expense):
Interest expense (87) (53)
Other (7) (16)
--------- ---------
Income before income taxes
and extraordinary item 47 40
Provision for income taxes (29) (7)
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Income before extraordinary item 18 33
Extraordinary item, net of taxes of $10 -- 241
--------- ---------
Net income $ 18 $ 274
========= =========
Earnings per share and weighted average
number of common shares outstanding:
Net income before extraordinary item $ .01 $ --
Extraordinary item -- .05
--------- ---------
Net income $ .01 $ .05
========= =========
Weighted average number of common
shares outstanding 5,283,114 5,282,623
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
Six Months Ended
------------------
June 30,
------------------
1995 1994
---- ----
Net sales $ 7,003 $ 6,869
Costs and expenses:
Cost of sales 3,646 3,487
Selling, general and administrative 3,083 3,186
--------- ---------
Operating income 274 196
Other income (expense):
Interest expense (172) (143)
Other (25) (27)
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Income before income taxes
and extraordinary item 77 26
Provision for income taxes (35) (13)
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Income before extraordinary item 42 13
Extraordinary item, net of taxes of $10 -- 241
--------- ---------
Net income $ 42 $ 254
========= =========
Earnings per share and weighted average
number of common shares outstanding:
Net income before extraordinary item $ .01 $ --
Extraordinary item -- .05
--------- ---------
Net income $ .01 $ .05
========= =========
Weighted average number of common
shares outstanding 5,283,114 5,278,428
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
Additional
Common Stock Paid-in
------------ Capital
Shares Dollars ----------
------ -------
Balance at
December 31, 1994 5,283,114 $ 15,800 $ 10
Net income -- -- --
--------- -------- ----------
Balance at
June 30, 1995 5,283,114 $ 15,800 $ 10
========= ======== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
(Dollars in Thousands)
(Unaudited)
Accum- Total
ulated Stockholders'
Deficit Equity
-------- ------
Balance at
December 31, 1994 $(14,284) $ 1,526
Net income 42 42
--------- --------
Balance at
June 30, 1995 $(14,242) $ 1,568
========= ========
The accompanying notes are an integral part of these consolidated
financial statements.
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
------------------------
1995 1994
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Operating activities:
Net income $ 42 $ 257
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 33 43
Amortization of goodwill 10 10
Amortization of deferred
sample books 429 544
Extraordinary item - forgiveness
of interest -- (251)
Accretion of discount on notes
payable to Azimuth -- 14
Amortization of deferred debt
commitment fee 11 9
(Increase) decrease in assets:
Accounts receivable (378) (62)
Inventory (364) 27
Prepaid expenses and other
current assets (136) (185)
Increase (decrease) in liabilities:
Accounts payable 848 (401)
Accrued compensation and
employee benefits (13) 15
Accrued expenses 46 33
Accrued stock appreciation rights -- 143
Other liabilities (47) --
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Net cash provided by operating
activities 481 196
------- -------
Investing activities:
Acquisition of property and equipment (46) --
Purchase of deferred sample books (723) (368)
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Net cash used in investing activities (769) (368)
------- -------
Financing activities:
Net borrowings on long-term bank debt 341 750
Net payments on long-term subordinated
debt -- (570)
Payment of deferred debt
commitment fee (52) --
Principal payments on capital
lease obligations (1) (8)
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Net cash provided by financing
activities $ 288 $ 172
------- -------
The accompanying notes are an integral part of these consolidated
financial statements.
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1995 1994
---- ----
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 $ 201 $ 130
Income taxes 45 31
The accompanying notes are an integral part of these consolidated
financial statements.
BELL NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six months ended
June 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.
Note 2. Long-Term Debt
NOTE 2. Long-Term Debt Long-term debt is summarized as
follows at June 30, 1995 and December 31, 1994:
June 30, December 31,
1995 1994
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Bank revolving and term
facility $ 3,262,000 $ 2,921,000
Less current portion 400,000 300,000
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Long-term debt less current
portion $ 2,862,000 $ 2,621,000
============ ===========
Aggregate maturities of long-term debt as of June 30, 1995 are as
follows:
1995 (six months) $ 200,000
1996 400,000
1997 425,000
1998 2,237,000
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$ 3,262,000
============
During April 1995, Payne entered into a new credit agreement (the
"Agreement") with Bank One, Dayton, National Association,
replacing a credit agreement with Bank of America Illinois. The
Agreement provides for a maximum total loan facility of
$4,125,000 consisting of a term loan of $1,025,000 payable in
seven quarterly installments of $100,000 and a final payment of
$325,000 on April 30, 1997. The remaining portion of the
Agreement consists of a revolving line of credit which matures on
April 30, 1998. Borrowings under the revolving line of credit
are based on a eligible accounts receivable and inventory, as
defined in the agreement. As of June 30, 1995, the balance
outstanding under the revolving line of credit was $2,237,000 and
there was approximately $352,000 of additional available credit.
Interest on the revolving line of credit is payable monthly at
prime plus 1%. Interest on the term loan facility is payable
monthly at prime plus 2% and will increase to prime plus 3%
on April 30, 1996 if the outstanding balance on April 30, 1996
exceeds $500,000.
The new credit agreement is collateralized by all of the assets
of Payne and is guaranteed by the Company. The Agreement
contains restrictive covenants which, among other things,
prohibit the declaration or payment of cash dividends, limit
additional borrowings and require the maintenance of certain
financial ratios. As of June 30, 1995, Payne was in compliance
with all covenants.
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, 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 half 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.
Six Months Ended June 30, 1994 The Company had net sales of
$6,869,000, cost of goods sold of $3,487,000, selling, general
and administrative expenses of $3,186,000 and operating income of
$196,000 during the first half of 1994. Operating income was
reduced by interest expense of $143,000, other expense of
$27,000, income taxes of $13,000, and increased by an
extraordinary item net of tax of $241,000 resulting in net income
of $254,000.
Comparison Of Six Month 1995 Results To 1994 Sales for the
first half of 1995 increased by $134,000 compared to the
corresponding period in 1994. Sales of woven and multipurpose
cut fabric for upholstery decreased by approximately $413,000 or
13%, while sales of sheer fabrics used mainly for draperies
increased by approximately $236,000 or 12% 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 continue to be weak.
During the first six months of 1995, the volume loss to
residential clients was offset by an increased use of printed
fabric in manufactured draperies.
Offsetting the decline in sales of cut fabric during the first
six 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 as it did
during the first six months of 1995.
The slight increase in sales was offset by a 1.3% decrease in the
gross profit percentage from 49.2% in 1994 to 47.9% in 1995.
Material costs increased by 1.0% in 1995 due mainly to the mix of
products sold and workroom costs increased by .5% due to the
increased sales volume of manufactured draperies. Management's
continued efforts to increase volume in the contract sales area
will lead to continued margin deterioration caused by the change
in the product mix.
The resulting $25,000 decrease in gross profit during the first
half of 1995 compared to 1994, was offset by a decrease in
selling, general and administrative expenses of $103,000. 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 was no such expense 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 expense was partially offset by an increase
in Payne's selling, general and administrative costs of $40,000.
As a result of the above, 1995 operating income increased by
$78,000 during the first half of 1995 compared to 1994.
Interest expense increased by $29,000 from $143,000 in 1994 to
$172,000 in 1994 due to an increase in the bank interest of
$42,000 partially offset by a decrease in subordinated debt
interest of $13,000. As of June 30, 1995, Payne's bank debt
borrowing rate was 11% on the term loan and 10% on the revolving
loan compared to 9.75% and 9.25%, respectively, as of June 30,
1994. Other expense decreased $2,000 in 1994 and the provision
for income taxes increased by $22,000.
The Company had income and earnings per share before the
extraordinary item of $42,000 and $.01 per share in the first
half of 1995 compared to $13,000 and $0.00 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 $254,000 in the first
half of 1994 compared to net income of $42,000 for the same
period in 1995. Earnings per share after the extraordinary item
in 1994 were $0.05 compared to earnings per share of $0.01 in
1995.
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.
Quarter Ended June 30, 1994 The Company had net sales of
$3,686,000, cost of goods sold of $1,862,000, selling, general
and administrative expenses of $1,715,000 and operating income of
$109,000 during the second quarter of 1994. Operating income was
reduced by interest expense of $53,000, other expense of $16,000
and income taxes of $7,000 and increased by an extraordinary item
net of tax of $241,000 resulting in net income of $274,000.
Comparison Of Second Quarter 1995 Results To 1994 The sales for
the second quarter of 1995 decreased by $78,000 compared to the
corresponding period in 1994. Sales of woven and multipurpose
cut fabric for upholstery decreased by approximately $290,000 or
20%, while sales of sheer fabrics used mainly for draperies
increased by approximately $236,000 or 12% compared to the prior
year.
Partially offsetting the decline in sales of cut fabric during
the second quarter was an increase in sales of manufactured
draperies and drapery rods. 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. However, management does not
anticipate increases in the sale of completed draperies will
offset future declines in cut fabric sales.
The second quarter gross profit percentage decreased by 1.6% from
49.5% in 1994 to 47.9% 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 $94,000 in the
second quarter of 1995 compared to 1994.
Selling, general and administrative expense decreased by $126,000
due to the inclusion in 1994 of SAR compensation expense of
$146,000 partially offset by an increase in Payne's selling,
general and administrative expense of $19,000. As a result of
the above, 1995 operating income increased by $32,000 during the
second quarter of 1995 compared to 1994.
Interest expense increased by $34,000 from $53,000 in 1994 to
$87,000 in 1995 due to the write off in the second quarter of
1994 of $20,000 accrued subordinated debt interest expense and
higher bank interest of $14,000 in the second quarter of 1995.
Other expense decreased $9,000 in 1995 and the provision for
income taxes increased by $22,000.
The Company had income and earnings per share before the
extraordinary item of $18,000 and $0.01, respectively in the
second quarter of 1995.
During 1994, the Company recorded an extraordinary item of
$241,000, net of income taxes of $10,000, representing the
forgiveness accrued interest on the subordinated debt. The
forgiveness of the accrued interest was related to the April 1994
prepayment of subordinated debt payable to Azimuth Corporation.
The Company had net income of $18,000 in the second quarter of
1995 compared to net income after the extraordinary item of
$274,000 for the same period in 1994. Earnings per share after
the extraordinary item were $0.01 per share and $0.05 per share
in 1995 and 1994, respectively.
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 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 on 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.
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 sample book 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
but 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 half of 1994, the Company generated $196,000 of
cash from operations. Accounts receivable, inventory and prepaid
expenses and other current assets decreased by $220,000 in 1994.
The decrease in current assets was offset by a decrease in
current liabilities (excluding the current portion of debt and
capital lease obligations) of $604,000 in 1994 of which $251,000
related to a decrease in the accrued subordinated debt interest.
The operating cash generated in 1994 and borrowing on long term
bank debt of $180,000 was used to purchase $368,000 of inventory
sample books and to reduce capitalized lease obligations by
$8,000.
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.
PAGE
PART II. OTHER INFORMATION
Item 6
(a) Exhibits.
10.19 Revolving Credit Agreement, dated as of May 1, 1995,
among Payne Fabrics, Inc., Bell National Corporation
and Bank One, Dayton, National Association
27. Financial Data Schedule
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
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(Registrant)
Date: August 10, 1995 /s/ Alexander M. Milley
-----------------------------
Alexander M. Milley, Chairman
of the Board and Secretary
Date: August 10, 1995 /s/ Thomas R. Druggish
-----------------------------
Thomas R. Druggish, Chief
Financial Officer (Principal
Financial Officer and
Accounting Officer)
PAGE
INDEX TO EXHIBITS
Exhibit No. Description Page No.
---------- ----------- --------
+10.19 Revolving Credit Agreement,
dated as of May 1, 1995, among
Payne Fabrics, Inc., Bell National
Corporation and Bank One, Dayton,
National Association
+27. Financial Data Schedule
_______________
+ Filed herewith.