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, 1998
-----------------------------------------------
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
-----
BELL NATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1451828
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
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 [ ]
As of November 3, 1998, the number of shares of the registrant's common stock
outstanding is 5,916,686.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
September 30, December 31,
1998 1997
------ ------
(Unaudited)
Cash and cash equivalents $1,148 $1,300
Accounts receivable, net -- 41
Inventory, net -- --
Prepaid expenses and other current assets 7 7
------ ------
Total current assets 1,155 1,348
Property and equipment, net -- --
Goodwill, net -- --
Deferred sample books, net -- --
------ ------
$1,155 $1,348
====== ======
The accompanying notes are an integral part of these
consolidated financial statements.
2
BELL NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
Current Liabilities:
Accounts payable $ -- $ --
Accrued compensation and employee benefits 348 502
Accrued expenses 392 318
Reserve for asset sale 106 140
------------ ------------
Total current liabilities 846 960
Accrued stock appreciation rights -- --
Other liabilities -- --
------------ ------------
846 960
Stockholders' equity:
Common stock, no par value; authorized 12,000,000
shares, issued and outstanding 5,916,686 shares at
September 30, 1998 and December 31, 1997 15,849 15,849
Additional paid-in capital 10 10
Accumulated deficit (15,550) (15,471)
------------ ------------
Total stockholders' equity 309 388
------------ ------------
$ 1,155 $ 1,348
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net sales $ -- $ 1,142 $ -- $ 6,576
Costs and expenses:
Cost of sales -- 513 -- 3,521
Selling, general and administrative 43 565 131 3,150
----------- ----------- ----------- -----------
Operating income (43) 64 (131) (95)
Other income (expense):
Interest expense 17 (1) 57 (134)
Other -- 17 -- 25
----------- ----------- ----------- -----------
Income (loss) before income taxes (26) 80 (74) (204)
Provision for income taxes (5) -- (5) --
----------- ----------- ----------- -----------
Net income (loss) before sale of assets $ (31) $ 80 $ (79) $ (204)
Loss on sale of assets -- (1,322) -- (1,322)
----------- ----------- ----------- -----------
Net loss $ (31) $ (1,242) $ (79) $ (1,526)
=========== =========== =========== ===========
Net loss per common share $ (0.00) $ (0.22) $ (0.01) $ (0.27)
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding 5,916,686 5,916,686 5,916,686 5,669,757
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these
consolidated financial statements.
4
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
Common Stock Additional Accum- Total
--------------------- Paid-in ulated Stockholders'
Shares Dollars Capital Deficit Equity
--------- --------- --------- --------- ---------
Balance at
December 31, 1997 5,916,686 $ 15,849 $ 10 $ (15,471) $ 388
Net income -- -- -- (79) (79)
--------- --------- --------- --------- ---------
Balance at
September 30, 1998 5,916,686 $ 15,849 $ 10 $ (15,550) $ 309
========= ========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
5
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1998 1997
------- -------
OPERATING ACTIVITIES:
Net (loss) income $ (79) $(1,526)
Adjustments to reconcile net (loss) income
to cash provided by operating activities:
Depreciation -- 32
Amortization of goodwill -- 11
Amortization of deferred sample books -- 624
Amortization of deferred debt commitment fee -- --
(Increase) decrease in assets:
Accounts receivable 41 170
Inventory -- 64
Prepaid expenses and other current assets -- 17
Increase (decrease) in liabilities:
Accounts payable -- 155
Accrued compensation and employee benefits (154) 321
Accrued expenses 74 313
Accrued stock appreciation rights -- (109)
Reserve for asset sale (34) --
------- -------
Net cash provided by operating activities (152) 72
------- -------
INVESTING ACTIVITIES:
Acquisition of property and equipment -- --
Purchase of deferred sample books -- (369)
------- -------
Net cash used in investing activities -- (369)
------- -------
FINANCING ACTIVITIES:
Net (repayments) borrowings on long-term bank debt -- (2,225)
Proceeds from asset sale -- 3,850
Issuance of common stock from SAR agreements -- 34
Principal payments on capital lease obligations -- --
------- -------
Net cash (used for) provided by financing activities $ -- $ 1,659
------- -------
The accompanying notes are an integral part of these
consolidated financial statements.
6
BELL NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1998 1997
------- -------
Net increase in cash and cash equivalents $ (152) $ 1,362
Cash and cash equivalents at beginning of period 1,300 --
------- -------
Cash and cash equivalents at end of period $ 1,148 $ 1,362
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ -- $ 133
Income taxes 5 --
The accompanying notes are an integral part of these
consolidated financial statements.
7
BELL NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(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, 1998 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, 1997.
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 Bell National Corporation on June 15, 1990. On
August 4, 1997 Payne Fabrics, Inc. sold substantially all of its assets and most
of its liabilities related to the business of designing and distributing
decorative drapery and upholstery fabrics to an unaffiliated third party (the
"Asset Sale"). The Asset Sale included the transfer to the buyer of the use and
rights to the Payne Fabrics name, accordingly, Payne Fabrics, Inc., changed its
name to PFI National Corporation ("PFI"). The Asset Sale left PFI without any
substantial assets and on August 4, 1997 all operations were ceased.
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 PFI through the sale date of August 4, 1997. The first nine months
1998 results reflect the absence of an operating business.
NINE MONTHS ENDED SEPTEMBER 30, 1998 The Company's results for the first nine
months of 1998 consisted entirely of administrative costs offset by interest
income on the cash balances remaining after the Asset Sale of PFI on August 4,
1997. Administrative functions include the ongoing payment of PFI liabilities
(previously reserved for) and investigation of the investment alternatives being
considered by the Company. Among alternatives are the possible sale of stock or
debt to raise additional capital to either fund the acquisition of an operating
company or to fund a start-up company (either from inception or in an early
development phase). It is highly likely that in order to fund an acquisition of
a meaningful size significant additional funds would be required, and no
assurance can be given that such funds could be obtained on terms deemed
favorable by management. Among other options are the possibility of a
liquidating dividend. The discussion contained in this section is not intended
to be an exhaustive review of alternatives available to the Company, nor does
inclusion or omission of any alternative provide any indication of what course
of action may finally be decided upon. However, the Company is not, nor does it
intend to engage in, the business of investing, reinvesting, owning, holding or
trading securities.
8
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.
COMPARISON OF NINE MONTHS 1998 RESULTS TO 1997 A comparison of the 1998 first
nine months results (which have no operating business included in them) to 1997
first nine months results (which included the operations of PFI through August
4, 1997) is not meaningful.
QUARTER ENDED SEPTEMBER 30, 1998 As discussed above, the Company's results for
the third quarter of 1998 consisted entirely of administrative costs offset by
interest income on the cash balances remaining after the Asset Sale of PFI on
August 4, 1997. Administrative functions include the ongoing payment of PFI
liabilities (previously reserved for) and investigation of the investment
alternatives being considered by the Company.
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.
9
LIQUIDITY AND CAPITAL RESOURCES
AVAILABLE RESOURCES. Absent an acquisition, the Company can survive as a
non-operating entity on its current cash balances for the foreseeable future as
it investigates investment alternatives.
FUTURE NEEDS FOR AND SOURCES OF CAPITAL
During the first nine months of 1998, the Company lost $152,000 of cash from
operations. The cash from operations derived from the net loss of $79,000,
payment of items related to the reserve for Asset Sale of $34,000 and payment of
pension liabilities of $154,000, offset by collection of receivables of $41,000
and increased accrued expenses of $74,000. These items represent the entire
change from the beginning cash balance of $1,300,000 at December 31, 1997 to the
ending cash balance of $1,148,000 at September 30, 1998.
During the first nine months of 1997, the Company generated $72,000 of cash from
operation. The cash flow from operations in 1997 was primarily driven by the
loss on the sale of assets of $1,322,000 which is included in the net loss of
$1,526,000. 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS
(a) EXHIBITS
27 Financial Data Schedule
10
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 3, 1998 /s/ ALEXANDER M. MILLEY
------------------------------------------------
Alexander M. Milley, Chairman of the Board
and Secretary
Date: November 3, 1998 /s/ THOMAS R. DRUGGISH
-------------------------------------------------
Thomas R. Druggish, Chief Financial Officer
(Principal Financial Officer
and Accounting Officer)
11