- --------------------------------------------------------------------------------
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
(Second Quarter of Fiscal 1998)
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission File No. 1-4676
*
THE BETHLEHEM CORPORATION
Incorporated in PENNSYLVANIA I.R.S.Employer I.D. No. 24-0525900
25th and Lennox Streets
P. O. Box 348
Easton, PA 18044-0348
Telephone: (610) 258-7111 * The registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
*
Number of shares outstanding of the issuer's classes of common stock as of
November 30, 1997: 1,938,520.
Number of pages in this report: 14
<PAGE>
FORM 10-QSB
INDEX
PART I. Financial Information: Page No.
Consolidated Balance Sheet as of November 30,
1997 (unaudited) and May 31, 1997......................... 3
Consolidated Statements of Income for the three
months ended November 30, 1997 and 1996
(unaudited)............................................... 5
Consolidated Statements of Income for the six
months ended November 30, 1997 and 1996
(unaudited)............................................... 6
Consolidated Condensed Statements of Cash Flows
for the six months ended November 30, 1997 and
1996 (unaudited).......................................... 7
Notes to Financial Statements............................. 8
Management's Discussion and Analysis ..................... 9
PART II. Other Information:
Legal Proceedings, Exhibits and Reports on Form
8-K....................................................... 12
Signatures................................................ 14
Page 2
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
THE BETHLEHEM CORPORATION--CONSOLIDATED BALANCE SHEETS
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS: November 30, 1997 May 31, 1997
<S> <C> <C>
Cash $ 63 $ 36
Accounts receivable (net of allowance
for doubtful accounts of $132 and
$219) 3,482 2,667
Accounts receivable - related parties 2,125 2,061
Costs and estimated earnings in excess of
billings on long-term
contracts 661 1,305
Inventories 3,677 2,729
Prepaid expenses and other current assets 124 94
Deferred tax asset 150 100
-------- --------
Total Current Assets 10,282 8,992
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 10,280 10,134
Less: accumulated depreciation and amortization (7,566) (7,397)
-------- --------
Property, Plant and Equipment, Net 2,714 2,737
-------- --------
OTHER ASSETS:
Intangibles (net of $74 and $20 of accumulated amortization) 324 340
Inventories, non current 2,030 2,300
Intangible pension and deferred compensation plan assets 204 204
Other 255 246
-------- --------
Total Other Assets 2,813 3,090
-------- --------
$ 15,809 $ 14,819
======== ========
</TABLE>
Page 3
<PAGE>
THE BETHLEHEM CORPORATION--CONSOLIDATED BALANCE SHEETS
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CURRENT LIABILITIES: November 30, 1997 May 31, 1997
<S> <C> <C>
Current maturities of long-term debt $ 1,926 $ 632
Accounts payable 3,294 2,776
Accounts payable - related parties 2,494 2,297
Accrued liabilities 627 700
Billings in excess of costs and estimated earnings
on long-term contracts 1,953 1,389
Commissions Payable 110 213
Note Payable - related party 930 930
-------- --------
Total Current Liabilities 11,334 8,937
-------- --------
OTHER LIABILITIES:
Accounts payable, long term 1,390 1,410
Long-term debt, net of current maturities 2,118 3,951
Deferred compensation and other pension
liabilities 959 1,132
-------- --------
Total Long Term Liabilities 4,467 6,493
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT) :
Preferred stock - authorized, 5,000,000 shares
without par value; none issued or outstanding
Common stock - authorized, 20,000,000 shares
without par value; stated value of $.50 per share;
1,938,532 shares issued; 1,938,520 shares outstanding 969 969
Additional paid-in capital 4,995 4,995
Accumulated deficit (5,956) (6,575)
-------- --------
8 (611)
Less treasury stock, at cost, 12 shares -- --
-------- --------
Total Stockholders' Equity (DEFICIT) 8 (611)
-------- --------
$ 15,809 $ 14,819
======== ========
</TABLE>
Page 4
<PAGE>
THE BETHLEHEM CORPORATION CONSOLIDATED STATEMENTS OF INCOME
Three months ended November 30
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
1997 1996
NET SALES $ 3,479 $ 4,740
COST OF GOODS SOLD 2,174 3,504
--------------------------
GROSS PROFIT 1,305 1,236
--------------------------
OPERATING EXPENSES:
Selling 278 295
General and Administrative 555 619
--------------------------
833 914
--------------------------
Operating Income 472 322
--------------------------
OTHER INCOME (EXPENSE):
Interest expense (145) (169)
Other income (expense) 4 (19)
--------------------------
(141) (188)
--------------------------
Income before income taxes 331 134
INCOME TAX PROVISION (54) -0-
--------------------------
NET INCOME $ 277 $ 134
==========================
EARNINGS PER SHARE DATA:
Primary $ .08 $ .04
==========================
Fully Diluted $ .08 $ .04
==========================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 3,401 3,239
==========================
Fully Diluted 3,462 3,241
==========================
Page 5
<PAGE>
THE BETHLEHEM CORPORATION CONSOLIDATED STATEMENTS OF INCOME
Six months ended November 30
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
1997 1996
NET SALES $ 8,185 $ 8,743
COST OF GOODS SOLD 5,576 6,262
----------------------------
GROSS PROFIT 2,609 2,481
----------------------------
OPERATING EXPENSES:
Selling 553 593
General and Administrative 1,086 1,254
----------------------------
1,639 1,847
----------------------------
Operating Income 970 634
----------------------------
OTHER INCOME (EXPENSE):
Interest expense (310) (314)
Other income (expense) (12) 16
----------------------------
(322) (298)
----------------------------
Income before income taxes 648 336
INCOME TAX PROVISION (29) -0-
----------------------------
NET INCOME $ 619 $ 336
============================
EARNINGS PER SHARE DATA:
Primary $ .19 $ .10
============================
Fully Diluted $ .18 $ .10
============================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 3,341 3,320
============================
Fully Diluted 3,462 3,330
============================
Page 6
<PAGE>
THE BETHLEHEM CORPORATION--CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months ended November 30
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
November 30
1997 1996
---- ----
<S> <C> <C>
Cash flow provided by (used in) operating activities $ 712 $ (28)
Cash flow used in investing activities: (146) (92)
Cash flow provided by (used in) financing activities: (539) 153
-------------------------------
NET INCREASE IN CASH 27 33
CASH
BEGINNING OF PERIOD 36 19
-------------------------------
CASH
END OF PERIOD $ 63 $ 52
===============================
</TABLE>
Page 7
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
--------------------------------------------------
FINANCIAL STATEMENT PRESENTATION :
1. The consolidated interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission with respect to
Form 10-QSB. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures made herein are adequate to make the information not
misleading. It is suggested that these interim financial statements be
read in conjunction with the 1997 financial statements and the notes
thereto included in the Company's latest annual report on Form 10-KSB.
In the Company's opinion, all adjustments necessary for a fair
presentation of the information shown have been included.
2. The results of operations for the six months ended November 30, 1997
presented herein are not necessarily indicative of the results expected
for the year ending May 31, 1998.
3. Inventories, other than inventoried costs relating to long-term
contracts, are stated at the lower of cost (principally first-in,
first-out cost) or market. Inventoried costs relating to any contracts
accounted for under the completed contract method are stated at the
actual production cost, including factory overhead incurred to date.
The Company periodically performs a review of inventories to evaluate
whether such goods are obsolete or off standard. When identified,
provisions to reduce inventories to net realizable value are recorded.
Inventories consist of the following at November 30, 1997:
Raw materials & components $ 265
Work in process 2,523
Finished goods 3,200
Less: reserve for obsolete inventory (281)
------
5,707
Less: non current inventory (2,030)
------
$3,677
======
4. Net earnings per share was determined on the basis of the weighted
average number of shares of common stock including, when applicable,
dilutive stock options using the treasury stock method.
Page 8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
- ---------------------------------------------
Results of Operations for the Quarter Ended November 30, 1997 and for the six
months ended November 1997 ("Fiscal 1998") and for the Quarter ended November
30, 1996 and for the six months ended November 1996 ("Fiscal 1997")
The Company's sales were $3,479,000 for the second quarter of Fiscal
1998 compared to sales of $4,740,000 for the second quarter of Fiscal 1997, a
decrease of $1,261,000 or 27%. Gross profit was $1,305,000 or 38% of sales for
the second quarter of Fiscal 1998 compared to gross profit of $1,236,000 or 26%
of sales for the second quarter of Fiscal 1997. Sales were $8,185,000 for the
first six months of Fiscal 1998 compared to sales of $8,743,000 for the first
six months of Fiscal 1997, a decrease of $558,000 or 6%. Gross profit was
$2,609,000 or 32% of sales for the first six months of Fiscal 1998 compared to
gross profit of $2,481,000 or 28% of sales for the first six months of Fiscal
1997.
Decreased sales in the Company's Thermal Process Unit was the primary
reason for the lower sales recorded over Fiscal 1997 levels. The increased gross
profit margins were due to higher profit margins recorded over Fiscal 1997
margins in the Company's subsidiary, Bethlehem Advanced Materials. The Company
also recorded higher profit margins over Fiscal 1997 margins in the Company's
Thermal Process Unit.
The Company's largest customers accounted for 19%, 15% and 12% of the
Company's sales for the first six months of Fiscal 1998.
The Company reported operating income of $472,000 or 14% of sales for
the second quarter of Fiscal 1998 compared to operating income of $322,000 or 7%
of sales for the second quarter of Fiscal 1997. Operating income for the first
six months of Fiscal 1998 was $970,000 or 12% of sales compared to operating
income of $634,000 for the first six months of Fiscal 1997 or 7% of sales.
Selling, general and administrative expenses were $833,000 or 24% of sales for
the second quarter of Fiscal 1998 compared to $914,000 or 19% of sales for the
second quarter of Fiscal 1997. Selling, general and administrative expenses were
$1,639,000 or 20% of sales for the first six months of Fiscal 1998 compared to
$1,847,000 or 21% of sales for the same period last year. The decrease in
selling, general and administrative expenses was due to decreased salary and
fringe benefit expenses as well as decreased legal expenses. The decrease in
salary and fringe benefits was due to reductions in personnel.
Interest expense was $145,000 for the second quarter of Fiscal 1998
compared to interest expense of $169,000 for the second quarter of Fiscal 1997.
Interest expense was $310,000 for the first six months of Fiscal 1998 compared
to $314,000 for the same period last year. Income before taxes for the second
quarter of Fiscal 1998 was $331,000 compared to $134,000 for the same period
last year. Income before taxes for the first six months of Fiscal 1998 was
$648,000 compared to $336,000 for the same period last year.
The Company recorded a state income tax provision of $79,000 in the
second quarter of Fiscal 1998. The Company also recorded an income tax benefit
of $25,000 for the second quarter of Fiscal 1998. The year to date income tax
benefit, primarily related to federal taxes, recorded by the Company in fiscal
1998 is $50,000. Based on the Company's year to date earnings and estimated
earnings for the balance of Fiscal 1998, which include earnings on existing
contracts, management considers realization of the unreserved deferred tax asset
at November 30, 1997 more likely than not.
Net income for the second quarter of Fiscal 1998 was $277,000 compared
to net income of $134,000 for the second quarter of Fiscal 1997. Net income for
the first six months of Fiscal 1998 was $619,000 compared to net income of
$336,000 for the first six months of Fiscal 1997.
Page 9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of Fiscal 1998, $712,000 of cash was
provided by operating activities compared to $28,000 of cash used for operating
activities for the first six months of Fiscal 1997. The Company's accounts
receivable and inventories increased by approximately $913,000 for the first six
months of Fiscal 1998. The increase in accounts receivable was due to increased
billings on contracts. The increase in inventory was due to increased material
purchases for work in process. Accounts payable increased $805,000 and billings
in excess of costs and profits increased $564,000. The increase in accounts
payable was due to increased purchases for work in process. Billings in excess
of costs and estimated earnings increased due to advance billings on major
contracts.
Cash flow used for investing activities, principally capital
expenditures, was $146,000 for the first six months of Fiscal 1998 compared to
$92,000 for the first six months of Fiscal 1997. The Company's current
commitment for capital expenditures for the year ending May 31, 1998
approximates $300,000 for energy efficiency upgrades, upgrades to existing plant
equipment and upgrades to the Company's offices.
Cash flow used for financing activities equaled $539,000 for the first
six months of Fiscal 1998 compared to cash flow provided by financing activities
for the first six months of Fiscal 1997 of $153,000. On February 28, 1997, the
Company purchased a complete two stage environmental system in Alberta, Canada.
In order to effect the acquisition of the equipment, the Company borrowed
$225,000 from Universal Process Equipment ("UPE"), a related party, at an
interest rate of prime plus 2.5%. This loan will be repaid from the proceeds of
the sale of the specific equipment purchased. The Company also secured a loan
with the Royal Bank of Canada in the amount of $320,000 to assist with the
buy-out of these assets at the borrowing rate of Canadian prime rate plus 1.5%
per annum. This loan was repaid in full in September of 1997.
On December 12, 1997, the Company prepaid its mortgage loan in the
amount of $1,481,205 to Sterling Commercial Capital, Inc., First Wall Street
SBIC, L.P., and Interequity Capital Partners, L.P. from proceeds received from a
$2 million five year mortgage loan from Ocwen Federal Bank. The loan is
collateralized by a first mortgage lien on all real estate owned by the Company.
The loan bears interest at 11.25% per annum. The outstanding principal and
interest is payable in 59 consecutive equal monthly payments calculated to fully
amortize over a 20 year period with a final payment of all then outstanding
principal and interest. The balance of the loan proceeds will be used for
capital improvements and working capital purposes.
From time to time in the ordinary course of business, UPE advances
funds to the Company to enable the Company to meet certain temporary cash
requirements. These advances are repaid from operations. An advance of $250,000
was made to the Company in August 1996 by UPE. In addition, another advance of
$250,000 was made to the Company by UPE in October 1996. As of January 12, 1997,
these two advances remain outstanding.
The Company believes that cash generated from existing business, new
orders and sales of used equipment will be sufficient to meet operating
requirements through the fiscal year ending May 31, 1998. The Company is
presently working to increase its credit facility so the Company can expand
working capital and make available capital for inventory acquisition.
Backlog of $7,546,000 at November 30, 1997 compared to backlog of
$7,124,000 at November 30,1996. Orders received for the second quarter of Fiscal
1998 were $1,992,000 compared to orders received of $2,021,000 for the second
quarter of Fiscal 1997. Orders received for the first six months of Fiscal 1998
were $6,231,000 compared to $6,016,000 for the first six months of Fiscal 1997.
This Form 10-QSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended which are intended to be
covered by the safe harbors created thereby. Although the Company believes that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-QSB
will prove to be accurate. Factors that could cause actual results to differ
from the results discussed in the forward-looking statements include, but are
not limited to, the Company's proprietary rights, environmental considerations
and its ability to obtain contracts in the future. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.
Page 10
<PAGE>
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ---------------------------
The Court recently entered its Order approving the final consent decree
in UNITED STATES VS. CHARLES CHRIN, ET. AL. The Company "opted in" to
the proposed settlement in 1994 and previously paid in its full
contribution.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
Exhibits: Appendix A
There were no reports on Form 8-K filed for the three months ended November 30,
1997.
Page 11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE BETHLEHEM CORPORATION
/S/ Alan H. Silverstein
-------------------------
Alan H. Silverstein
President, Director and
Chief Executive Officer
/S/ Antoinette L. Martin
-------------------------
Antoinette L. Martin
Vice President, Finance
(Principal Financial and
Accounting Officer)
Date: January 13, 1998
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-QSB FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 63
<SECURITIES> 0
<RECEIVABLES> 6,404
<ALLOWANCES> 136
<INVENTORY> 3,677
<CURRENT-ASSETS> 10,282
<PP&E> 10,280
<DEPRECIATION> 7,566
<TOTAL-ASSETS> 15,809
<CURRENT-LIABILITIES> 11,334
<BONDS> 0
<COMMON> 969
0
0
<OTHER-SE> (961)
<TOTAL-LIABILITY-AND-EQUITY> 15,809
<SALES> 0
<TOTAL-REVENUES> 3,479
<CGS> 2,174
<TOTAL-COSTS> 833
<OTHER-EXPENSES> (4)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145
<INCOME-PRETAX> 331
<INCOME-TAX> 54
<INCOME-CONTINUING> 277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
