- --------------------------------------------------------------------------------
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 February 28, 1998
(Third 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 filingrequirements for the past 90 days.
YES /X/ NO / /
*
Number of shares outstanding of the issuer's classes of common stock as of
February 28, 1998: 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 February 28, 1998 (unaudited)
and May 31, 1997................................................. 3
Consolidated Statements of Income for the three months
ended February 28, 1998 and 1997 (unaudited)..................... 5
Consolidated Statements of Income for the nine months
ended February 28, 1998 and 1997 (unaudited)..................... 6
Consolidated Condensed Statements of Cash Flows for the nine
months ended February 28, 1998 and 1997 (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...................................................... 13
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE BETHLEHEM CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS: February 28, 1998 May 31, 1997
----------------- ------------
<S> <C> <C>
Cash $ 379 $ 36
Accounts receivable (net of allowance
for doubtful accounts of $125 and $219) 2,989 2,667
Accounts receivable - related parties 2,277 2,061
Costs and estimated earnings in excess of
billings on long-term contracts 393 1,305
Inventories 4,231 2,729
Prepaid expenses and other current assets 239 94
Deferred tax asset 175 100
-------- --------
Total Current Assets 10,683 8,992
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 10,391 10,134
Less: accumulated depreciation and amortization (7,654) (7,397)
-------- --------
Property, Plant and Equipment, Net 2,737 2,737
-------- --------
OTHER ASSETS:
Intangibles (net of $81 and $20 of accumulated amortization) 317 340
Inventories, non current 2,020 2,300
Intangible pension and deferred compensation plan assets 204 204
Other 243 246
-------- --------
Total Other Assets 2,784 3,090
-------- --------
$ 16,204 $ 14,819
======== ========
</TABLE>
Page 3
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES: February 28, 1998 May 31, 1997
----------------- ------------
<S> <C> <C>
Current maturities of long-term debt $ 1,801 $ 632
Accounts payable 2,961 2,776
Accounts payable - related parties 2,614 2,297
Accrued liabilities 646 700
Billings in excess of costs and estimated earnings
on long-term contracts 2,312 1,389
Commissions Payable 111 213
Note Payable - related party 707 930
-------- --------
Total Current Liabilities 11,152 8,937
-------- --------
OTHER LIABILITIES:
Accounts payable, long term 1,379 1,410
Long-term debt, net of current maturities 2,599 3,951
Deferred compensation and other pension
liabilities 978 1,132
-------- --------
Total Long Term Liabilities 4,956 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 (5,868) (6,575)
-------- --------
96 (611)
Less treasury stock, at cost, 12 shares -- --
-------- --------
Total Stockholders' Equity (Deficit) 96 (611)
-------- --------
$ 16,204 $ 14,819
======== ========
</TABLE>
Page 4
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three months ended February 28
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
NET SALES $ 3,543 $ 4,077
COST OF GOODS SOLD 2,338 2,852
------- -------
GROSS PROFIT 1,205 1,225
------- -------
OPERATING EXPENSES:
Selling 243 301
General and Administrative 701 684
------- -------
944 985
------- -------
Operating Income 261 240
------- -------
OTHER INCOME (EXPENSE):
Interest expense (195) (148)
Write off of financing fees (48) -0-
Other income 45 50
------- -------
(198) (98)
------- -------
Income before income taxes 63 142
INCOME TAX BENEFIT 25 -0-
------- -------
NET INCOME $ 88 $ 142
======= =======
EARNINGS PER SHARE DATA:
Primary $ .03 $ .04
======= =======
Fully Diluted $ .03 $ .04
======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 3,439 3,287
======= =======
Fully Diluted 3,439 3,288
======= =======
</TABLE>
Page 5
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Nine months ended February 28
(in thousands)
(UNAUDITED)
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<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
NET SALES $ 11,728 $ 12,820
COST OF GOODS SOLD 7,914 9,114
-------- --------
GROSS PROFIT 3,814 3,706
-------- --------
OPERATING EXPENSES:
Selling 796 894
General and Administrative 1,787 1,905
-------- --------
2,583 2,799
-------- --------
Operating Income 1,231 907
-------- --------
OTHER INCOME (EXPENSE):
Interest expense (505) (495)
Write off of financing fees (48) -0-
Other income 33 66
-------- --------
(520) (429)
-------- --------
Income before income taxes 711 478
INCOME TAX PROVISION (4) -0-
-------- --------
NET INCOME $ 707 $ 478
======== ========
EARNINGS PER SHARE DATA:
Primary $ .21 $ .14
======== ========
Fully Diluted $ .21 $ .14
======== ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 3,378 3,386
======== ========
Fully Diluted 3,432 3,406
======== ========
</TABLE>
Page 6
<PAGE>
THE BETHLEHEM CORPORATION
ONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
Nine Months ended February 28
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
February 28
1998 1997
---- ----
<S> <C> <C>
Cash flow provided by operating activities $ 1,006 $ 151
Cash flow used in investing activities: (257) (321)
Cash flow provided by (used in) financing activities: (406) 200
------- -------
NET INCREASE IN CASH 343 30
CASH
BEGINNING OF PERIOD 36 19
------- -------
CASH
END OF PERIOD $ 379 $ 49
======= =======
</TABLE>
Page 7
<PAGE>
THE BETHLEHEM CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FINANCIAL STATEMENT PRESENTATION :
1. The consolidated interim financial statements included herein have
been prepared by the Company, 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. 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 nine months ended February 28,
1998 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 February 28, 1998:
Raw materials & components $ 305
Work in process 2,970
Finished goods 3,259
Less: reserve for obsolete inventory (283)
-------
6,251
Less: non current inventory (2,020)
-------
$ 4,231
-------
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 February 28, 1998 and for the nine
months ended February 28, 1998 ("Fiscal 1998") and for the Quarter ended
February 28, 1997 and for the nine months ended February 28, 1997 ("Fiscal
1997")
The Company's sales were $3,543,000 for the third quarter of Fiscal
1998 compared to sales of $4,077,000 for the third quarter of Fiscal 1997, a
decrease of $534,000 or 13%. Gross profit was $1,205,000 or 34% of sales for the
third quarter of Fiscal 1998 compared to gross profit of $1,225,000 or 30% of
sales for the third quarter of Fiscal 1997. Sales were $11,728,000 for the first
nine months of Fiscal 1998 compared to sales of $12,820,000 for the first nine
months of Fiscal 1997, a decrease of $1,092,000 or 9%. Gross profit was
$3,814,000 or 33% of sales for the first nine months of Fiscal 1998 compared to
gross profit of $3,706,000 or 29% of sales for the first nine months of Fiscal
1997.
Decreased sales in the Company's Filtration and Thermal Process
Units were the primary reasons for the lower sales recorded over Fiscal 1997
levels. Sales were lower in the Company's Thermal Process Unit because a
contract with an Asian customer scheduled to be completed during the third
quarter of Fiscal 1998 was delayed to the fourth quarter. The Company expects to
complete this contract during the fourth quarter of Fiscal 1998. The increased
gross profit margins were due to higher gross profit margins recorded over
Fiscal 1997 margins in the Company's subsidiary, Bethlehem Advanced Materials
and in the Company's Thermal Process Unit. The Company continues to focus on the
development and marketing of its core capital equipment products and
environmental systems inside and outside of the United States. The Company also
continues to focus on increasing production efficiency as well as decreasing
manufacturing overhead expenses in the manufacturing of its core products.
The Company's four largest customers accounted for 17%, 15%, 12% and
10% of the Company's sales for the first nine months of Fiscal 1998.
Selling, general and administrative expenses were $944,000 or 27% of
sales for the third quarter of Fiscal 1998 compared to $985,000 or 24% of sales
for the third quarter of Fiscal 1997. Selling, general and administrative
expenses were $2,583,000 or 22% of sales for the first nine months of Fiscal
1998 compared to $2,799,000 or 22% of sales for the same period last year. The
decrease in selling, general and administrative expenses was primarily due to
reduced legal expenses. The Company reported operating income of $261,000 or 7%
of sales for the third quarter of Fiscal 1998 compared to operating income of
$240,000 or 6% of sales for the third quarter of Fiscal 1997. Operating income
for the first nine months of Fiscal 1998 was $1,231,000 or 11% of sales compared
to operating income of $907,000 for the first nine months of Fiscal 1997 or 7%
of sales.
Interest expense was $195,000 for the third quarter of Fiscal 1998
compared to interest expense of $148,000 for the third quarter of Fiscal 1997.
Interest expense was $505,000 for the first nine months of Fiscal 1998 compared
to $495,000 for the same period last year. In December of 1997, the Company
prepaid its mortgage loan to Sterling Commercial Capital, Inc., FirstWall Street
SBIC, L.P., and Interequity Capital Partners, L.P., and expensed the balance of
capitalized financing fees related to the loan. The Company does not consider
this write off to be material for Fiscal 1998 and accordingly has classified the
write off as a component of Other Income (Expense). Excluding the write off of
such loan fee, income before taxes for the third quarter of Fiscal 1998 was
$111,000 compared to $142,000 for the same period last year. Income before taxes
for the first nine months of Fiscal 1998 was $711,000 compared to $478,000 for
the same period last year.
The Company recorded a year to date income tax benefit, primarily
related to federal taxes of $75,000 which was offset by a state income tax
provision of $79,000. For comparative purposes, the Company did not record an
income tax benefit for the Fiscal Year 1997 until the fourth quarter of Fiscal
1997. 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
February 28, 1998 more likely than not.
Page 9
<PAGE>
Net income for the third quarter of Fiscal 1998 was $88,000
compared to net income of $142,000 for the third quarter of Fiscal 1997. Net
income for the first nine months of Fiscal 1998 was $707,000 compared to net
income of $478,000 for the first nine months of Fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of Fiscal 1998, $1,006,000 of cash was
provided by operating activities compared to $151,000 of cash provided by
operating activities for the first nine months of Fiscal 1997. The Company's
accounts receivable and inventories increased by approximately $1,760,000 for
the first nine 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
$582,000 and billings in excess of costs and profits increased $923,000. 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 $257,000 for the first nine months of Fiscal 1998 compared to
$321,000 for the first nine months of Fiscal 1997. The Company's current
commitment for capital expenditures for the year ending May 31, 1998 will
approximate $300,000 for upgrades to existing plant equipment and upgrades to
the Company's offices.
Cash flow used for financing activities equaled $406,000 for the
first nine months of Fiscal 1998 compared to cash flow provided by financing
activities for the first nine months of Fiscal 1997 of $200,000. On February 28,
1997, the Company purchased acomplete 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%. During the third quarter of Fiscal 1998,
the Company repaid $223,000 to UPE. 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 from Ocwen
Federal Bank 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 obligations. These
advances are repaid from operating cash flow. 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 April 11, 1998, 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 $6,239,000 at February 28, 1998 compared to backlog of
$7,669,000 at February 28, 1997. Orders received for the third quarter of Fiscal
1998 were $2,236,000 compared to orders received of $4,622,000 for the third
quarter of Fiscal 1997. The Company's backlog was decreased in the third quarter
by the amount of $1,611,000 for an order which was canceled during this period.
Orders received for the first nine months of Fiscal 1998 were $8,467,000
compared to $10,638,000 for the first nine months of Fiscal 1997.
Page 10
<PAGE>
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 obtaincontracts 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 11
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 6. EXHITITS AND REPORTS ON FORM 8-K
Exhibits: Appendix A
There were no reports on Form 8-K filed for the nine months ended February 28,
1998.
Page 12
<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: April 14, 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 February 28, 1998 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> FEB-28-1998
<CASH> 379
<SECURITIES> 0
<RECEIVABLES> 5,784
<ALLOWANCES> 125
<INVENTORY> 4,231
<CURRENT-ASSETS> 10,683
<PP&E> 10,391
<DEPRECIATION> 7,654
<TOTAL-ASSETS> 16,204
<CURRENT-LIABILITIES> 11,152
<BONDS> 0
<COMMON> 969
0
0
<OTHER-SE> (873)
<TOTAL-LIABILITY-AND-EQUITY> 16,204
<SALES> 0
<TOTAL-REVENUES> 3,543
<CGS> 2,338
<TOTAL-COSTS> 944
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> 63
<INCOME-TAX> 25
<INCOME-CONTINUING> 88
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
