- --------------------------------------------------------------------------------
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 August 31, 1998
(First Quarter of Fiscal 1999)
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
August 31, 1998: 2,288,520.
Number of pages in this report: 13
<PAGE>
INDEX
PART I. Financial Information: Page No.
Consolidated Balance Sheets as of August 31, 1998
(unaudited) and May 31, 1998.................................... 3
Consolidated Statements of Income for the three months
ended August 31, 1998 and 1997 (unaudited)...................... 5
Consolidated Condensed Statements of Cash Flows for the three
months ended August 31, 1998 and 1997 (unaudited)............... 6
Notes to Financial Statements................................... 7
Management's Discussion and Analysis ........................... 8
PART II. Other Information:
Legal Proceedings, Exhibits and Reports on Form 8-K............ 11
Signatures..................................................... 12
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
THE BETHLEHEM CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
(UNAUDITED)
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ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS: August 31, 1998 May 31, 1998
<S> <C> <C>
Cash $ 38 $ 41
Accounts receivable (net of allowance
for doubtful accounts of $162 and $150) 2,220 1,365
Costs and estimated profit in excess of
billings on long-term 692 833
contracts
Inventories 5,095 4,687
Prepaid expenses and other current assets 159 227
Deferred tax asset 325 300
------- -------
Total Current Assets 8,529 7,453
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost less
accumulated depreciation and amortization 2,802 2,772
of $7,836 and $7,747
OTHER ASSETS:
Inventories, non current 500 500
Intangibles (net of $141 and $92 of accumulated amortization) 300 349
Intangible pension and deferred compensation plan assets 180 180
Other 286 311
------- -------
Total Other Assets 1,266 1,340
------- -------
Total Assets $12,597 $11,565
======= =======
</TABLE>
Page 3
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES: August 31, 1998 May 31, 1998
<S> <C> <C>
Current maturities of long-term debt and capital leases $ 2,703 $ 312
Note Payable - related party 745 782
Accounts payable 2,439 3,570
Accounts payable - related parties 419 313
Accrued liabilities 644 569
Billings in excess of costs and estimated profit
on long-term contracts 427 160
-------- --------
Total Current Liabilities 7,373 5,706
-------- --------
OTHER LIABILITIES:
Long-term debt and capital leases, net of current maturities 3,085 3,912
Deferred compensation and other pension liabilities 765 724
-------- --------
Total Long-Term Liabilities 3,850 4,636
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
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;
2,288,532 shares issued; 2,288,520 shares outstanding 1,144 1,144
Additional paid-in capital 6,166 6,123
Accumulated deficit (5,940) (6,044)
-------- --------
1,370 1,223
Less treasury stock, at cost, 12 shares -- --
Total Stockholders' Equity 1,370 1,223
-------- --------
Total Liabilities and Stockholders' Equity $ 12,597 $ 11,565
======== ========
</TABLE>
Page 4
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three months ended August 31
(in thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 3,568 $ 4,706
COST OF GOODS SOLD 2,387 3,402
------------------------------
GROSS PROFIT 1,181 1,304
------------------------------
OPERATING EXPENSES:
Selling 270 275
General and Administrative 531 531
Non-Employee Stock Option Expense 28 --
------------------------------
829 806
------------------------------
Operating income 352 498
------------------------------
OTHER INCOME (EXPENSE):
Interest expense (213) (167)
Financing charge - issuance of stock options (14) --
Other expense (46) (16)
Interest income -- 2
------------------------------
(273) (181)
------------------------------
Income before income taxes 79 317
INCOME TAX BENEFIT 25 25
------------------------------
NET INCOME $ 104 $ 342
==============================
EARNINGS PER SHARE DATA:
Basic $ .05 $ .18
==============================
Diluted $ .03 $ .11
==============================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 2,288 1,939
==============================
Diluted 3,336 3,249
==============================
</TABLE>
Page 5
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months ended August 31
(in thousands)
(UNAUDITED)
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<TABLE>
<CAPTION>
Three months ended
August 31
1998 1997
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities: $(1,411) $ 481
Cash flows used in investing activities: (119) (32)
Cash flows provided by (used in) financing activities: 1,527 (236)
------- -------
NET INCREASE (DECREASE) IN CASH (3) 213
CASH
BEGINNING OF PERIOD 41 36
------- -------
CASH
END OF PERIOD $ 38 $ 249
======= =======
</TABLE>
Page 6
<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 1998 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 three months ended August 31, 1998
presented herein are not necessarily indicative of the results
expected for the year ending May 31, 1999.
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 August 31, 1998:
Raw materials & components $ 421
Work in process 2,355
Finished goods 3,018
Less: reserve for obsolete inventory (199)
----------------
5,595
Less: non current inventory (500)
----------------
$ 5,095
================
4. Earnings per Share are computed in accordance with Financial
Accounting Standards Board Standard No. 128 ("SFAS 128"), Earnings
per Share. SFAS 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share are calculated based on the
weighted-average number of common shares outstanding. Diluted
earnings per share are calculated based on the weighted-average
number of common shares outstanding, plus dilutive potential common
shares. Dilutive potential common shares, principally stock options,
are computed under the treasury stock method. As required, earnings
per share for all periods presented reflect the adoption of SFAS
128.
Page 7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ ------------------------------------
Results of Operations for the Quarter Ended August 31, 1998 ("Fiscal 1999") and
for the Quarter ended August 31, 1997 ("Fiscal 1998")
The Company's total sales were $3,568,000 for the first quarter of Fiscal 1999
compared to $4,706,000 for the first quarter of Fiscal 1998, a decrease of
$1,138,000 or 24%. Gross profit was $1,181,000 or 33% of sales for the first
quarter of Fiscal 1999 compared to gross profit of $1,304,000 or 28% of sales
for the first quarter of Fiscal 1998. Decreased sales in the Company's Thermal
Process Units was the primary reason for the lower sales. The Company's wholly
owned subsidiary, Bethlehem Advanced Materials ("BAM"), recorded stronger sales
in the first quarter of Fiscal 1999. Higher gross profit margins were attributed
to BAM contracts and Thermal Process contracts. The Company continues to focus
on the development and marketing of its core capital equipment products and
environmental systems inside and outside of North America. Additionally, the
Company is focusing on the expansion of specialty high temperature furnace
systems and toll processing services for select advanced materials markets. The
company continues to focus on increasing production efficiency as well as
decreasing manufacturing expenses in the production of its core products. The
Company's five largest customers individually accounted for 10% to 21% of the
Company's sales for the first quarter of Fiscal 1999.
Operating expenses for the first quarter of Fiscal 1999 were
$829,000 or 23% of sales, compared to $806,000 or 17% of sales for the first
quarter of Fiscal 1998. Other expense totaled $273,000 for the first quarter of
Fiscal 1999 compared to $181,000 for the first quarter of Fiscal 1998. Interest
expense was $213,000 for the first quarter of Fiscal 1999, compared to $167,000
for the first quarter of Fiscal 1998 due largely to an increase in outstanding
borrowings. Income before income taxes totaled $79,000 for the first quarter of
Fiscal 1999 compared to $317,000 for the first quarter of Fiscal 1998.
The Company's benefit for income taxes for the first quarter of
Fiscal 1999 was $25,000. Based on historical earnings and estimated earnings for
Fiscal 1999, which include earnings on existing contracts and the Company's
ability to generate taxable income, management considers realization of the
unreserved deferred tax asset at August 31, 1998 more likely than not.
Additional reductions to the valuation allowance will be recorded when, in the
opinion of management, the Company's ability to generate taxable income is
considered more likely than not. Net income for the first quarter of Fiscal 1999
was $104,000 compared to $342,000 for the first quarter of Fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of Fiscal 1999, $1,411,000 of cash was used
in operating activities compared to $481,000 of cash provided by operating
activities for the first quarter of Fiscal 1998. The Company's accounts payable
decreased $1,131,000 due to payments made to suppliers and third party service
providers.
Cash flow used for investing activities, solely capital
expenditures, was $119,000 for the first quarter of Fiscal 1999 compared to
$32,000 for the first quarter of Fiscal 1998. The Company's current commitment
for capital expenditures in Fiscal 1999 includes approximately $300,000 for
energy efficiency upgrades, new plant equipment, upgrades to existing plant
equipment, and office buildings.
Cash flow provided by financing activities was $1,527,000 for the
first quarter of Fiscal 1999 compared to cash flow used in financing activities
of $236,000 for the first quarter of Fiscal 1998. On June 3, 1998, the Company
entered into a loan agreement with PNC Bank National Association for a $4
million line of credit and term loan, secured by a first lien on the Company's
inventory, accounts receivable, machinery and equipment and other assets. The
proceeds of the line of credit and term loan were used to prepay the outstanding
term loan and line of credit with The CIT Group/Credit Finance ("CIT") and for
general working capital needs. This credit facility includes (a) an $800,000
term loan requiring $13,000 monthly principal payments plus interest at 9.70%,
maturing on June 1, 2003, and (b) a $3,200,000 line of credit with advances
against eligible inventory and accounts receivable at the interest rate of prime
plus one and one-half percent, maturing on June 1, 1999. The loan agreement
contains certain covenants, which among other things will require the Company to
maintain specified levels of net worth. Universal Process Equipment ("UPE"),
agreed to provide a guarantee for this credit facility. This guarantee consists
of an equipment repurchase agreement wherein UPE is required to either liquidate
or otherwise purchase for its own account the Company's eligible inventory upon
the occurrence of payment default. In addition, UPE agreed to subordinate
$800,000 of indebtedness due from the Company to PNC. By securing this funding,
the Company expanded working capital and increased liquidity. As of August 31,
1998, the amount outstanding under this facility was $3,172,000. In August 1998,
the Company issued options to purchase 175,000 shares to UPE as consideration
for providing guarantees on this agreement. The Company will recognize a change
for the fair values of these options over the term of the Guarantee.
The Company believes that cash available from the PNC National Bank
credit agreement and cash generated from existing business and new orders will
be sufficient to meet operating and investing requirements through the year
ending May 31, 1999 and principal repayments on debt obligations as they become
due.
Backlog as of August 31, 1998 was $4,510,000 compared to backlog of
$9,033,000 at August 31, 1997. New orders received by the Company for the first
quarter of Fiscal 1999 were $3,529,000 compared to new orders of $4,239,000 for
the first quarter of Fiscal 1998.
The Company is aware of the uncertainty surrounding the ability of
computer systems to function properly with the coming of the year 2000 and
related issues. The Company replaced its existing computer software during 1998
with software that is Year 2000 compliant, and is currently assessing the
functionality of the systems of its customers and suppliers in an attempt to
identify and avoid potential problems. The Company is not aware of any potential
problems at this time with respect to the functionality of the systems of its
customers and supplies but continues to evaluate and assess for any potential
problems.
Page 9
<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 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
- ------- -----------------
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
Exhibits: Appendix A
Reports on Form 8-K: None
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: October 15, 1998
Page 12
<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 AUGUST 31, 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> AUG-30-1998
<CASH> 38
<SECURITIES> 0
<RECEIVABLES> 2,912
<ALLOWANCES> 162
<INVENTORY> 5,095
<CURRENT-ASSETS> 8,529
<PP&E> 10,638
<DEPRECIATION> (7,836)
<TOTAL-ASSETS> 12,597
<CURRENT-LIABILITIES> 4,906
<BONDS> 0
<COMMON> 1,144
0
0
<OTHER-SE> 226
<TOTAL-LIABILITY-AND-EQUITY> 12,597
<SALES> 3,568
<TOTAL-REVENUES> 3,568
<CGS> 2,387
<TOTAL-COSTS> 829
<OTHER-EXPENSES> (60)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (213)
<INCOME-PRETAX> 79
<INCOME-TAX> 25
<INCOME-CONTINUING> 104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104
<EPS-PRIMARY> .05
<EPS-DILUTED> .03
</TABLE>
