- --------------------------------------------------------------------------------
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, 1999
(First Quarter of Fiscal 2000)
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, 1999: 2,378,520.
Number of pages in this report: 13
<PAGE>
INDEX
PART I. Financial Information: Page No.
Consolidated Balance Sheet as of August 31, 1999 (unaudited)
and May 31, 1999.................................................3
Consolidated Statements of Income for the three months
ended August 31, 1999 and 1998 (unaudited).......................5
Consolidated Condensed Statements of Cash Flows for the three
months ended August 31, 1999 and 1998 (unaudited)................6
Notes to Financial Statements....................................7
Management's Discussion and Analysis ............................8
PART II. Other Information:
Legal Proceedings, Defaults Upon Senior Securities,
Exhibits and Reports on Form 8-K................................11
Signatures......................................................12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
August 31, 1999 May 31, 1999
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 213 $ 113
Accounts receivable (net of allowance
for doubtful accounts of $65 and $47) 2,899 2,342
Costs and estimated profit in excess of
billings on long-term contracts 1,205 1,618
Inventories 5,278 5,092
Prepaid expenses and other current assets 233 113
Deferred tax asset 375 375
------- -------
Total Current Assets 10,203 9,653
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost less
accumulated depreciation and amortization 6,056 5,917
OTHER ASSETS:
Inventories, non current 750 750
Intangibles (net of $129 and $122 of accumulated amortization) 268 275
Intangible pension and deferred compensation plan assets 145 145
Deferred financing costs 381 382
Other 104 115
------- -------
Total Other Assets 1,648 1,667
------- -------
Total Assets $17,907 $17,237
======= =======
</TABLE>
3
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31, 1999 May 31, 1999
(unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term debt and capital leases $ 7,809 $ 1,209
Note Payable - related party 787 787
Accounts payable 4,365 3,545
Accounts payable, related parties 83 24
Accrued liabilities 414 565
Billings in excess of costs and estimated profit
on long-term contracts 174 239
-------- --------
Total Current Liabilities 13,632 6,369
-------- --------
LONG TERM LIABILITIES:
Long-term debt and capital leases, net of current maturities 1,933 8,266
Deferred compensation and other pension liabilities 495 491
-------- --------
Total Long-Term Liabilities 2,428 8,757
-------- --------
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;
2,378,532 shares issued and 2,378,520 shares outstanding 1,189 1,189
Additional paid-in capital 6,601 6,557
Accumulated deficit (5,943) (5,635)
Less - treasury stock, at cost, 12 shares -- --
Total Stockholders' Equity 1,847 2,111
-------- --------
Total Liabilities and Stockholders' Equity $ 17,907 $ 17,237
======== ========
</TABLE>
4
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended August 31
(in thousands, except per share data)
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
NET SALES $ 3,325 $ 3,568
COST OF GOODS SOLD 2,442 2,387
------- -------
GROSS PROFIT 883 1,181
------- -------
OPERATING EXPENSES:
Selling 254 270
General and Administrative 660 531
Non-Employee Stock Option Expense 44 28
------- -------
958 829
------- -------
Operating income (loss) (75) 352
------- -------
OTHER EXPENSE:
Interest expense (185) (213)
Financing charge - issuance of stock options (28) (14)
Other expense (20) (46)
------- -------
(233) (273)
------- -------
Income (loss) before income taxes (308) 79
INCOME TAX BENEFIT -0- 25
------- -------
NET INCOME (LOSS) $ (308) $ 104
======= =======
EARNINGS (LOSS) PER SHARE DATA:
Basic $ (.13) $ .05
======= =======
Diluted $ (.13) $ .03
======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 2,379 2,288
======= =======
Diluted 3,456 3,336
======= =======
</TABLE>
5
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months ended August 31
(in thousands)
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities: $ 82 $(1,411)
Cash flows used in investing activities: (249) (119)
Cash flows provided by financing activities: 267 1,527
------- -------
NET INCREASE (DECREASE) IN CASH 100 (3)
CASH
BEGINNING OF PERIOD 113 41
------- -------
CASH
END OF PERIOD $ 213 $ 38
======= =======
</TABLE>
6
<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, 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 May 31, 1999 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, 1999
presented herein are not necessarily indicative of the results expected
for the year ending May 31, 2000. The effects of common equivalent
shares (principally stock options and warrants) are excluded from the
computation of diluted loss per share for the three months ended August
31, 1999 since such effects are anti-dilutive.
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, 1999:
Raw materials & components $ 619
Work in process 2,694
Finished goods 2,915
Less: reserve for obsolete inventory (200)
---------
6,028
Less: non current inventory (750)
---------
$ 5,278
=========
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
REPAYMENTS OF OUTSTANDING INDEBTEDNESS AND THE IMPACT ON THE COMPANY'S CASH
POSITION
As of August 31, 1999, the Company had $213,000 in available
cash. As of November 1, 1999, the amount outstanding under the Company's line of
credit with PNC Bank, N.A. ("PNC") will be reduced from $3,450,000 to
$3,200,000. Accordingly, the Company will be required to pay PNC the amount of
$250,000. In addition, as of November 1, 1999, all unpaid balances of principal
and accrued interest of approximately $579,000 are due and payable to the
Harrisburg Authority. While the Company is currently negotiating with the
Harrisburg Authority to extend the pay off date and is attempting to secure
additional financing, there can be no assurance that the Company will be
successful in any such efforts. Accordingly, if the Company is unsuccessful in
such efforts, the Company's cash position will be insufficient to satisfy its
liquidity requirements. For further information relating to the Company's
liquidity, see "Liquidity and Capital Resources." In addition, the Company is in
violation of certain financial covenants with PNC and Bank of America. For
further information relating to the Company's covenant violations, see "Part II
- - Other Information, Item 3. Defaults Upon Senior Securities."
RESULTS OF OPERATIONS FOR THE QUARTER ENDED AUGUST 31, 1999 ("FISCAL 2000") AND
FOR THE QUARTER ENDED AUGUST 31, 1998 ("FISCAL 1999")
The Company's total sales were $3,325,000 for the first
quarter of Fiscal 2000 compared to $3,568,000 for the first quarter of Fiscal
1999, a decrease of $243,000 or 7%. Gross profit was $883,000 or 27% of sales
for the first quarter of Fiscal 2000 compared to gross profit of $1,181,000 or
33% of sales for the first quarter of Fiscal 1999. Decreased sales in the
Company's Thermal Process Unit were the primary factor for the lower sales. Both
sales activity and sales in the Company's core Thermal Process Equipment Unit
decreased through the first quarter of Fiscal 2000 due to a worldwide decline of
the purchasing of capital goods in the chemical industry and other process
industries that the Company serves. The Company has increased its advertising
and marketing activities to try and capture more sales in the Company's Thermal
Process Unit and the Company's Environmental Systems Unit. The Company continues
to focus on the expansion of specialty high temperature furnace systems and toll
processing services for select advanced materials markets at the Company's
wholly owned subsidiary, Bethlehem Advanced Materials ("BAM"). The decreased
gross profit margin for the first quarter of 2000 compared to the first quarter
of 1999 was due to lower gross profit margins recorded in the Company's
Filtration Process Equipment Unit.
Operating expenses for the first quarter of Fiscal 2000 were
$958,000 or 29% of sales, compared to $829,000 or 23% of sales for the first
quarter of Fiscal 1999. The increase in administrative expenses was due to
increased legal, consulting and audit expenses. Other expense totaled $233,000
for the first quarter of Fiscal 2000 compared to $273,000 for the first quarter
of Fiscal 1999. Interest expense was $185,000 for the first quarter of Fiscal
2000, compared to $213,000 for the first quarter of Fiscal 1999. Net loss for
the first quarter of Fiscal 2000 was $308,000 compared to net income of $104,000
for the first quarter of Fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of Fiscal 2000, $82,000 of cash was
provided by operating activities compared to $1,411,000 of cash used in
operating activities for the first quarter of Fiscal 1999. The Company's
accounts payable increased $820,000 due to costs incurred on contracts in
process during the first quarter of Fiscal 2000.
Cash flow used for investing activities, solely capital
expenditures, was $249,000 for the first quarter of Fiscal 2000 compared to
$119,000 for the first quarter of Fiscal 1999. The Company continues to build
the high temperature furnaces needed to support the long term contract secured
by BAM. The capital expenditures also include new computer equipment, upgrades
to existing plant equipment and new plant equipment.
Cash flow provided by financing activities was $267,000 for
the first quarter of Fiscal 2000 compared to cash flow provided by financing
activities of $1,527,000 for the first quarter of Fiscal 1999. On June 3, 1998,
the Company entered into a loan agreement with PNC for a $4 million line of
credit and term loan, secured by a first lien
8
<PAGE>
on the Company's (excluding BAM) 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. On July 31,
1999, the agreement with PNC was amended. The amended 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 $3,450,000 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 July 31, 2000. The line
of credit will be reduced to an amount equal to $3,200,000 after November 1,
1999. As of October 15, 1999, the amount outstanding under the facility
(including the term loan) was $4,043,000. The loan agreement contains certain
covenants which, among other criteria, will require the Company to maintain
specified levels of net worth. 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 a 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.
In September 1998, the Company entered into a $250,000 non
revolving and committed equipment line of credit with PNC. The purpose of the
facility is to provide funding for acquisition of equipment from time to time,
in aggregate amounts not exceeding the sum of $250,000. The maximum amount of
each advance made under the facility shall be equal to the lesser of; (1) the
then current unadvanced portion of the facility or, (2) ninety percent (90%) of
the price paid by the Company to acquire the equipment. The rate bears interest
of a maximum rate of 9.40% and a minimum rate of 9.15%. Borrowings under the
facility are secured by a lien on all of the collateral advanced. Borrowings
under this facility are fully amortized with fixed equal payments of $5,000 not
to exceed a term of 60 months. The amount outstanding as of October 15, 1999
under the facility was $205,000.
On January 21, 1999, the Company entered into a loan
agreement with Bank of America for a $3 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 this credit facility
are being used to finance capital expenditures at the BAM facility to support
the contract received during the third quarter of 1999. On July 31, 1999, the
credit line was converted to a seven-year term loan requiring principal payments
of approximately $38,000 plus interest at prime plus one half of one percent.
The loan agreement contains certain covenants, which among other criteria will
require the Company to maintain a specified level of net worth. As of October
15, 1999, the amount outstanding under the facility was $2,924,000.
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 operating cash flow. As of
October 15, 1999, $787,000 of these advances remains outstanding.
On November 1, 1999, all unpaid balances of principal and
accrued interest of approximately $579,000 are due and payable to the Harrisburg
Authority. The Company is negotiating presently with the Harrisburg Authority to
extend the payoff date. In addition, the Company is also is looking for
alternative financing to payoff this debt. Currently, the Company has no
agreements, commitments or understandings with respect to such additional
financing. There can be no assurance that the Company will be able to extend the
payoff date or secure additional financing.
Backlog of $20,611,000 at August 31, 1999, compares to backlog
of $4,510,000 for the same period last year. This increase is primarily due to
BAM's five-year contract to provide toll processing services.
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 formed a committee
to identify Year 2000 target areas. All target areas were completely identified
in May of 1999 and have been evaluated and assessed for any potential problems.
The Company is presently addressing any potential financial disruptions. The
Company's current plan is to have all Year 2000-related issues adequately
handled by the end of the Company's fiscal quarter ending November 30, 1999.
9
<PAGE>
Year to date, the Company has not incurred any material
expenses in connection with evaluating Year 2000 compliance issues. Presently,
the Company cannot assess the financial impact of the Year 2000 compliance
issues. Although the Company considers a material adverse impact on its
financial condition or results of operations or liquidity unlikely, the Company
cannot at this time state with a high degree of certainty that the Year 2000
compliance issues will not have a material impact due to the fact that the
Company is in the beginning stages of evaluating Year 2000 exposure.
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.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
The Company is in violation of its minimum fixed charge
coverage ratio covenant and the maximum leverage ratio
covenant with PNC Bank, N.A. The Company is also in violation
of its funded debt coverage ratio covenant with Bank of
America. The Company is in the process of obtaining waivers,
however, there can be no assurance that the Company will be
successful in any such efforts. Accordingly, if the Company is
unsuccessful in either of such efforts, and either PNC Bank,
N.A. or Bank of America declares that the Company is in
default under their respective loan agreements with the
Company, the Company's cash position will be insufficient to
satisfy its liquidity requirements.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: 27 - Financial Data Schedule
Reports on Form 8-K: None
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 20, 1999
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 (a)
NONFINANCIAL STATEMENT DISCLOSURES
REGULATION S-B
This schedule contains summary financial information extracted from the Company
10-QSB for the twelve months ended August 31, 1999 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-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 213
<SECURITIES> 0
<RECEIVABLES> 2,964
<ALLOWANCES> 65
<INVENTORY> 5,278
<CURRENT-ASSETS> 10,203
<PP&E> 13,819
<DEPRECIATION> 7,763
<TOTAL-ASSETS> 17,907
<CURRENT-LIABILITIES> 13,632
<BONDS> 1,933
<COMMON> 1,189
0
0
<OTHER-SE> 658
<TOTAL-LIABILITY-AND-EQUITY> 17,907
<SALES> 3,325
<TOTAL-REVENUES> 3,325
<CGS> 2,442
<TOTAL-COSTS> 958
<OTHER-EXPENSES> 48
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> (308)
<INCOME-TAX> 0
<INCOME-CONTINUING> (308)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (308)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
</TABLE>
