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, 1998
(Second 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
November 30, 1998: 2,288,520.
Number of pages in this report: 14
<PAGE>
INDEX
PART I. Financial Information: Page No.
Consolidated Balance Sheet as of November 30, 1998 (unaudited)
and May 31, 1998.................................................3
Consolidated Statements of Income for the three months
ended November 30, 1998 and 1997 (unaudited).....................5
Consolidated Statements of Income for the six
months ended November 30, 1998 and 1997 (unaudited)..............6
Consolidated Condensed Statements of Cash Flows for the six
months ended November 30, 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.............11
Signatures......................................................12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE BETHLEHEM CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS: November 30, 1998 May 31, 1998
Unaudited
<S> <C> <C>
Cash $ 12 $ 41
Accounts receivable (net of allowance for doubtful accounts of $139 and $150) 2,024 1,365
Costs and estimated profit in excess of billings on long-term contracts 1,063 833
Inventories 5,660 4,687
Prepaid expenses and other current assets 212 227
Deferred tax asset 350 300
---------------------- --------------------
Total Current Assets 9,321 7,453
---------------------- --------------------
PROPERTY, PLANT AND EQUIPMENT, at cost less
accumulated depreciation and amortization 3,231 2,772
OTHER ASSETS:
Inventories, non current 500 500
Intangibles (net of $149 and $92 of accumulated amortization) 292 349
Intangible pension and deferred compensation plan assets 180 180
Other 254 311
---------------------- --------------------
Total Other Assets 1,226 1,340
---------------------- --------------------
Total Assets $ 13,778 $ 11,565
====================== ====================
</TABLE>
Page 3
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: November 30, 1998 May 31, 1998
Unaudited
<S> <C> <C>
Current maturities of long-term debt and capital leases $ 4,026 $ 312
Note Payable - related party 787 782
Accounts payable 2,654 3,570
Accounts payable - related parties 620 313
Accrued liabilities 450 569
Billings in excess of costs and estimated profit
on long-term contracts 378 160
---------- -------
Total Current Liabilities 8,915 5,706
---------- -------
OTHER LIABILITIES:
Long-term debt and capital leases, net of current maturities 2,655 3,912
Deferred compensation and other pension liabilities 772 724
---------- -------
Total Long-Term Liabilities 3,427 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 6,181 6,123
Accumulated deficit (5,889) (6,044)
---------- ----------
1,436 1,223
Less treasury stock, at cost, 12 shares - -
Total Stockholders' Equity 1,436 1,223
---------- ----------
Total Liabilities and Stockholders' Equity $ 13,778 $ 11,565
========== ==========
</TABLE>
Page 4
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three months ended November 30
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 2,775 $ 3,479
COST OF GOODS SOLD 1,783 2,174
--------- ----------
GROSS PROFIT 992 1,305
---------- ----------
OPERATING EXPENSES:
Selling 331 278
General and Administrative 440 555
Non-Employee Stock Option Expense 15 -
---------- ---------
786 833
---------- ----------
Operating income 206 472
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (142) (145)
Financing charge - issuance of stock options (11) -
Other income (expense) 8 4
--------- ----------
(145) (141)
--------- ----------
Income before income taxes 61 331
INCOME TAX PROVISION (10) (54)
--------- ----------
NET INCOME $ 51 $ 277
========= ==========
EARNINGS PER SHARE DATA:
Basic $ .02 $ .14
========= ==========
Diluted $ .02 $ .08
========= ==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
EQUIVALENT SHARES OUTSTANDING:
Basic 2,288 1,939
========= ==========
Diluted 2,834 3,462
========= ==========
</TABLE>
Page 5
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Six months ended November 30
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 6,343 $ 8,185
COST OF GOODS SOLD 4,170 5,576
---------------------------------------------
GROSS PROFIT 2,173 2,609
---------------------------------------------
OPERATING EXPENSES:
Selling 601 553
General and Administrative 971 1,086
Non-employees Stock Option Expense 43 -
---------------------------------------------
1,615 1,639
---------------------------------------------
Operating Income 558 970
---------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (355) (310)
Financing charge - issuance of stock options (25) -
Other expense (38) (12)
---------------------------------------------
Interest Income (418) (322)
---------------------------------------------
Income before income taxes 140 648
INCOME TAX BENEFIT (PROVISION) 15 (29)
---------------------------------------------
NET INCOME $ 155 $ 619
=============================================
EARNINGS PER SHARE DATA:
Basic $ .07 $ .32
=============================================
Diluted $ .05 $ .17
=============================================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
EQUIVALENT SHARES OUTSTANDING
Basic 2,288 1,939
---------------------------------------------
Diluted 3,131 3,568
=============================================
</TABLE>
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
1998 1997
---- ----
<S> <C> <C>
Cash flow provided by (used in) operating activities $ (1,851) $ 712
Cash flow used in investing activities: (640) (146)
Cash flow provided by (used in) financing activities: 2,462 (539)
-------------- --------------------
NET INCREASE (DECREASE) IN CASH (29) 27
CASH
BEGINNING OF PERIOD 41 36
-------------- --------------------
CASH
END OF PERIOD $ 12 $ 63
============== ====================
</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 May 31, 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 six months ended November 30, 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 consisted of the following at November 30, 1998:
Raw materials & components $ 368
Work in process 2,717
Finished goods 3,235
Less: reserve for obsolete inventory (160)
----------
6,160
Less: non current inventory (500)
----------
$ 5,660
=========
Page 8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED NOVEMBER 30, 1998 AND FOR THE SIX
MONTHS ENDED NOVEMBER 1998 ("FISCAL 1999") AND FOR THE QUARTER ENDED NOVEMBER
30, 1997 AND FOR THE SIX MONTHS ENDED NOVEMBER 1997 ("FISCAL 1998")
The Company's total sales were $2,775,000 for the second quarter of
Fiscal 1999 compared to $3,479,000 for the second quarter of Fiscal 1998, a
decrease of $704,000 or 20%. Gross profit was $992,000 or 36% of sales for the
second quarter of Fiscal 1999 compared to gross profit of $1,305,000 or 38% of
sales for the second quarter of Fiscal 1998. Sales were $6,343,000 for the first
six months of Fiscal 1999 compared to sales of $8,185,000 for the first six
months of Fiscal 1998, a decrease of $1,842,000 or 23%. Gross profit was
$2,173,000 or 34% of sales for the first six months of Fiscal 1999 compared to
gross profit of $2,609,000 or 32% of sales for the first six months of Fiscal
1998.
Decreased sales in the Company's Thermal Process Unit were the
primary reason for the lower sales. The Company has been experiencing decreased
international sales activity in its Thermal Process and Filtration Units. The
Company's wholly owned subsidiary, Bethlehem Advanced Materials ("BAM") recorded
stronger sales in the second quarter of Fiscal 1999. 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 three largest customers individually accounted for 13% to 21% of the
Company's sales for the first six months of Fiscal 1999.
Operating expenses for the second quarter of Fiscal 1999 were
$786,000 or 28% of sales, compared to $833,000 or 24% of sales for the second
quarter of Fiscal 1998. For the first six months of Fiscal 1999 operating
expenses were $1,615,000 or 25% of sales, compared to operating expenses of
$1,639,000 or 20% of sales for the first six months of Fiscal 1998. Other
expense was $145,000 for the second quarter of Fiscal 1999 and $418,000 for the
first six months of Fiscal 1999. This compares to other expense of $141,000 for
the second quarter of Fiscal 1998 and $322,000 for the first six months of
Fiscal 1998. Increased interest and financing expenses for the first six months
of Fiscal 1999 was primarily due to increased borrowings. Income before taxes
for the second quarter of Fiscal 1999 was $61,000 compared to $331,000 for the
second quarter of Fiscal 1998. Income before taxes for the first six months of
Fiscal 1999 was $140,000 compared to $648,000 for the same period last year.
During the first six months of Fiscal 1999, the Company recorded a
year to date income tax benefit primarily related to federal taxes of $50,000,
which was offset by a state income tax provision of $35,000. 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
November 30, 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 second quarter of Fiscal 1999 was $51,000 compared to $277,000
for the second quarter of Fiscal 1998. Net income for the first six months of
Fiscal 1999 was $155,000 compared to $619,000 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of Fiscal 1999, $1,851,000 of cash was
used in operating activities compared to $712,000 of cash provided by operating
activities for the first six months of Fiscal 1998. The Company's accounts
receivables and inventories increased by approximately $1,632,000 for the first
six months of Fiscal 1999. 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. The Company's accounts payable decreased
$609,000 due to payments made to suppliers and third party service providers.
Cash flow used for investing activities, solely capital
expenditures, was $640,000 for the first six months of Fiscal 1999 compared to
$146,000 for the first six months of Fiscal 1998. The Company's current plan for
capital expenditures in Fiscal 1999 includes energy efficiency upgrades, new
plant equipment, upgrades to existing plant equipment, and office buildings.
Page 9
<PAGE>
Cash flow provided by financing activities was $2,462,000 for the
first six months of Fiscal 1999 compared to cash flow used in financing
activities of $539,000 for the first six months 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 November 30, 1998, the amount outstanding under
this facility was $3,904,000. In August 1998, the Company issued options to
purchase 175,000 common shares to UPE as consideration for providing guarantees
on this agreement, the cost ascribed to such options is being amortized over the
estimated life of the guarantees.
Backlog as of November 30, 1998 was $23,373,000 compared to backlog
of $7,546,000 at November 30, 1997. New orders received by the Company for the
second quarter of Fiscal 1999 were $21,638,000 compared to new orders of
$1,992,000 for the second quarter of Fiscal 1998. New orders received for the
first six months of Fiscal 1999 were $25,167,000 compared to $6,231,000 for the
first six months of Fiscal 1998. In November 1998, BAM entered into an agreement
with an existing customer to continue toll processing for five years commencing
January 1, 1999. The value of the agreement is approximately $20 million over
five years.
The Company is presently negotiating a new loan agreement for BAM.
The Company believes that cash available from its existing credit facility, a
new loan agreement for BAM 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.
YEAR 2000
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 presently forming a team
to identify Year 2000 target areas and expects to have target areas identified
in February 1999. Once the target areas have been identified, the team will
evaluate and assess any potential problems. The Company is requiring this
process to be completed in March 1999. At which point, the Company will address
any potential business disruptions. The Company's current plan is to have all
Year 2000-related issues adequately handled by the end of the Company's second
fiscal quarter.
Year to date, the Company has not incurred any material expenses in
connection with evaluating Year 2000 compliance issues. Presently, the Company
can not 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 evaluation of 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 are
not limited to, the Company's proprietary rights, environmental considerations,
the actual value of the new agreement 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: January 14, 1999
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 February 28, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 2,163
<ALLOWANCES> 139
<INVENTORY> 5,660
<CURRENT-ASSETS> 9,321
<PP&E> 11,248
<DEPRECIATION> 8,017
<TOTAL-ASSETS> 13,778
<CURRENT-LIABILITIES> 8,915
<BONDS> 0
<COMMON> 1,144
0
0
<OTHER-SE> 292
<TOTAL-LIABILITY-AND-EQUITY> 13,778
<SALES> 6,343
<TOTAL-REVENUES> 6,343
<CGS> 4,170
<TOTAL-COSTS> 1,615
<OTHER-EXPENSES> (63)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (355)
<INCOME-PRETAX> 140
<INCOME-TAX> 15
<INCOME-CONTINUING> 155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
