- --------------------------------------------------------------------------------
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, 1999
(Third 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
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
February 28, 1999: 2,288,520.
Number of pages in this report: 14
<PAGE>
INDEX
PART I. Financial Information: Page No.
Consolidated Balance Sheet as of February 28, 1999 (unaudited)
and May 31, 1998...................................................3
Consolidated Statements of Income for the three months
ended February 28, 1999 and 1998 (unaudited).......................5
Consolidated Statements of Income for the nine
months ended February 28, 1999 and 1998 (unaudited)............... 6
Consolidated Condensed Statements of Cash Flows for the nine
months ended February 28, 1999 and 1998 (unaudited)............... 7
Notes to Financial Statements......................................8
Management's Discussion and Analysis ..............................9
PART II. Other Information:
Legal Proceedings, Submissions of Matters to a Vote of Security
Holders, 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 SHEETS
(in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS: February 28, 1999 May 31, 1998
(Unaudited)
<S> <C> <C>
Cash $ 673 $ 41
Accounts receivable (net of allowance for doubtful accounts of 2,485 1,365
$151 and $150)
Costs and estimated profit in excess of billings on long-term contracts 475 833
Inventories 6,330 4,687
Prepaid expenses and other current assets 189 227
Deferred tax asset 350 300
------- -------
Total Current Assets 10,502 7,453
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost less
accumulated depreciation and amortization of $8,082 and $7,747 4,509 2,772
OTHER ASSETS:
Inventories, non current 500 500
Intangibles (net of $158 and $92 of accumulated amortization) 283 349
Intangible pension and deferred compensation plan assets 180 180
Other 475 311
------- -------
Total Other Assets 1,438 1,340
------- -------
Total Assets $16,449 $11,565
======= =======
</TABLE>
Page 3
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: February 28, 1999 May 31, 1998
(Unaudited)
<S> <C> <C>
Current maturities of long-term debt and capital leases $ 4,014 $ 312
Note Payable - related party 787 782
Accounts payable 2,353 3,570
Accounts payable - related parties 198 313
Accrued liabilities 1,121 569
Billings in excess of costs and estimated profit
on long-term contracts 792 160
-------- --------
Total Current Liabilities 9,265 5,706
-------- --------
OTHER LIABILITIES:
Long-term debt and capital leases, net of current maturities 4,957 3,912
Deferred compensation and other pension liabilities 779 724
-------- --------
Total Long-Term Liabilities 5,736 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 6,367 6,123
Accumulated deficit (6,063) (6,044)
-------- --------
1,448 1,223
Less - treasury stock, at cost, 12 shares -- --
Total Stockholders' Equity 1,448 1,223
-------- --------
Total Liabilities and Stockholders' Equity $ 16,449 $ 11,565
======== ========
</TABLE>
Page 4
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended February 28
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
NET SALES $ 3,063 $ 3,543
COST OF GOODS SOLD 2,384 2,338
------- -------
GROSS PROFIT 679 1,205
------- -------
OPERATING EXPENSES:
Selling 266 243
General and administrative 408 701
Non-employees stock option expense 29 --
------- -------
703 944
------- -------
Operating Income (Loss) (24) 261
------- -------
OTHER INCOME (EXPENSE):
Interest expense (161) (243)
Financing charge - issuance of stock options (61) --
Other income 102 45
------- -------
(120) (198)
------- -------
Income (loss) before income taxes (144) 63
INCOME TAX BENEFIT (PROVISION) (30) 25
------- -------
NET INCOME (LOSS) $ (174) $ 88
======= =======
EARNINGS (LOSS) PER SHARE DATA:
Basic $ (.08) $ .05
======= =======
Diluted $ (.08) $ .03
======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
EQUIVALENT SHARES OUTSTANDING:
Basic 2,289 1,939
------- -------
Diluted 3,542 3,629
======= =======
</TABLE>
Page 5
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended February 28
(in thousands)
(UNAUDITED)
1999 1998
NET SALES $ 9,406 $ 11,728
COST OF GOODS SOLD 6,554 7,914
-------- --------
GROSS PROFIT 2,852 3,814
-------- --------
OPERATING EXPENSES:
Selling 867 796
General and administrative 1,379 1,787
Non-employees stock option expense 72 --
-------- --------
2,318 2,583
-------- --------
Operating Income 534 1,231
-------- --------
OTHER INCOME (EXPENSE):
Interest expense (516) (553)
Financing charge - issuance of stock options (86) --
Other income (expense) 64 33
-------- --------
(538) (520)
-------- --------
Income (loss) before income taxes (4) 711
INCOME TAX (PROVISION) (15) (4)
-------- --------
NET INCOME (LOSS) $ (19) $ 707
======== ========
EARNINGS (LOSS) PER SHARE DATA:
Basic $ (.01) $ .36
======== ========
Diluted $ (.01) $ .20
======== ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
EQUIVALENT SHARES OUTSTANDING
Basic 2,289 1,939
======== ========
Diluted 3,388 3,514
======== ========
Page 6
<PAGE>
THE BETHLEHEM CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine Months ended February 28
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flow provided by (used in) operating activities $(2,125) $ 1,006
Cash flow used in investing activities: (1,995) (257)
Cash flow provided by (used in) financing activities: 4,752 (406)
------- -------
NET INCREASE IN CASH 632 343
CASH
BEGINNING OF PERIOD 41 36
------- -------
CASH
END OF PERIOD $ 673 $ 379
======= =======
</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 three and nine months ended February
28, 1999 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 February 28, 1999:
Raw materials & components $ 652
Work in process 2,409
Finished goods 3,918
Less: reserve for obsolete inventory (149)
--------------
6,830
Less: non current inventory (500)
--------------
$ 6,330
==============
Page 8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED FEBRUARY 28, 1999 AND FOR THE NINE
MONTHS ENDED FEBRUARY 28, 1999 ("FISCAL 1999") AND FOR THE QUARTER ENDED
FEBRUARY 28, 1998 AND FOR THE NINE MONTHS ENDED FEBRUARY 28, 1998 ("FISCAL
1998")
The Company's total sales were $3,063,000 for the third
quarter of Fiscal 1999 compared to $3,543,000 for the third quarter of Fiscal
1998, a decrease of $480,000 or 14%. Gross profit was $679,000 or 22% of sales
for the third quarter of Fiscal 1999 compared to gross profit of $1,205,000 or
34% of sales for the third quarter of Fiscal 1998. Sales were $9,406,000 for the
first nine months of Fiscal 1999 compared to sales of $11,728,000 for the first
nine months of Fiscal 1998, a decrease of $2,322,000 or 20%. Gross profit was
$2,852,000 or 30% of sales for the first nine months of Fiscal 1999 compared to
gross profit of $3,814,000 or 33% of sales for the first nine months of Fiscal
1998.
Decreased sales in the Company's Thermal Products Unit were
the primary reason for the lower sales and lower gross profit margins. Both
sales activity and sales in the Company's core Thermal Products Unit have
decreased due to a worldwide decline of purchasing of capital goods in the
chemical industry and other process industries that the Company serves. During
the fourth quarter of Fiscal 1999, the Company has increased its advertising and
marketing activities in order to try and capture more sales in the Thermal
Products Business Unit. 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 and decreasing manufacturing expenses in the production of
its core products. The Company's two largest customers individually accounted
for 21% of the Company's sales for the first nine months of Fiscal 1999.
Operating expenses for the third quarter of Fiscal 1999 were
$703,000 or 23% of sales, compared to $944,000 or 27% of sales for the third
quarter of Fiscal 1998. The decreased general and administrative expenses were
due to decreased salary and fringe benefit expense and consultant expenses. For
the first nine months of Fiscal 1999 operating expenses were $2,318,000 or 25%
of sales, compared to operating expenses of $2,583,000 or 22% of sales for the
first nine months of Fiscal 1998. Other expense was $120,000 for the third
quarter of Fiscal 1999 and $538,000 for the first nine months of Fiscal 1999.
This compares to other expense of $198,000 for the third quarter of Fiscal 1998
and $520,000 for the first nine months of Fiscal 1998. The Company's loss before
taxes for the third quarter of Fiscal 1999 was $144,000 compared to income
before taxes of $63,000 for the third quarter of Fiscal 1998. The loss before
taxes for the first nine months of Fiscal 1999 was $4,000 compared to income
before taxes of $711,000 for the same period last year.
During the first nine 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 $65,000. Net loss
for the third quarter of Fiscal 1999 was $174,000 compared to net income of
$88,000 for the third quarter of Fiscal 1998. Net loss for the first nine months
of Fiscal 1999 was $19,000 compared to net income of $707,000 for the same
period last year.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of Fiscal 1999, $2,125,000 of
cash was used in operating activities compared to $1,006,000 of cash provided by
operating activities for the first nine months of Fiscal 1998. The Company's
accounts receivable and inventories increased by approximately $2,763,000 for
the first nine 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, raw materials and finished
goods inventories. The Company's accounts payable decreased $1,332,000 due to
payments made to suppliers and third party service providers.
Cash flow used for investing activities, solely capital
expenditures, was $1,995,000 for the first nine months of Fiscal 1999 compared
to $257,000 for the first nine months of Fiscal 1998. The Company began building
and upgrading the high temperature furnaces needed to support a long term
contract secured by the Company's wholly owned subsidiary Bethlehem Advanced
Materials ("BAM"). The capital expenditures also included energy efficiency
upgrades, upgrades to existing plant equipment, office buildings and new plant
equipment.
Page 9
<PAGE>
Cash flow provided by financing activities was $4,752,000
for the first nine months of Fiscal 1999 compared to cash flow used in financing
activities of $406,000 for the first nine 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 February 28, 1999, the amount outstanding under
this facility was $3,628,000. 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.
On January 21, 1999, the Company entered into a loan agreement
with Nations Bank 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 the high temperature furnaces needed to support the new BAM contract.
The interest rate on this loan is prime plus one half of one percent. The loan
agreement contains certain financial covenants. The balance outstanding under
this credit facility was $2,481,000 on February 28, 1999. On July 31, 1999, the
amount outstanding under this credit line will be converted to a seven-year term
loan and any amount not termed out will remain as a revolving credit line.
Backlog as of February 28, 1999 was $24,174,000 compared to
backlog of $6,239,000 at February 28, 1998. New orders received by the Company
for the third quarter of Fiscal 1999 were $3,865,000 compared to new orders of
$2,236,000 for the third quarter of Fiscal 1998. New orders received for the
first nine months of Fiscal 1999 were $29,032,000 compared to $8,467,000 for the
first nine months of Fiscal 1998.
The Company believes that cash available from its existing
credit facilities 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 formed a committee
to identify Year 2000 target areas and expects to have target areas completely
identified by May of 1999. Once the target areas have been completely
identified, the committee will evaluate and assess any potential problems. The
Company is requiring this process to be completed in June of 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 fiscal quarter ending November 30, 1999.
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 evaluating Year 2000 exposure.
This Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A
Page 10
<PAGE>
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 11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Matters submitted to a vote of security holders at Annual Meeting of
Stockholders hold on December 17, 1998:
o Election of eight directors, each to serve for a term of one
year and until the next annual meeting of Stockholders and
until their successors are duly elected and qualify;
o Ratification of the appointment of BDO Seidman, LLP as
independent auditors of the Company for the fiscal year ending
May 31, 1999.
VOTING RESULTS
o Election of eight directors:
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of Common
Common Stock - For: Stock - Withheld Authority:
----------------------------------------- -------------------------------------
<S> <C> <C>
Harold Bogatz 1,317,288 0
B. Ord Houston 1,317,288 0
Jan P. Gale 1,317,288 0
Ronald H. Gale 1,317,288 0
Salvatore J. Zizza 1,317,288 0
Alan H. Silverstein 1,317,288 0
James L. Leuthe 1,317,288 0
James F. Lomma 1,317,055 0
</TABLE>
o Ratification of BDO Seidman, LLP as independent auditors of the
Company for the Fiscal year ending May 31, 1999:
NUMBER OF SHARES OF COMMON STOCK
FOR 1,317,039 AGAINST 169
ABSTAIN 868 BROKER NON-VOTES 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: 27 - Financial Data Schedule
Reports on Form 8-K: None
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 19, 1999
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, 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> FEB-28-1999
<CASH> 673
<SECURITIES> 0
<RECEIVABLES> 2,636
<ALLOWANCES> 151
<INVENTORY> 6,330
<CURRENT-ASSETS> 10,502
<PP&E> 12,591
<DEPRECIATION> 8,082
<TOTAL-ASSETS> 16,449
<CURRENT-LIABILITIES> 9,265
<BONDS> 0
<COMMON> 1,144
0
0
<OTHER-SE> 304
<TOTAL-LIABILITY-AND-EQUITY> 16,449
<SALES> 3,063
<TOTAL-REVENUES> 3,063
<CGS> 2,384
<TOTAL-COSTS> 703
<OTHER-EXPENSES> (41)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161
<INCOME-PRETAX> (144)
<INCOME-TAX> (30)
<INCOME-CONTINUING> (174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (174)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
