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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, 2000
(First Quarter of Fiscal 2001)
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 NO X
--- --
*
Number of shares outstanding of the issuer's classes of common stock as of
August 31, 2000: 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, 2000 (unaudited)
and May 31, 2000.................................................3
Consolidated Statements of Operations for the three months
ended August 31, 2000 and August 31, 1999 (unaudited)........... 5
Consolidated Condensed Statements of Cash Flows for the three
months ended August 31, 2000 and August 31, 1999 (unaudited). 6
Notes to Financial Statements....................................7
Management's Discussion and Analysis or Plan of Operation.... 8
PART II. Other Information:
Legal Proceedings, Exhibits and Reports on Form 8-K.............11
Signatures......................................................12
Page 2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
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ASSETS
August 31, 2000 May 31, 2000
(unaudited)
CURRENT ASSETS:
Cash $ 51 $ 12
Accounts receivable (net of allowance
for doubtful accounts of $21 and $21) 2,613 1,495
Due from - related party 37 77
Costs and estimated profit in excess of billings 597 407
Inventories 3,337 3,490
Prepaid expenses and other current assets 146 119
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Total Current Assets 6,781 5,600
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PROPERTY, PLANT AND EQUIPMENT, at cost less
accumulated depreciation and amortization 5,000 5,042
OTHER ASSETS:
Inventories, non current 1,952 1,952
Intangible pension and deferred compensation
plan assets 85 85
Deferred financing costs 229 270
Other 31 96
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Total Other Assets 2,297 2,403
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Total Assets $14,078 $13,045
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THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
August 31, 2000 May 31, 2000
(unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 3,702 $ 3,939
Accrued liabilities 318 648
Billings in excess of costs and estimated profit 1,973 595
Taxes Payable 5 5
Current maturities of long-term debt and capital leases 6,791 6,153
Note Payable - related party 787 787
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Total Current Liabilities 13,576 12,127
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LONG TERM LIABILITIES:
Long-term debt and capital leases, net of current maturities 2,569 2,597
Deferred compensation and other pension liabilities 494 515
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Total Long-Term Liabilities 3,063 3,112
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
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; 2,378,520 shares outstanding 1,189 1,189
Additional paid-in capital 6,927 6,898
Accumulated deficit (10,677) (10,281)
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(2,561) (2,194)
Less treasury stock, at cost, 12 shares - -
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Total Stockholders' Equity (Deficiency) (2,561) (2,194)
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Total Liabilities and Stockholders' Equity (Deficiency) $14,078 $ 13,045
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</TABLE>
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THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
Three months ended August 31, 2000 and August 31, 1999
(in thousands, except per share data)
(unaudited)
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2000 1999
NET SALES $2,271 $3,325
COST OF GOODS SOLD 1,716 2,442
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GROSS PROFIT 555 883
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OPERATING EXPENSES:
Selling 243 254
General and Administrative 473 660
Non-Employee Stock Option Expense 29 44
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745 958
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Operating loss (190) (75)
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OTHER INCOME (EXPENSE):
Interest expense (219) (185)
Financing charge - amortization of stock options (26) (28)
Other income 39 (20)
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(206) (233)
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Loss before income taxes (396) (308)
INCOME TAX BENEFIT -0- -0-
----------------------
NET LOSS $(396) $(308)
=======================
LOSS PER SHARE DATA:
Basic $(.17) $(.13)
========================
Diluted $(.17) $(.13)
========================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
EQUIVALENT SHARES OUTSTANDING:
Basic 2,379 2,379
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Diluted 2,379 2,379
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THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months ended August 31, 2000 and August 31, 1999
(in thousands)
(unaudited)
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2000 1999
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Cash flow provided by (used in) operating activities $(531) $ 82
Cash flow used in investing activities: (110) (249)
Cash flow provided by financing activities: 680 267
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NET INCREASE IN CASH 39 100
CASH
BEGINNING OF PERIOD 12 113
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CASH
END OF PERIOD $ 51 $213
======= ====
Page 6
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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, 2000 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, 2000
presented herein are not necessarily indicative of the results expected
for the year ending May 31, 2001.
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 August 31, 2000:
Raw materials & components $ 477
Work in process 1,890
Finished goods 4,048
Less: reserve for obsolete inventory (1,126)
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5,289
Less: non current inventory (1,952)
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$3,337
======
4. On November 29, 2000, the Company closed on the sale of BAM. The
Company was sold to a private company, Bergen Cove Realty Inc. Under
the terms of the agreement, the Company sold the issued and outstanding
shares of the common stock of BAM. During the fourth quarter of Fiscal
2000, the Company recognized an impairment charge of $1,600,000 in
connection with a re-evaluation of the carrying value of BAM intangible
assets and property, plant and equipment.
5. The report of the Company's Independent Certified Public Accountants on
November 3, 2000 for the Fiscal year ended May 31, 2000 contained an
explanatory paragraph on the Company's ability to continue as a going
concern. The Company has not complied with certain bank covenants in
effect at August 31, 2000 and November 30, 2000. The Company received a
temporary extension on its borrowing facilities from PNC Bank ("PNC")
on July 31, 2000 to November 30, 2000 and is currently working on
additional agreements with PNC. Due to non-compliance with such
covenants, such amounts have been classified as current liabilities in
the accompanying financial statements. The accompanying financial
statements have been prepared assuming that the Company will continue
as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Page 7
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
Recent Developments
On November 29, 2000, the Company closed on the sale of all of the
issued and outstanding shares of Bethlehem Advanced Materials Corporation
("BAM"), a wholly owned subsidiary to a private company, Bergen Cove Realty Inc.
The purchase price was $3,923,000 which included the assumption of BAM's
existing term debt with Bank of America, N.A. of $2,423,000 at November 29,
2000. In conjunction with the sale, the Company received a fairness opinion from
Seidman & Company, Inc. Investment Banking that the transaction was fair to the
Company and its Stockholders. During the fourth quarter of Fiscal 2000, the
Company recognized an impairment charge of $1,600,000 in connection with a
re-evaluation of the carrying value of BAM intangible assets and property, plant
and equipment.
The report of the Company's Independent Certified Public Accountants on
November 3, 2000 for the Fiscal year ended May 31, 2000 contained an explanatory
paragraph on the Company's ability to continue as a going concern. The Company
has not complied with certain bank covenants in effect at August 31, 2000 and
November 30, 2000. The Company received a temporary extension on its borrowing
facilities from PNC Bank ("PNC") on July 31, 2000 to November 30, 2000 and is
currently working on additional agreements with PNC.
The Company's continued existence is dependent upon its ability to
resolve its liquidity problems, principally by extending certain bank financing
arrangements, the sale of assets, business units, inventory and real estate.
While pursuing the sale of real estate and other assets and working with PNC on
additional agreements, the Company must continue to operate on cash flow
generated internally. The Company plans to improve its working capital
requirements by selling portions of its existing inventory and other business
units. In addition, the Company will continue to reduce expenses as the sale of
business units take place. Other than the recently completed sale of BAM, the
Company has no agreements, understandings or commitments with respect to the
sale of business units and there can be no assurance that any such sales will
take place. Working capital limitations continue to impinge on day-to-day
operations, thus contributing to additional operating losses. The continued
support and forbearance of its lenders will be required, although this cannot be
assured.
While the Company believes the proceeds from the sale of certain assets
and an extension on its borrowing facilities will be adequate to fund its
on-going obligations, there can be no assurance that the disposition of assets
and the Company's other strategies will occur in a timely manner in order to
fund its on-going obligations.
On December 6, 2000, the Company received notice from the American
Stock Exchange ("Exchange") Staff indicating that the Company no longer complies
with the Exchange's continued listing guidelines due to the non filing of its
Form 10-KSB ("10-KSB") for the Fiscal year ended May 31, 2000 and Form 10-QSB
("10-QSB") for the quarterly period ended August 31, 2000 with the Securities
and Exchange Commission as set forth in Sections 132(c), 1002(d) (e) and 1101 of
the Exchange Company Guide. In view of this, the Exchange is unable to determine
if the Company satisfies the Exchange's numerical guidelines for listing and
that its securities are, therefore subject to being delisted from the Exchange.
The Company filed its Form 10-KSB for the Fiscal year ended May 31, 2000 on
December 29, 2000. The Company has appealed this determination and a hearing is
scheduled for January 23, 2001. There can be no assurance the Company's request
for continued listing will be granted.
Results of Operations for the Quarter Ended August 31, 2000 ("Fiscal 2001") and
for the Quarter ended August 31, 1999 ("Fiscal 2000")
The Company's sales were $2,271,000 for the first quarter of Fiscal
2001 compared to $3,325,000 for the first quarter of Fiscal 2000, a decrease of
$1,054,000 or 32%. Gross profit of $555,000 or 24% of sales for the first
quarter of Fiscal 2001 compared to gross profit of $883,000 or 27% of sales for
the first quarter of Fiscal 2000. Decreased sales in the Company's Thermal
Process Unit and Filtration Unit was the primary factor. The decrease in sales
is attributable to a soft capital market in the chemical industry and the strong
dollar which undercut the Company's competitive position against certain foreign
suppliers.
Page 8
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Operating expenses for the first quarter of Fiscal 2001 were $745,000
or 33% of sales compared to operating expenses of $958,000 or 29% of sales for
the first quarter of Fiscal 2000. The decrease in operating expenses was due to
decreased salary, legal, and consulting expenses.
Other expense totaled $206,000 for the first quarter of Fiscal 2001
compared to other expense of $233,000 for the first quarter of Fiscal 2000.
Interest expense was $219,000 for the first quarter of Fiscal 2001 compared to
interest expense of $185,000 for the first quarter of Fiscal 2000. The increase
was due to increased borrowings at BAM, the second mortgage with Fundex, and
increased interest rates. The Company recognized $26,000 in financing charges
for the existing amortization and modification of certain options grants to
Universal Process Equipment ("UPE") for the first quarter of Fiscal 2001
compared to $28,000 for the first quarter of Fiscal 2000. Other income was
$39,000 for the first quarter of Fiscal 2001 compared to other expense of
$20,000 for the first quarter of Fiscal 2000.
Net loss for the first quarter of Fiscal 2001 was $396,000 compared to
net loss of $308,000 for the first quarter of Fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of Fiscal 2001, $531,000 of cash was used in
operating activities compared to $82,000 of cash provided by operating
activities for the first quarter of Fiscal 2000. The Company's accounts payable
and accrued liabilities decreased due to payments made to suppliers and third
party service providers.
Cash flow used in investing activities, solely capital expenditures,
was $110,000 for the first quarter of Fiscal 2001 compared to cash flow used in
investing activities of $249,000 for the first quarter of Fiscal 2000. The
Company continued to build the high temperature furnaces needed to support the
long term contract secured by BAM. The capital expenditures also included
upgrades to existing building and laboratory assets.
Cash flow provided by financing activities was $680,000 for the first
quarter of Fiscal 2001 compared to cash flow provided by financing activities of
$267,000 for the first quarter of Fiscal 2000. On May 19, 2000, the Company
entered into a $1,500,000 committed line of credit note with Exim Bank ("Exim")
through PNC Bank N.A. ("PNC"). The purpose of the facility is to provide working
capital for export contracts. Borrowings under this agreement accrue interest at
PNC's prime rate of interest. The interest rate at January 8, 2001 was 9.5%. The
Company is in default under the terms of this agreement with PNC. Borrowings
under this facility are secured in defined accounts receivable and inventory. As
of August 31, 2000 and January 8, 2001 the amounts outstanding under the
facility were $950,482 and $1,080,623 respectively. The Company's borrowings
under this facility during the first quarter of Fiscal 2001 totaled $757,000.
On May 19, 2000, the Company entered into a $600,000 loan agreement
with Fundex Capital Corporation ("Fundex") secured by a second mortgage on real
estate and personal property. Proceeds from the loan were used to repay the
Harrisburg Authority obligation in the amount of $445,000 with the balance used
for general corporate purposes. Terms of the Fundex agreement provide for twelve
monthly interest payments of $7,000 each commencing and due and payable on July
1, 2000 up to and including June 1, 2001. Thereafter, principal and interest at
the rate of 14% per annum shall be paid in one hundred eight constant monthly
installments of approximately $10,000 commencing and due and payable on the
first day of July, 2001 and on the first day of each month thereafter up to and
including June 1, 2010.
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 on the
Company's inventory, accounts receivable, machinery and equipment and other
assets. During the third quarter of 2000, the Company prepaid the term loan in
the amount of $536,000 from proceeds raised in the sale of the machinery and
equipment assets. On July 31, 2000, PNC temporarily extended the line from July
31, 2000 to November 30, 2000. The Company is in default on various covenants
with PNC. The Company and PNC are presently working on further agreements. As of
August 31, 2000 and January 8, 2001 the amounts outstanding under the facility
were $3,193,000 and $2,293,000 respectively. On December 1, 2000, the Company
paid PNC $900,000 from the proceeds from the sale of BAM. Universal Process
Equipment ("UPE")
Page 9
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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. In October of 2000, UPE
filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code.
In September of 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. As of August 31, 2000 and January 8, 2001 the amounts
outstanding under the facility were $148,000 and $120,000 respectively.
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 were 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. The Company is in violation of certain
covenants with Bank of America. Effective November 29, 2000, all outstanding
loans to the Bank of America were assumed by the new owners of BAM in accordance
with the sale and purchase agreement. As of August 31, 2000 and November 28,
2000 the amounts outstanding under the facility were $2,539,000 and $2,423,000
respectively.
Backlog as of November 28, 2000 was approximately $16,800,000
($15,400,000 of this amount related to BAM's orders) compared to $22,500,000 for
the same period last year.
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 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: 27-Financial Data Schedule
On December 14, 2000 a Form 8-K was filed to report the sale of
Bethlehem Advanced Materials Corporation ("BAM"), the Company's wholly owned
subsidiary in Knoxville, TN. BAM was sold to a private company Bergen Cove
Realty Inc. Under the terms of this agreement, the Company sold the issued and
outstanding shares of the common stock of BAM. The purchase price was $3,923,000
which includes the assumption of BAM's existing term debt of $2,423,000.
The Company received a fairness opinion from Seidman & Co., Inc.
Investment Banking for the sale of this unit.
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 15, 2001
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