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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 March 31, 2004
| ¨ | Transition report under Section 13 or 15(d) of the Exchange Act |
For the transition period from to
Commission file number 0-29024
BENTHOS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
| Massachusetts | 04-2381876 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I. R. S. Employer Identification No.) |
| 49 Edgerton Drive, North Falmouth, Massachusetts | 02556 | |
| (Address of Principal Executive Offices) |
508-563-1000
Issuer’s Telephone Number, Including Area Code
Check whether the issuer (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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
State the number of shares outstanding of each of the issuer’s classes of Common equity as of the latest practicable date:
Common Stock par value $.06 2/3 | 1,383,102 | |
| (Class) | (Outstanding stock at May 3, 2004) |
Transitional Small Business Disclosure Format (check one): Yes ¨ No x
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BENTHOS, INC. AND SUBSIDIARIES
FORM 10-QSB
FOR THE THREE MONTHS ENDED
MARCH 31, 2004
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PART I - FINANCIAL INFORMATION
Benthos, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
| March 31, 2004 | September 30, 2003 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and Cash Equivalents | $ | 26 | $ | 204 | ||||
Accounts Receivable, Net | 2,840 | 2,535 | ||||||
Inventories | 3,123 | 3,076 | ||||||
Prepaid Expenses and Other Current Assets | 119 | 153 | ||||||
Note Receivable and Other Receivable – Real Estate | — | 1,150 | ||||||
Total Current Assets | 6,108 | 7,118 | ||||||
Property, Plant and Equipment, Net | 1,304 | 1,568 | ||||||
Goodwill | 576 | 576 | ||||||
Acquired Intangible Assets, Net | 337 | 456 | ||||||
Other Assets, Net | 44 | 52 | ||||||
| $ | 8,369 | $ | 9,770 | |||||
Liabilities and Stockholders’ Investment | ||||||||
Current Liabilities: | ||||||||
Current Portion of Long-Term Debt | $ | 279 | $ | 879 | ||||
Line of Credit | 250 | — | ||||||
Accounts Payable | 1,731 | 2,160 | ||||||
Accrued Expenses | 957 | 1,161 | ||||||
Customer Deposits | 205 | 261 | ||||||
Total Current Liabilities | 3,422 | 4,461 | ||||||
Long-Term Debt, Net of Current Portion | 395 | 534 | ||||||
Stockholders’ Investment: | ||||||||
Common stock, $.06 2/3 Par Value – Authorized – 7,500 Shares Issued – 1,653 Shares at March 31, 2004 and September 30, 2003 | 110 | 110 | ||||||
Capital in Excess of Par Value | 1,569 | 1,569 | ||||||
Retained Earnings | 3,504 | 3,727 | ||||||
Treasury Stock, at Cost– 270 shares at March 31, 2004 and September 30, 2003 | (631 | ) | (631 | ) | ||||
Total Stockholders’ Investment | 4,552 | 4,775 | ||||||
| $ | 8,369 | $ | 9,770 | |||||
See accompanying notes to Condensed Consolidated Financial Statements.
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Benthos, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
Net Sales | $ | 4,195 | $ | 4,419 | $ | 8,018 | $ | 8,771 | ||||||||
Cost of Sales | 2,434 | 2,635 | 4,815 | 5,451 | ||||||||||||
Gross Profit | 1,761 | 1,784 | 3,203 | 3,320 | ||||||||||||
Selling, General & Administrative Expenses | 1,298 | 1,283 | 2,481 | 2,540 | ||||||||||||
Research and Development Expenses | 424 | 426 | 794 | 823 | ||||||||||||
Amortization of Acquired Intangibles | 59 | 59 | 119 | 119 | ||||||||||||
(Loss) Income from Operations | (20 | ) | 16 | (191 | ) | (162 | ) | |||||||||
Interest Expense | (16 | ) | (56 | ) | (32 | ) | (113 | ) | ||||||||
Net Loss | $ | (36 | ) | $ | (40 | ) | $ | (223 | ) | $ | (275 | ) | ||||
Basic and Diluted Loss Per Share | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.16 | ) | $ | (0.20 | ) | ||||
Weighted Average Number of Shares Outstanding | 1,383 | 1,383 | 1,383 | 1,383 | ||||||||||||
See accompanying notes to Condensed Consolidated Financial Statements.
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Benthos, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Six Months Ended | ||||||||
| March 31, 2004 | March 31, 2003 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net Loss | $ | (223 | ) | $ | (275 | ) | ||
Adjustments to Reconcile Net Loss to Net Cash (Used in) Provided by Operating Activities: | ||||||||
Depreciation and Amortization | 435 | 404 | ||||||
Changes in Assets and Liabilities: | ||||||||
Accounts Receivable | (305 | ) | 23 | |||||
Inventories | (28 | ) | 231 | |||||
Refundable Income Taxes | — | 390 | ||||||
Prepaid Expenses and Other Current Assets | 34 | 21 | ||||||
Accounts Payable and Accrued Expenses | (633 | ) | (80 | ) | ||||
Customer Deposits and Deferred Revenue | (56 | ) | (302 | ) | ||||
Net Cash (Used in) Provided by Operating Activities | (776 | ) | 412 | |||||
Cash Flows from Investing Activities: | ||||||||
Purchases of Property, Plant and Equipment | (63 | ) | (21 | ) | ||||
Note Receivable and Other Receivable – Real Estate | 1,150 | — | ||||||
Other Investing Activities, net | — | 1 | ||||||
Net Cash Provided by (Used in) Investing Activities | 1,087 | (20 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Borrowings (Payments) on Line of Credit | 250 | (50 | ) | |||||
Payments on Long-Term Debt | (739 | ) | (393 | ) | ||||
Net Cash Used in Financing Activities | (489 | ) | (443 | ) | ||||
Net Decrease in Cash and Cash Equivalents | (178 | ) | (51 | ) | ||||
Cash and Cash Equivalents, Beginning of Period | 204 | 76 | ||||||
Cash and Cash Equivalents, End of Period | $ | 26 | $ | 25 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Interest Paid | $ | 34 | $ | 114 | ||||
Income Taxes Paid, Net | $ | 52 | $ | (387 | ) | |||
See accompanying notes to Condensed Consolidated Financial Statements.
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Benthos, Inc. and Subsidiaries
Notes to Financial Statements
(in thousands, except per share amounts)
1. Fiscal Periods
The fiscal year of Benthos, Inc. (the Company) ends on September 30 each year. Interim quarters are comprised of 13 weeks unless otherwise noted and end on the Sunday closest to December 31, March 31, and June 30. All references in the unaudited condensed consolidated financial statements to fiscal periods ended on December 31, March 31, or June 30 mean the interim quarters referred to above.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended September 30, 2003, included in the Company’s previously filed Form 10-KSB. The accompanying condensed consolidated financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. Certain reclassifications have been made to the fiscal year 2004 financial statements to conform with the fiscal year 2003 presentation.
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
| March 31, 2004 | September 30, 2003 | |||||
Raw Materials | $ | 236 | $ | 259 | ||
Work-in-Process | 2,835 | 2,772 | ||||
Finished Goods | 52 | 45 | ||||
| $ | 3,123 | $ | 3,076 | |||
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4. Note Receivable and Other Receivable – Real Estate
On September 29, 2003, the Company completed the sale of two parcels of real estate in North Falmouth, Massachusetts (the South Side parcel and the North Side parcel), for a total sales price of $2,500. The real estate had a net book value of approximately $171 and the sale resulted in a gain of $2,208 that was recorded in fiscal year 2003. The gross proceeds of $1,300 for the South Side parcel were received on September 30, 2003. The gross proceeds for the North Side parcel were $1,200, consisting of a promissory note in the amount of $300 from the buyer and an additional $850, net of $50 of commissions, which proceeds were held in escrow until the recording of the deed for the North Side parcel was complete. The Company received the $850 in proceeds from escrow on October 17, 2003. The Company received the $300 from the promissory note on October 24, 2003.
5. Earnings (Loss) Per Share
A reconciliation of basic and diluted shares outstanding is as follows:
Three Months Ended March 31, | Six Months Ended March 31 | |||||||
| 2004 | 2003 | 2004 | 2003 | |||||
Basic weighted average common shares outstanding | 1,383 | 1,383 | 1,383 | 1,383 | ||||
Weighted average common share equivalents | — | — | — | — | ||||
Diluted weighted average shares outstanding | 1,383 | 1,383 | 1,383 | 1,383 | ||||
The following securities were not included in computing earnings per share because their effects would be anti-dilutive:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||
| 2004 | 2003 | 2004 | 2003 | |||||
Options to purchase common stock | 163 | 387 | 183 | 401 | ||||
6. Stock Options
At March 31, 2004, the Company had two stock-based compensation plans (one employee and one non-employee director’s plan). The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net loss, as the options granted under those plans had an exercise price equal to, or greater than, the market value of the underlying common stock on the date of the grant.
The Company provides pro forma disclosures of compensation expense under the fair value method of SFAS No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.”
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The weighted average assumptions used were as follows:
Six Months Ended March 31, | ||||||
| 2004 | 2003 | |||||
Risk-free interest rate | 3.26% - 3.96% | 3.52% - 3.58% | ||||
Expected dividend yield | — | — | ||||
Expected life (in years) | 7 | 7 | ||||
Expected volatility | 60 | % | 40 | % | ||
Had compensation cost for the Company’s stock option plans been determined using the fair value method at the grant dates, the effect on the Company’s net loss and loss per share for the periods shown below would have been as follows:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
Net loss as reported: | $ | (36 | ) | $ | (40 | ) | $ | (223 | ) | $ | (275 | ) | ||||
Add: | ||||||||||||||||
Stock-based employee compensation expense included in net loss, net of related tax effects | — | — | — | — | ||||||||||||
Deduct: | ||||||||||||||||
Total stock-based employee compensation determined under fair value method for all awards, net of related tax effects | (42 | ) | (60 | ) | (82 | ) | (118 | ) | ||||||||
Pro forma net loss | $ | (78 | ) | $ | (100 | ) | $ | (305 | ) | $ | (393 | ) | ||||
Basic and diluted loss per share | ||||||||||||||||
As reported | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.16 | ) | $ | (0.20 | ) | ||||
Pro forma | $ | (0.05 | ) | $ | (0.07 | ) | $ | (0.22 | ) | $ | (0.28 | ) | ||||
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7. Segment Reporting
The Company views its operations and manages its business as two segments, Undersea Systems and Package Inspection Systems, as being strategic business units that offer different products. The Company evaluates performance of its operating segments based on revenues from external customers, income from operations and identifiable assets.
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
Sales to Unaffiliated Customers: | ||||||||||||||||
Undersea Systems | $ | 2,757 | $ | 2,399 | $ | 5,208 | $ | 4,809 | ||||||||
Package Inspection Systems | 1,438 | 2,020 | 2,810 | 3,962 | ||||||||||||
Total | $ | 4,195 | $ | 4,419 | $ | 8,018 | $ | 8,771 | ||||||||
Gross Profit: | ||||||||||||||||
Undersea Systems | $ | 1,210 | $ | 942 | $ | 2,081 | $ | 1,668 | ||||||||
Package Inspection Systems | 551 | 842 | 1,122 | 1,652 | ||||||||||||
Total | $ | 1,761 | $ | 1,784 | $ | 3,203 | $ | 3,320 | ||||||||
(Loss) Income from Operations: | ||||||||||||||||
Undersea Systems | $ | 218 | $ | (65 | ) | $ | 67 | $ | (314 | ) | ||||||
Package Inspection Systems | (238 | ) | 81 | (258 | ) | 152 | ||||||||||
Total | $ | (20 | ) | $ | 16 | $ | (191 | ) | $ | (162 | ) | |||||
Identifiable Assets: | ||||||||||||||||
Undersea Systems | $ | 5,674 | $ | 6,481 | ||||||||||||
Package Inspection Systems | 2,011 | 1,840 | ||||||||||||||
Corporate Assets | 684 | 2,168 | ||||||||||||||
Total | $ | 8,369 | $ | 10,489 | ||||||||||||
Depreciation: | ||||||||||||||||
Undersea Systems | $ | 35 | $ | 81 | $ | 132 | $ | 160 | ||||||||
Package Inspection Systems | 67 | 46 | 152 | 95 | ||||||||||||
Corporate Assets | 11 | 11 | 24 | 22 | ||||||||||||
Total | $ | 113 | $ | 138 | $ | 308 | $ | 277 | ||||||||
Purchases of Fixed Assets: | ||||||||||||||||
Undersea Systems | $ | 21 | $ | 2 | $ | 35 | $ | 12 | ||||||||
Package Inspection Systems | 6 | 1 | 8 | 5 | ||||||||||||
Corporate Assets | 2 | — | 20 | 4 | ||||||||||||
Total | $ | 29 | $ | 3 | $ | 63 | $ | 21 | ||||||||
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Revenues by geographic area for the three and six months ended March 31, 2004 and 2003 were as follows:
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||
Geographic Area: | ||||||||||||
United States | $ | 2,221 | $ | 2,927 | $ | 4,471 | $ | 6,201 | ||||
Other | 1,974 | 1,492 | 3,547 | 2,570 | ||||||||
Total | $ | 4,195 | $ | 4,419 | $ | 8,018 | $ | 8,771 | ||||
Revenues by product line within the Undersea Systems segment were as follows:
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||
Product Line: | ||||||||||||
Underwater Acoustics | $ | 1,044 | $ | 1,102 | $ | 2,235 | $ | 2,267 | ||||
Geophysical Exploration Equipment | 814 | 1,019 | 1,591 | 2,020 | ||||||||
Other Undersea Products | 899 | 278 | 1,382 | 522 | ||||||||
Total | $ | 2,757 | $ | 2,399 | $ | 5,208 | $ | 4,809 | ||||
The Package Inspection Systems segment has only one product line.
8. Credit Facility
The Company has a credit facility with a bank. This facility provides for loans under two notes: a $5,500 variable rate term note and a $600 variable rate line of credit. The term note is payable in 84 consecutive equal monthly installments of principal and accrues interest at prime (4.0% at March 31, 2004) plus 2%, or 7%, whichever is higher. The term note matures in August 2006. In connection with the land sale discussed in Note 4, the Company paid down the principal balance on this term loan by $600 on October 17, 2003. Subsequent to this payment, the bank and the Company amended the term loan to amortize the remaining term loan balance on a monthly basis through August 2006, thereby reducing the monthly principal payment from $64 to $23. Principal payments under the term note will be $140 for the remainder of fiscal year 2004 and $279 and $255 in fiscal years 2005 and 2006, respectively.
The line of credit expires on January 31, 2005. Borrowings under the line of credit are payable as follows: monthly payments of interest only and unpaid principal and unpaid interest at maturity. The interest rate under the line of credit accrues at prime (4.0% at March 31, 2004) plus 2%, or 7%, whichever is higher. Advances are limited to 45% of eligible accounts receivable. The availability under the line of credit was $600 as of March 31, 2004. There were $250 in advances outstanding under the line of credit as of March 31, 2004. The credit facility is secured by substantially all of the assets of the Company and requires the Company to meet certain covenants, including debt service coverage. As of March 31, 2004, the Company was in compliance with these covenants.
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9. Comprehensive Loss
SFAS No. 130, “Reporting Comprehensive Income,” requires disclosure of all components of comprehensive loss. Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. The Company does not have any items of comprehensive loss other than net loss.
10. Supplemental Disclosure of Non-Cash Activities
The following is the disclosure of non-cash investing activities:
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||
Transfer of inventory to property, plant, and equipment as demonstration equipment | $ | 167 | $ | 176 | $ | 443 | $ | 391 | ||||
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Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Overview
Benthos, Inc. and its subsidiaries (the Company) design, manufacture, sell and service oceanographic products and systems for underwater exploration, oil and gas development and production, research and defense, as well as electronic inspection equipment for the automated assessment of the seal integrity of food, dairy, beverage, pharmaceutical, personal care and chemical packages. The Company’s customers are located throughout the world.
During the fiscal years ended September 30, 2003, 2002, and 2001, the Company experienced a decrease in sales and incurred losses from operations. As a result, the Company did not satisfy several of the financial covenants under its line of credit and term loan agreement with its bank. The Company obtained a waiver of these defaults and new financial covenants were established based upon the Company’s projections for the year ending September 30, 2004. Management believes that its projections for profitability in fiscal 2004 are attainable. These projections largely rest on several successful new product introductions and cost savings measures. Included in the Company’s projections are the sales of four new products. To the date of this filing, three of these products have been made available for sale and firm orders have been received and shipments made for each of these products.
While there can be no guarantee that the Company will attain these projections, management believes the Company will have sufficient cash flows from operations, cash balances, availability from its line of credit and other potential financing techniques to continue operating for the next twelve months. If the Company does not meet its loan covenants or its projections, it may need to seek alternative financing. In such event, there can be no guarantee that the Company will be able to obtain financing on commercially acceptable terms.
Critical Accounting Policies
The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, management evaluates the Company’s estimates and assumptions, including but not limited to those related to revenue recognition, inventory valuation, warranty reserves, the impairment of long-lived assets, goodwill and other intangible assets, and income taxes. Management bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
1. Revenue Recognition
Revenue is recognized when products are shipped to customers, provided that title has passed, there are no uncertainties regarding customer acceptance, there is persuasive evidence of an arrangement, the sales price is fixed or determinable and collection of the related receivable is probable. The Company generally enters into arrangements for multiple deliverables when it contracts to provide installation services. The Company follows EITF No. 00-21, “Revenue Arrangements with Multiple Deliverables.” This includes arrangements that provide for the delivery or performance of multiple products, services and/or rights to use assets where performance may occur at different points in time or over different periods of time. Revenue is allocated to the multiple elements based upon the relative fair values of the elements. The Company generally recognizes revenue from each of these elements as each element is delivered or performed. Amounts received from customers for future delivery are shown as customer deposits in the accompanying condensed consolidated balance sheets. The Company accounts for shipping and handling fees passed on to customers as sales. The corresponding costs are recorded as cost of sales.
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2. Inventory Valuation
The Company values its inventory at the lower of actual cost or the current estimated market value. It regularly reviews inventory quantities on hand and inventory commitments with suppliers and records a provision for excess and obsolete inventory based primarily on historical usage for the prior twelve to twenty-four month period. Although the Company makes every effort to ensure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of its inventory and its reported operating results.
3. Warranty Reserves
The Company’s warranties require it to repair or replace defective products returned to it during the applicable warranty period at no cost to the customer. It records an estimate for warranty-related costs based on actual historical return rates, anticipated return rates, and repair costs at the time of sale. A significant increase in product return rates, or a significant increase in the costs to repair products, could have a material adverse impact on future operating results for the period or periods in which such returns or additional costs materialize and thereafter.
4. Goodwill
The goodwill associated with the Company’s 1999 acquisition of Datasonics, Inc. is subject to an annual assessment for impairment by applying a fair-value based test. In the fourth quarter of fiscal 2003, the Company completed a valuation of its goodwill by comparing the fair value of its reporting units, as determined by an independent appraiser, to the reporting units’ book value. The valuation indicated that goodwill for the Undersea Systems business segment was not impaired. The valuation was based upon estimates of future income from the reporting units and estimates of the market value of the units, based on comparable recent transactions. These estimates of future income are based upon historical results, adjusted to reflect management’s best estimate of future market and operating conditions, and are continuously reviewed based on actual operating trends. Actual results may differ from these estimates. In addition, the relevancy of recent transactions used to establish market value for the Company’s reporting units is based upon management’s judgment.
5. Income Taxes
The Company accounts for income taxes under the liability method in accordance with SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities as well as net operating loss and tax credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when the differences reverse. Deferred tax assets may be reduced by a valuation allowance to reflect the uncertainty associated with their ultimate realization.
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Results of Operations – Three months ended March 31, 2004 compared with three months ended March 31, 2003.
The following table presents, for the periods indicated, the percentage relationship of Condensed Consolidated Statements of Operations items to total sales:
| Three Months Ended | ||||||
| March 31, 2004 | March 31, 2003 | |||||
Net Sales | 100.0 | % | 100.0 | % | ||
Cost of Sales | 58.0 | % | 59.6 | % | ||
Gross Profit | 42.0 | % | 40.4 | % | ||
Selling, General and Administrative Expenses | 31.0 | % | 29.0 | % | ||
Research and Development Expenses | 10.1 | % | 9.6 | % | ||
Amortization of Acquired Intangibles | 1.4 | % | 1.4 | % | ||
(Loss) Income from Operations | (0.5 | )% | 0.4 | % | ||
Interest Expense | (0.4 | )% | (1.3 | )% | ||
Net Loss | (0.9 | )% | (0.9 | )% | ||
The Company evaluates its sales by segments:
Three Months Ended March 31, | ||||||
| 2004 | 2003 | |||||
Sales to Unaffiliated Customers: | ||||||
Undersea Systems | $ | 2,757 | $ | 2,399 | ||
Package Inspection Systems | 1,438 | 2,020 | ||||
Total | $ | 4,195 | $ | 4,419 | ||
Sales. Net sales decreased by 5.1% in the three months ended March 31, 2004 to $4,195 as compared to $4,419 in the three months ended March 31, 2003.
The table of sales by product line within the Undersea Systems Division is as follows:
Three Months Ended March 31, | ||||||
| 2004 | 2003 | |||||
Product Line: | ||||||
Underwater Acoustics | $ | 1,044 | $ | 1,102 | ||
Geophysical Exploration Equipment | 814 | 1,019 | ||||
Other Undersea Products | 899 | 278 | ||||
Total | $ | 2,757 | $ | 2,399 | ||
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Sales of the Undersea Systems Division increased by 14.9% to $2,757 in the three months ended March 31, 2004 as compared to $2,399 in the three months ended March 31, 2003. The increase in sales was primarily concentrated in Other Undersea Products which contains shipments of the Company’s remotely operated vehicles (ROVs), including the new Stingray, and increased demand for the Company’s glass instrument housings, which increased by $603 in total, as compared to the three months ended March 31, 2003. This was partially offset by decreases in the Geophysical Exploration Equipment and Underwater Acoustics product lines. Although sales of geophysical hydrophones for use by the Government and commercially for use in exploration by the oil and gas industry increased by $155 in the three months ended March 31, 2004 as compared to the three months ended March 31, 2003, sales of geophysical systems decreased by $362 in the three months ended March 31, 2004 as compared to the three months ended March 31, 2003.
Sales of the Package Inspection Systems Division decreased by 28.8% to $1,438 in the three months ended March 31, 2004 as compared to $2,020 in the three months ended March 31, 2003. The decrease resulted largely from the timing of orders and design problems related to the launch of new products. The Company has made significant progress in resolving these issues. Although it may take some additional time, the Package Inspection Systems Division is expected to regain its momentum in future quarters. The Package Inspection Systems segment has only one product line.
Sales to customers outside of the United States increased by 32.3% to $1,974 in the three months ended March 31, 2004 as compared to $1,492 in the three months ended March 31, 2003. The increase in sales to customers outside of the United States was primarily in Other Undersea Products where foreign sales of glass instrument housings and ROVs increased by $589 in total, and was partially offset by decreases in Underwater Acoustics of $125.
Gross Profit. Gross profit decreased by 1.3% to $1,761 for the three months ended March 31, 2004 as compared to $1,784 for the three months ended March 31, 2003. As a percentage of sales, gross profit was 42.0% in the three months ended March 31, 2004 as compared to 40.4% in the three months ended March 31, 2003. The increase in gross profit percentage is attributed primarily to improved gross margins within the Undersea Systems Division resulting from favorable pricing, reduced manufacturing variances, and a decrease in the inventory reserve requirements for excess and obsolete inventories and is offset slightly by the decrease in gross margins of the Package Inspection Systems Division. Package Inspection Systems Division gross margins for the three months ended March 31, 2004 were slightly less than those for the three months ended March 31, 2003 as a result of lower sales volume and product mix in the three months ended March 31, 2004.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by 1.2% to $1,298 for the three months ended March 31, 2004 as compared to $1,283 in the three months ended March 31, 2003. As a percentage of sales, selling, general and administrative expenses increased to 31.0% in the three months ended March 31, 2004 as compared to 29.0% for the three months ended March 31, 2003. The increase in selling, general and administrative expenses as a percentage of sales is a result of decreased sales volume and increased sales commissions due to a change in sales mix, which was not offset by the reduced spending on other selling, general and administrative expenses as compared to the three months ended March 31, 2003.
Research and Development Expenses. Research and development expenses decreased 0.5% to $424 for the three months ended March 31, 2004 as compared to $426 in the three months ended March 31, 2003. As a percentage of sales, research and development expenses increased to 10.1% of sales in the three months ended March 31, 2004 from 9.6% in the three months ended March 31, 2003. The increase in the research and development expenses as a percentage of sales is primarily a result of lower sales volume than in the three months ended March 31, 2003. The Company anticipates that the spending on research and development will remain at the current level for the remainder of fiscal year 2004.
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Amortization of Acquired Intangibles. Amortization of acquired intangibles was $59 in each of the three month periods ended March 31, 2004 and 2003. The amortization of acquired intangibles relates to the purchased technology in the Datasonics acquisition during fiscal year 1999.
Interest Expense. Interest expense decreased to $16 in the three months ended March 31, 2004 as compared to $56 in the three months ended March 31, 2003. The decrease in interest expense was a result of the reduction in the outstanding principal balance in October 2003 on the variable rate term loan used to finance the Datasonics acquisition.
Results of Operations – Six months of fiscal year 2004 compared with six months of fiscal year 2003.
The following table presents, for the periods indicated, the percentage relationship of Condensed Consolidated Statements of Operations items to total sales:
| Six Months Ended | ||||||
| March 31, 2004 | March 31, 2003 | |||||
Net Sales | 100.0 | % | 100.0 | % | ||
Cost of Sales | 60.1 | % | 62.1 | % | ||
Gross Profit | 39.9 | % | 37.9 | % | ||
Selling, General and Administrative Expenses | 30.9 | % | 29.0 | % | ||
Research and Development Expenses | 9.9 | % | 9.4 | % | ||
Amortization of Acquired Intangibles | 1.5 | % | 1.3 | % | ||
Loss from Operations | (2.4 | )% | (1.8 | )% | ||
Interest Expense | (0.4 | )% | (1.3 | )% | ||
Net Loss | (2.8 | )% | (3.1 | )% | ||
The Company evaluates its sales by segments:
| Six Months Ended March 31, | ||||||
| 2004 | 2003 | |||||
Sales to Unaffiliated Customers: | ||||||
Undersea Systems | $ | 5,208 | $ | 4,809 | ||
Package Inspection Systems | 2,810 | 3,962 | ||||
Total | $ | 8,018 | $ | 8,771 | ||
Sales. Net sales decreased by 8.6% in the first six months of fiscal year 2004 to $8,018 as compared to $8,771 in the first six months of fiscal year 2003.
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The table of sales by product line within the Undersea Systems Division is as follows:
Six Months Ended March 31, | ||||||
| 2004 | 2003 | |||||
Product Line: | ||||||
Underwater Acoustics | $ | 2,235 | $ | 2,267 | ||
Geophysical Exploration Equipment | 1,591 | 2,020 | ||||
Other Undersea Products | 1,382 | 522 | ||||
Total | $ | 5,208 | $ | 4,809 | ||
Sales of the Undersea Systems Division increased by 8.3% to $5,208 in the first six months of fiscal year 2004 as compared to $4,809 in the first six months of fiscal year 2003. The increase in sales was primarily concentrated in Other Undersea Products which contained shipments of the Company’s robotic products, including its new Stingray remotely operated vehicle (ROV) and increased demand for the Company’s glass instrument housings, which increased by $891 in total, as compared to the first six months of fiscal year 2003. This was partially offset by a decrease in sales in the Geophysical Exploration Equipment product line. Although sales of geophysical hydrophones for use by the Government and commercially for use in exploration by the oil and gas industry increased by $445 in the first six months of fiscal year 2004 as compared to the first six months of fiscal year 2003, sales of geophysical systems decreased by $910 in the first six months of fiscal year 2004 as compared to the first six months of fiscal year 2003.
Sales of the Package Inspection Systems Division decreased by 29.1% to $2,810 in the first six months of fiscal year 2004 as compared to $3,962 in the first six months of fiscal year 2003. The decrease resulted largely from the timing of orders and design problems related to the launch of new products. The Company has made significant progress in resolving these issues. Although it may take some additional time, the Package Inspection Systems Division is expected to regain its momentum in future quarters. The Package Inspection Systems segment has only one product line.
Sales to customers outside of the United States increased by 38.0% to $3,547 in the first six months of fiscal year 2004 as compared to $2,570 in the first six months of fiscal year 2003. The increase in sales to customers outside of the United States was primarily in Other Undersea Products where foreign sales of glass instrument housings and ROVs increased by $713 in total, Geophysical Exploration equipment which was up by $343, and partially offset by a decrease in foreign sales of Underwater Acoustics of $95. Package Inspection Systems Division foreign sales were up by $135.
Gross Profit. Gross profit decreased by 3.5% to $3,203 for the first six months of fiscal year 2004 as compared to $3,320 for the first six months of fiscal year 2003. As a percentage of sales, gross profit was 39.9% in the first six months of fiscal year 2004 as compared to 37.9% in the first six months of fiscal year 2003. The increase in gross profit percentage is attributed primarily to improved gross margins within the Undersea Systems Division resulting from favorable pricing, reduced manufacturing variances, and a decrease in the reserve requirements for excess and obsolete inventories and is offset slightly by the decrease in gross margins of the Package Inspection Systems Division. Package Inspection Systems Division gross margins were lower than the first six months of fiscal year 2003 as a result of lower sales volume and product mix in the first six months of fiscal year 2004.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by 2.3% to $2,481 for the first six months of fiscal year 2004 as compared to $2,540 in the first six months of fiscal year 2003. As a percentage of sales, selling, general and administrative expenses increased to 30.9% in the first six months of fiscal year 2004 as compared to 29.0% for the first six months of fiscal year 2003. The increase in selling, general and administrative expenses as a percentage of sales is a result of decreased sales volume and increased sales commissions as a result of sales mix which was not offset by the reduced spending on other selling, general and administrative expenses as compared to the first six months of fiscal year 2003.
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Research and Development Expenses. Research and development expenses decreased 3.5% to $794 for the first six months of fiscal year 2004 as compared to $823 in the first six months of fiscal year 2003. As a percentage of sales, research and development expenses increased to 9.9% of sales in the first six months of fiscal year 2004 from 9.4% in the first six months of fiscal year 2003. The increase in the research and development expenses as a percentage of sales is primarily a result of lower sales volume than in the first six months of fiscal year 2003. The spending on research and development expenses in the first six months of fiscal year 2004 was less than in the first six months of fiscal year 2003 as the spending on one of the projects was nearing completion early in the current fiscal year. The Company anticipates that the spending on research and development will remain at the current level for the remainder of fiscal year 2004.
Amortization of Acquired Intangibles. Amortization of acquired intangibles was $119 in each of the first six months of fiscal years 2004 and 2003. The amortization of acquired intangibles relates to the purchased technology in the Datasonics acquisition during fiscal year 1999.
Interest Expense. Interest expense decreased to $32 in the first six months of fiscal year 2004 as compared to $113 in the first six months of fiscal year 2003. The decrease in interest expense was a result of the reduced outstanding principal balance in October 2003 on the variable rate term loan used to finance the Datasonics acquisition.
Liquidity and Capital Resources. The Company’s cash and cash equivalents decreased $178 from September 30, 2003 to March 31, 2004.
The following table presents, for the six months ended March 31, 2004, the cash generated and used by the Company’s operations of the balance sheet accounts that affect cash flow from operations:
| Generated | Used | ||||||
Net loss | $ | — | $ | (223 | ) | ||
Increase in accounts receivable | — | (305 | ) | ||||
Decrease in accounts payable and accrued expenses | — | (633 | ) | ||||
Decrease in customer deposits | — | (56 | ) | ||||
Increase in inventories | — | (28 | ) | ||||
Depreciation and amortization (non cash) | 435 | — | |||||
Decrease in prepaid expenses and other current assets | 34 | — | |||||
Total | $ | 469 | $ | (1,245 | ) | ||
Cash Generated | $ | 469 | ||
Cash Used | (1,245 | ) | ||
Total used in operations | $ | (776 | ) | |
Cash of $776 was used in operating activities, resulting from the $223 net loss incurred during the first six months of fiscal 2004 and the other factors shown in the table above. Accounts receivable increased by $305 during the first six months, primarily due to increased sales of $196 in March of 2004 compared to sales in September 2003 and a small increase in days sales outstanding. There were also decreases in accounts payable of $429, resulting from the use in early fiscal 2004 of some proceeds from the sale of real estate to reduce vendor obligations, in accrued expenses of $204, and in customer deposits of $56, and increases in inventory of $28, which includes $443 transferred to property, plant and equipment as demonstration equipment and $454 generated from the sale of demonstration equipment. These uses were partially offset by depreciation and amortization of $435 and decreases in prepaid expenses and other current assets of $34. The Company anticipates that its ability to attain positive cash flow from operations in the future is primarily related to its ability to reduce its operating losses, improving the collections of accounts receivable, and management of accounts payable to vendors. The Company anticipates being able to reduce its losses through a series of actions including the introduction of several new products.
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The Company generated $1,087 of cash in its investing activities, primarily from the collection of $1,150 relating to the note receivable and other receivable – real estate which represented the remaining proceeds from the real estate transaction that took place on September 29, 2003.
The Company used $489 of cash in financing activities. Financing activities include the payment of $739 on the term loan. Of this amount, $600 of the payments was from proceeds from the note receivable and other receivable – real estate related to the real estate sale in fiscal year 2003 and $139 was for payments of the reamortized principal under the term loan. Financing activities include $250 borrowed under the line of credit in the first six months of fiscal year 2004. The Company does not have any significant contractual obligations or commercial commitments aside from its obligation to the bank that requires quarterly principal payments of $70 through August 2006.
The Company has a credit facility with a bank. This facility provides for loans under two notes: a $5,500 variable rate term note and a $600 variable rate line of credit. The term note is payable in 84 consecutive equal monthly installments of principal and accrues interest at prime (4.0% at March 31, 2004) plus 2%, or 7%, whichever is higher. The term note matures in August 2006. In connection with the land sale discussed in Note 4, the Company paid down the principal balance on this term loan by $600 on October 17, 2003. Subsequent to this payment, the bank and the Company amended the term loan to amortize the remaining term loan balance on a monthly basis through August 2006, thereby reducing the monthly principal payment from $64 to $23 and to modify the covenants. Principal payments under the term note will be $140 for the remainder of fiscal year 2004 and $279 and $255 in fiscal years 2005 and 2006, respectively.
The line of credit expires on January 31, 2005. Borrowings under the line of credit are payable as follows: monthly payments of interest only and unpaid principal and unpaid interest at maturity. Borrowings under the line of credit accrue interest at prime (4.0% at March 31, 2004) plus 2%, or 7%, whichever is higher. Advances are limited to 45% of eligible accounts receivable. The availability under the line of credit was $600 as of March 31, 2004. There were $250 in advances outstanding under the line of credit as of March 31, 2004. The credit facility is secured by substantially all of the assets of the Company and requires the Company to meet certain covenants, including debt service coverage. As of March 31, 2004, the Company was in compliance with these covenants.
Management believes that the Company will have sufficient cash flows from operations (based on sales projections, cost reduction measures, and efficiencies), cash balances, availability from its line of credit, and other potential financing techniques to continue operating for at least the next twelve months. If the Company does not meet its revised loan covenants or its projections, it may need to seek alternative financing. In such event, there can be no guarantee that the Company will be able to obtain alternative financing on commercially acceptable terms.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995.
The statements in this Quarterly Report on Form 10-QSB and in oral statements which may be made by representatives of the Company relating to plans, strategies, economic performance and trends and other statements that are not descriptions of historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors which include: the timing of large project orders, competitive factors, shifts in customer demand, government spending, economic cycles, availability of financing, regulatory changes and other factors. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein as anticipated, believed, estimated, expected or intended.
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Item 3. Control and Procedures
The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified within the Commission’s rules and forms, and that such information is accumulated and communicated to its management to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its chief executive officer and chief financial officer, of the effectiveness of the design and operation of its disclosure controls and procedures to meet the criteria referred to above. Based on the foregoing, its chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective.
Item 4. Submission of Matters to a Vote of Security Holders
| (a) | The Annual Meeting of Shareholders of the Registrant (the “Meeting”) was held on March 8, 2004. |
| (b) | The Registrant solicited proxies for the Meeting pursuant to Regulation 14A; there was no solicitation in opposition to management’s nominees for directors as listed in the Proxy Statement, and all such nominees were elected. |
| (c) | The following describes the matters voted upon at the Meeting and sets forth the number of votes cast for, against or withheld and the number of abstentions as to each such matter: |
| (i) | Election of Directors: |
Nominee | For | Withheld | ||
A. Theodore Mollegen, Jr. | 1,269,487 | 8,058 | ||
Stephen D. Fantone | 1,066,304 | 211,241 |
The other directors whose term of office as a director continued after the Meeting are: Arthur L. Fatum, Ronald L. Marsiglio, Samuel O. Raymond, and Gary K. Willis.
| (ii) | Authorization of appointment of BDO Seidman, LLP as independent auditors for 2004: |
For | Against | Abstain | ||
1,262,085 | 2,800 | 12,662 |
Item 6. Exhibits and Reports on Form 8-K
| (a) | Exhibits |
The exhibits set forth in the Exhibit Index on the following page are filed herewith (or incorporated by reference to the Company’s previous filings) as a part of this report.
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| (b) | Reports on Form 8-K |
During the fiscal three months ended March 31, 2004, the Company filed one report on Form 8-K (dated February 9, 2004). That report furnished, under Item 12, a copy of its public announcement on February 9, 2004 of its results of operations and financial condition for the first quarter of fiscal 2004.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BENTHOS, INC. | ||
By | /s/ Francis E. Dunne, Jr. | |
| Francis E. Dunne, Jr. | ||
| Vice President, Chief Financial Officer, | ||
| and Treasurer | ||
| (Principal Financial and Accounting Officer) | ||
DATE: May 12, 2004
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BENTHOS, INC.
EXHIBIT INDEX
| Exhibit | ||
| 3.1 | Restated Articles of Organization (1) | |
| 3.2 | Articles of Amendment dated April 28, 1997 (2) | |
| 3.3 | Articles of Amendment dated April 20, 1998 (5) | |
| 3.4 | By-Laws (1) | |
| 3.5 | By-Law Amendments adopted January 23, 1998 (4) | |
| 4.1 | Common Stock Certificate (1) | |
| 10.1 | Employment Contract with Samuel O. Raymond (1) | |
| 10.2 | Amendment to Employment Contract with Samuel O. Raymond (2) | |
| 10.3 | Fourth Amendment to Employment Agreement with Samuel O. Raymond (22) | |
| 10.4 | Employment Contract with John L. Coughlin (1) | |
| 10.5 | Amended and Restated Employment Agreement with John L. Coughlin (10) | |
| 10.6 | Severance Agreement with John L. Coughlin (13) | |
| 10.7 | Employment Agreement with Ronald L. Marsiglio dated May 21, 2001 (15) | |
| 10.8 | Employment Agreement with Francis E. Dunne, Jr. (11) | |
| 10.9 | Employment Agreement with James R. Kearbey dated as of January 1, 2003 (20) | |
| 10.10 | Employee Stock Ownership Plan (1) | |
| 10.11 | First Amendment to Employee Stock Ownership Plan (2) | |
| 10.12 | Second Amendment to Employee Stock Ownership Plan (8) | |
| 10.13 | Third Amendment to Employee Stock Ownership Plan (8) | |
| 10.14 | Fourth Amendment to Employee Stock Ownership Plan (11) | |
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| 10.15 | Fifth Amendment to Employee Stock Ownership Plan (11) | |
| 10.16 | Benthos, Inc. Employee Stock Ownership Plan as Amended and Restated Effective as of October 1, 2002 (19) | |
| 10.17 | 401(k) Retirement Plan (1993)(1) | |
| 10.18 | First Amendment to 401(k) Retirement Plan (2) | |
| 10.19 | Second Amendment to 401(k) Retirement Plan (2) | |
| 10.20 | Third Amendment to 401(k) Retirement Plan (3) | |
| 10.21 | 401(k) Retirement Plan (1999)(8) | |
| 10.22 | First Amendment to 1999 401(k) Retirement Plan (11) | |
| 10.23 | Second Amendment to 1999 401(k) Retirement Plan (11) | |
| 10.24 | Third Amendment to 1999 401(k) Retirement Plan (14) | |
| 10.25 | Supplemental Executive Retirement Plan (1) | |
| 10.26 | 1990 Stock Option Plan (1) | |
| 10.27 | Stock Option Plan for Non-Employee Directors (1) | |
| 10.28 | 1998 Non-Employee Directors’ Stock Option Plan (4) | |
| 10.29 | Benthos, Inc. 2000 Stock Incentive Plan (9) | |
| 10.30 | License Agreement between the Company and The Penn State Research Foundation dated December 13, 1993 (1) | |
| 10.31 | Technical Consultancy Agreement between the Company and William D. McElroy dated July 12, 1994 (1) | |
| 10.32 | Technical Consultancy Agreement between the Company and William D. McElroy dated October 1, 1996 (3) | |
| 10.33 | General Release and Settlement Agreement between the Company and Lawrence W. Gray dated February 8, 1996 (1) | |
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| 10.34 | Line of Credit Loan Agreement between the Company and Cape Cod Bank and Trust Company dated September 24, 1990, as amended (1) | |
| 10.35 | Commercial Mortgage Loan Extension and Modification Agreement between the Company and Cape Cod Bank and Trust Company, dated July 6, 1994 (1) | |
| 10.36 | Credit Agreement between the Company and Cape Cod Bank and Trust Company dated August 18, 1999 (8) | |
| 10.37 | First Amendment to Credit Agreement dated March 23, 2001 (14) | |
| 10.38 | Second Amendment to Credit Agreement dated December 12, 2001 (17) | |
| 10.39 | Third Amendment to Credit Agreement dated January 29, 2003 (20) | |
| 10.40 | Fourth Amendment to Credit Agreement dated November 3, 2003 (22) | |
| 10.41 | License Agreement between the Company and Optikos Corporation dated July 29, 1997 (3) | |
| 10.42 | Hydrophone License Agreement between the Company and Sercel, Inc. (formerly Syntron, Inc.) dated December 5, 1996 (6) | |
| 10.43 | Amendment Number 1 to Hydrophone License Agreement between the Company and Sercel, Inc. (formerly Syntron, Inc.) dated September 11, 1998 (6) | |
| 10.44 | Asset Purchase Agreement among Benthos, Inc., Datasonics, Inc., and William L. Dalton and David A. Porta (7) | |
| 10.45 | Settlement Agreement and Mutual Release dated October 18, 2001 between the Company and RJE International, Inc (16) | |
| 10.46 | Amendment of Settlement Agreement and General Release dated June 10, 2002. (19) | |
| 10.47 | Amendment and Termination of Consulting Agreement between the Company and William D. McElroy dated February 15, 2002 (18) | |
| 10.48 | Standard Form Purchase and Sale Agreement among the Company and certain of its subsidiaries and Falmouth Economic Development & Industrial Corporation dated March 21, 2003 (20) | |
| 10.49 | Amendment of Purchase and Sale Agreement dated as of June 30, 2003 (21) | |
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| 10.50 | Second Amendment of Purchase and Sale Agreement dated as of August 11, 2003 (22) | |
| 10.51 | Agreement among the Company, Samuel O. Raymond and the Samuel O. Raymond 1996 Irrevocable Insurance Trust dated July 24, 2003 (22) | |
| 21 | Subsidiaries of the Registrant (19) | |
| 31.1 | Certification of Chief Executive Officer Pursuant to the Securities Exchange Act | |
| 31.2 | Certification of Chief Financial Officer Pursuant to the Securities Exchange Act | |
| 32 | Statement Pursuant to 18 U.S.C. §1350 | |
| (1) | Previously filed as an exhibit to Registrant’s Registration Statement on Form 10-SB filed with the Commission on December 17, 1996 (File No. 0-29024) and incorporated herein by this reference. |
| (2) | Previously filed as an exhibit to Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended March 30, 1997 (File No. 0-29024) and incorporated herein by this reference. |
| (3) | Previously filed as an exhibit to Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended June 29, 1997 (File No. 0-29024) and incorporated herein by this reference. |
| (4) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 1997 (File No. 0-29024) and incorporated herein by this reference. |
| (5) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 1998 (File No. 0-29024) and incorporated herein by this reference. |
| (6) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 1998 (File No. 0-29024) and incorporated herein by this reference. |
| (7) | Previously filed as an exhibit to Registrant’s Current Report on Form 8-K filed on or about August 27, 1999 (File No. 0-29024) and incorporated herein by this reference. |
| (8) | Previously filed as an exhibit to Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 1999 (File No. 0-29024) and incorporated herein by this reference. |
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| (9) | Previously filed as an exhibit to the Registrant’s definitive proxy statement filed on Schedule 14A on or about January 18, 2000 and incorporated herein by this reference. |
| (10) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 1999 (File No. 0-29024) and incorporated herein by this reference. |
| (11) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2000 (File No. 0-29024) and incorporated herein by this reference. |
| (12) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2000 (File No. 0-29024) and incorporated herein by this reference. |
| (13) | Previously filed as an exhibit to Amendment No. 1 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2000 (File No. 0-29024) and incorporated herein by this reference. |
| (14) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2001 (File No. 0-29024) and incorporated herein by this reference. |
| (15) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001 (File No. 0-29024) and incorporated herein by this reference. |
| (16) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2001 (File No. 0-29024) and incorporated herein by this reference. |
| (17) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 2001 (File No. 0-29024) and incorporated herein by this reference. |
| (18) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2002 (File No. 0-29024) and incorporated herein by this reference. |
| (19) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2002 (File No. 0-29024) and incorporated herein by this reference. |
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| (20) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2003 (File No. 0-29024) and incorporated herein by this reference. |
| (21) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2003 (File No. 0-29024) and incorporated herein by this reference. |
| (22) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2003 (File No. 0-29024) and incorporated herein by this reference. |
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