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 December 31, 2000
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[_] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 0-29024
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BENTHOS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Massachusetts 04-2381876
(State or Other Jurisdiction of (I. R. S. Employer
Corporation or Organization) 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
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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 1,387,149
(Class) (Outstanding stock at
February 9, 2001)
Transitional Small Business Disclosure Format (check one):
Yes No X
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2
BENTHOS, INC. AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED
DECEMBER 31, 2000
INDEX
Page No.
Face Sheet 1
Index 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) 3
December 31, 2000 and
September 30, 2000
Condensed Consolidated Statements of Operations (unaudited) 4
Quarter Ended
December 31, 2000 and
December 31, 1999
Condensed Consolidated Statements of Cash Flow (unaudited) 5
Quarter Ended
December 31, 2000 and
December 31, 1999
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results
of Operations
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Benthos, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)
Assets December 31, 2000 September 30, 2000
----------------- ------------------
Current Assets:
Cash and Cash Equivalents $ 404 $ 1,474
Accounts Receivable, Net 3,331 3,448
Inventories 4,832 4,974
Prepaid Expenses and Other Current Assets 121 159
Deferred Tax Asset 1,354 1,354
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Total Current Assets 10,042 11,409
Property, Plant and Equipment, Net 2,041 1,960
Other Assets, Net 4,445 4,496
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$16,528 $17,865
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Liabilities and Stockholders' Investment
Current Liabilities:
Current Portion of Long-Term Debt $ 4,453 $ 786
Accounts Payable 1,104 1,160
Accrued Expenses 1,331 1,729
Customer Deposits 272 350
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Total Current Liabilities 7,160 4,025
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Long-Term Debt, Net of Current Portion -- 3,863
Stockholders' Investment:
Common stock, $.06 2/3 Par Value-
Authorized - 7,500 Shares
Issued - 1,653 Shares at December 31, 2000
and September 30, 2000 110 110
Capital in Excess of Par Value 1,569 1,569
Retained Earnings 8,350 8,959
Treasury Stock, at Cost (661) (661)
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Total Stockholders' Investment 9,368 9,977
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$16,528 $17,865
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See accompanying notes to Condensed Consolidated Financial Statements
4
Benthos, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Quarter Ended
December 31, 2000 December 31, 1999
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Net Sales $4,173 $5,411
Cost of Sales 3,046 3,286
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Gross Profit 1,127 2,125
Selling, General and Administrative Expenses 1,280 1,345
Research and Development Expenses 508 464
Amortization of Goodwill and Other
Acquired Intangibles 126 123
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Income (Loss) from Operations (787) 193
Interest Income 21 28
Interest Expense (104) (109)
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Income (Loss) Before Provision for
Income Taxes (870) 112
Provision (Benefit) for Income Taxes (261) 34
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Net Income (Loss) $ (609) $ 78
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Basic Earnings (Loss) Per Share $(0.44) $0.06
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Diluted Earnings (Loss) Per Share $(0.44) $0.06
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Weighted Average Number of
Shares Outstanding 1,379 1,368
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Weighted Average Number of
Shares Outstanding, Assuming Dilution 1,379 1,412
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See accompanying notes to Condensed Consolidated Financial Statements
5
Benthos, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flow
(in thousands)
(unaudited)
Quarter Ended
December 31, 2000 December 31, 1999
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Cash Flows from Operating Activities:
Net Income (Loss) $ (609) $ 78
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used in Operating Activities:
Depreciation and Amortization 287 347
Changes in Assets and Liabilities:
Accounts Receivable 117 (1,006)
Inventories 142 513
Prepaid Expenses and Other Current Assets 38 (42)
Accounts Payable and Accrued Expenses (454) (568)
Customer Deposits (78) (144)
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Net Cash Used in Operating Activities (557) (822)
Cash Flows from Investing Activities:
Purchases of Property, Plant and Equipment (235) (105)
Increase in Other Assets (82) (70)
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Net Cash Used in Investing Activities (317) (175)
Cash Flows from Financing Activities:
Payments on Long-Term Debt (196) (197)
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Net Decrease in Cash and Cash Equivalents (1,070) (1,194)
Cash and Cash Equivalents, Beginning of Period 1,474 2,930
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Cash and Cash Equivalents, End of Period $ 404 $ 1,736
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Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 104 $ 105
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Income Taxes Paid, Net of Refunds $ 50 $ 100
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Supplemental Disclosure of Noncash Activities:
Issuance of Treasury Stock to the Company's ESOP $ 0 $ 74
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See accompanying notes to Condensed Consolidated Financial Statements
6
Benthos, Inc. and Subsidiary
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, 2000, 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 period are not necessarily indicative of the results
to be expected for the full fiscal year. Certain reclassifications have been
made to the 2000 financial statements to conform with the 2001 presentation.
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
December 31, 2000 September 30, 2000
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Raw Materials $ 423 $ 423
Work-in-Process 4,396 4,538
Finished Goods 13 13
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$4,832 $4,974
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7
4. Earnings (Loss) Per Share
A reconciliation of basic and diluted shares outstanding is as follows:
Quarter Ended December 31,
2000 1999
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Basic weighted average common shares outstanding 1,379 1,368
Weighted average common share equivalents -- 44
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Diluted weighted average shares outstanding 1,379 1,412
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The following securities were not included in computing earnings per share
because their effects would be anti-dilutive.
Quarter Ended December 31,
2000 1999
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Options to purchase common stock 197 135
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5. Segment Reporting
The Company views its operations and manages its business as two segments,
Undersea Systems and Container 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.
Quarter Ended December 31,
2000 1999
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Sales to Unafilliated Customers:
Undersea Systems $ 2,915 $ 4,076
Container Inspection Systems 1,258 1,335
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Total $ 4,173 $ 5,411
Income (Loss) from Operations:
Undersea Systems $ (585) $ 213
Container Inspection Systems (202) (20)
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Total $ (787) $ 193
Identifiable Assets:
Undersea Systems $11,240 $11,317
Container Inspection Systems 2,945 2,488
Corporate Assets 2,343 4,226
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Total $16,528 $18,031
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8
Revenues by geographic area for the quarter ended December 31, 2000 and 1999
were as follows:
Geographic Area 2000 1999
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United States $2,877 $3,159
Japan 199 693
Other 1,097 1,559
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Total $4,173 $5,411
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6. 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 $2,000 variable rate
revolving note. The term note is payable in 84 consecutive equal monthly
installments of principal with interest at either prime (9.50% at December 31,
2000) less 0.50% or LIBOR (6.56% at December 31, 2000) plus 2.38%. At any time
during the remaining term of the term note, the Company may elect to fix the
interest rate at 2.25% above the Federal Home Loan Bank of Boston Classic Credit
Rate (5.89% at December 31, 2000), as defined therein, or the Company may
continue to pay interest at either prime less 0.50% or LIBOR plus 2.38%. The
term note matures in August 2006. The revolving note expires on January 31,
2001. Advances under the revolving note are payable as follows: monthly payments
of interest only and unpaid principal and accrued and unpaid interest at
maturity. The interest rate under the revolving note is either prime (9.50% at
December 31, 2000) less 0.50% or LIBOR (6.56% at December 31, 2000) plus 2.38%.
There were no advances outstanding under the revolving note as of December 31,
2000. 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 December 31, 2000, the Company was not in compliance
with one of these covenants. In February 2001, the Company obtained a waiver of
this default and also obtained an extension of the maturity date of the
revolving note until March 31, 2001. The Company is currently negotiating with
its bank to have the financial covenants under the credit facility reset for the
remainder of the year to ensure compliance based on its updated projections.
As the financial covenants have not yet been reset, the Company has classified
the amounts outstanding under the term note as current. In addition, the Company
and the bank are negotiating an extension of the maturity date of the revolving
note until January 31, 2002.
7. CEO Resignation
In January of 2001, the CEO of the Company resigned. In connection with his
resignation the Company made a payment to the CEO of $55,000 in exchange for
cancellation of his 64,500 outstanding stock options, continued availability to
assist the Company for a specified period of time, and severance. This amount
will be recorded as compensation expense during the quarter ended March 31,
2001.
9
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Dollars in Thousands)
Results of Operations -- First quarter of fiscal year 2001 compared with first
quarter of fiscal year 2000.
The following table presents, for the periods indicated, the percentage
relationship of Condensed Consolidated Statements of Earnings items to total
sales:
Quarter Ended
December 31, 2000 December 31, 1999
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(unaudited)
Net Sales 100.0% 100.0%
Cost of Sales 73.0% 60.7%
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Gross Profit 27.0% 39.3%
Selling, General & Administrative Expenses 30.7% 24.8%
Research and Development Expenses 12.2% 8.6%
Amortization of Goodwill and Other
Acquired Intangibles 3.0% 2.3%
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Income (Loss) from Operations (18.9)% 3.6%
Interest Income .5 % .5%
Interest Expense (2.5)% (2.0)%
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Income (Loss) Before Provision (Benefit)
for Income Taxes (20.9)% 2.1%
Provision (Benefit) for Income Taxes (6.3)% .6%
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Net Income (Loss) (14.6)% 1.5%
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Sales. Net sales decreased by 22.9% in the first quarter of fiscal year 2001 to
$4,173 as compared to $5,411 in the first quarter of fiscal year 2000. Sales of
the Undersea Systems Division decreased by 28.5% to $2,915 in the first quarter
of fiscal year 2001 as compared to $4,076 in the first quarter of fiscal year
2000. This decrease is a result of continued softness in the markets served by
the Undersea Systems Division. The decrease in sales extended to almost all of
the product areas, with the exception of acoustic and glass flotation. Sales of
the Container Inspection Systems Division decreased by 5.8% to $1,258 in the
first quarter of fiscal year 2001 as compared to $1,335 in the first quarter of
fiscal year 2000. The decrease resulted largely from the timing of orders.
Gross Profit. Gross Profit decreased by 47.0% to $1,127 for the first quarter of
fiscal year 2001 as compared to $2,125 for the first quarter of fiscal year
2000. As a percentage of sales, gross profit was 27.0% in the first quarter of
fiscal year 2001 as compared to 39.3% in the first quarter of fiscal year 2000.
The decrease in gross profit percentage is attributed primarily to unabsorbed
overhead resulting from decreased sales volume, product mix, new product startup
costs and inventory related provisions.
10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by 4.8% to $1,280 for the first quarter of
fiscal year 2001 as compared to $1,345 in the first quarter of fiscal year 2000.
As a percentage of sales, selling, general and administrative expenses increased
to 30.7% in the first quarter of fiscal year 2001 as compared to 24.8% for the
first quarter of fiscal year 2000. The decrease in selling, general, and
administrative dollars is a result of the removal of duplicate expenses relating
to the integration of the operations of Datasonics, Inc. in the first quarter of
fiscal year 2000. The increase in percentage of sales is a result of lower
sales volume.
Research and Development Expenses. Research and development expenses increased
9.5% to $508 for the first quarter of fiscal year 2001 as compared to $464 in
the first quarter of fiscal year 2000. As a percentage of sales, research and
development expenses increased to 12.2% of sales in the first quarter of fiscal
year 2001 from 8.6% in the first quarter of fiscal year 2000. The increase in
the overall level of expenditures is due to investments in new product
development and is consistent with the Company's current operational plans.
Amortization of Goodwill and Other Acquired Intangibles. Amortization of
goodwill and other acquired intangibles was $126 in the first quarter of fiscal
year 2001 as compared to $123 in the first quarter of fiscal 2000. The
amortization of goodwill and other acquired intangibles relates to the
Datasonics acquisition in fiscal year 1999.
Interest Income. Interest income decreased to $21 in the first quarter of
fiscal year 2001 as compared to $28 in the first quarter of fiscal year 2000.
The decrease in interest income was a result of lower invested cash balances.
Interest Expense. Interest Expense decreased to $104 in the first quarter of
fiscal year 2001 as compared to $109 in the first quarter of fiscal year 2000.
The decrease in interest expense dollars was a result of reduced principal on
the variable rate term loan used to finance the Datasonics acquisition.
Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes
decreased to $(261) in the first quarter of fiscal year 2001 as compared to $34
in the first quarter of fiscal year 2000. The effective tax rate used in the
first quarter of fiscal years 2001 and 2000 was 30.0%. The rate used is lower
than the statutory rate due primarily to the benefit from the Company's Foreign
Sales Corporation.
Liquidity and Capital Resources. The Company's cash and cash equivalents
decreased $1,070 from September 30, 2000 to December 31, 2000. Cash of $557 was
used in operating activities, primarily the result of the net loss incurred
during the quarter offset by depreciation and amortization and changes in
operational assets and liabilities. The Company also used $317 and $196 of
cash in its investing and financing activities, respectively. Investing
activities represents primarily the purchase of capital equipment and financing
activities represents the payment of the installment payments on the term note.
11
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 $2,000 variable rate
revolving note. The term note matures in August 2006. The revolving note expires
on January 31, 2001. There were no advances outstanding under the revolving note
as of December 31, 2000. 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 December 31, 2000, the Company was not in
compliance with one of these covenants. In February 2001, the Company obtained a
waiver of this default and also obtained an extension of the maturity date of
the revolving note until March 31, 2001. The Company is currently negotiating
with its bank to have the financial covenants under the credit facility reset
for the remainder of the year to ensure compliance based on its updated
projections. In addition, the Company and the bank are negotiating an extension
of the maturity date of the revolving note until January 31, 2002.
The Company believes it is well positioned to finance future working capital
requirements and capital expenditures during the next twelve months through cash
on hand and available credit facilities.
"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 may be 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 as well as the factors
described in this report. 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.
12
PART II -- OTHER INFORMATION
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 as a
part of this report.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly 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: February 14, 2001
BENTHOS, INC.
EXHIBIT INDEX
Exhibit
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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 Employment Contract with John L. Coughlin (1)
10.4 Amended and Restated Employment Agreement with John L. Coughlin (10)
10.5 Severance Agreement with John L. Coughlin (13)
10.6 Employment Agreement with Francis E. Dunne, Jr. (11)
10.7 Employee Stock Ownership Plan (1)
10.8 First Amendment to Employee Stock Ownership Plan (2)
10.9 Second Amendment to Employee Stock Ownership Plan (8)
10.10 Third Amendment to Employee Stock Ownership Plan (8)
10.11 Fourth Amendment to Employee Stock Ownership Plan (11)
10.12 Fifth Amendment to Employee Stock Ownership Plan (11)
Exhibit
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10.13 401(k) Retirement Plan (1993) (1)
10.14 First Amendment to 401(k) Retirement Plan (2)
10.15 Second Amendment to 401(k) Retirement Plan (2)
10.16 Third Amendment to 401(k) Retirement Plan (3)
10.17 401(k) Retirement Plan (1999) (8)
10.18 First Amendment to 1999 401(k) Retirement Plan (11)
10.19 Second Amendment to 1999 401(k) Retirement Plan (11)
10.20 Supplemental Executive Retirement Plan (1)
10.21 1990 Stock Option Plan (1)
10.22 Stock Option Plan for Non-Employee Directors (1)
10.23 1998 Non-Employee Directors' Stock Option Plan (4)
10.24 Benthos, Inc. 2000 Stock Incentive Plan (9)
10.25 License Agreement between the ompany and The Penn
State Research Foundation dated December 13, 1993 (1)
10.26 Technical Consultancy Agreement between the Company
and William D. McElroy dated July 12, 1994 (1)
10.27 Technical Consultancy Agreement between the Company
and William D. McElroy dated October 1, 1996 (3)
10.28 General Release and Settlement Agreement between the
Company and Lawrence W. Gray dated February 8, 1996 (1)
10.29 Line of Credit Loan Agreement between the Company and Cape
Cod Bank and Trust Company dated September 24, 1990, as amended (1)
10.30 Commercial Mortgage Loan Extension and Modification Agreement
between the Company and Cape Cod Bank and Trust Company, dated
July 6, 1994 (1)
10.31 Credit Agreement between the Company and Cape Cod Bank and Trust
Company dated August 18, 1999 (8)
10.32 License Agreement between the Company and Optikos Corporation
dated July 29, 1997 (3)
10.33 Hydrophone License Agreement between the Company and Syntron, Inc.
dated December 5, 1996 (6)
10.34 Amendment Number 1 to Hydrophone License Agreement between the Company
and Syntron, Inc. dated September 11, 1998 (6)
10.35 Asset Purchase Agreement among Benthos, Inc., Datasonics, Inc., and
William L. Dalton and David A. Porta (7)
21 Subsidiaries of the Registrant (1)
(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 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.
(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.