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, 2002
[_] 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 (I. R. S. Employer
Incorporation 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 _____
-----
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 February 3, 2003)
Transitional Small Business Disclosure Format (check one):
Yes _____ No X
-----
2
BENTHOS, INC. AND SUBSIDIARIES
FORM 10-QSB
FOR THE QUARTER ENDED
DECEMBER 31, 2002
INDEX
Page No.
Face Sheet 1
Index 2
Part I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) 3
December 31, 2002 and September 30, 2002
Condensed Consolidated Statements of Operations (unaudited) 4
Quarter Ended December 31, 2002 and December 31, 2001
Condensed Consolidated Statements of Cash Flows (unaudited) 5
Quarter Ended December 31, 2002 and December 31, 2001
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 11
of Financial Condition and Results
of Operations
Item 3. Controls and Procedures 15
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Certifications 17
Statement Pursuant to 18 U.S.C.(S)1350 19
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Benthos, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)
Assets December 31, 2002 September 30, 2002
----------------- ------------------
Current Assets:
Cash and Cash Equivalents $ 27 $ 76
Accounts Receivable, Net 2,827 2,871
Inventories 2,844 3,210
Refundable Income Taxes 393 393
Prepaid Expenses and Other Current Assets 98 148
Deferred Tax Asset 1,500 1,500
Assets Held for Sale 95 ---
---------- ---------
Total Current Assets 7,784 8,198
Property, Plant and Equipment, Net 1,450 1,599
Goodwill 576 576
Acquired Intangible Assets, Net 635 695
Other Assets, Net 519 521
---------- ----------
$ 10,964 $ 11,589
========== ==========
Liabilities and Stockholders' Investment
Current Liabilities:
Current Portion of Long-Term Debt $ 786 $ 786
Line of Credit 400 400
Accounts Payable 2,028 1,866
Accrued Expenses 1,344 1,503
Customer Deposits and Deferred Revenue 344 540
---------- ----------
Total Current Liabilities 4,902 5,095
---------- ----------
Long-Term Debt, Net of Current Portion 2,095 2,292
---------- ----------
Stockholders' Investment:
Common stock, $.06 2/3 Par Value-
Authorized - 7,500 Shares
Issued - 1,653 Shares at December 31, 2002
and September 30, 2002 110 110
Capital in Excess of Par Value 1,569 1,569
Retained Earnings 2,919 3,154
Treasury Stock, at Cost- 270 shares at
December 31, 2002 and September 30, 2002 (631) (631)
---------- ----------
Total Stockholders' Investment 3,967 4,202
---------- ----------
$ 10,964 $ 11,589
========== ==========
See accompanying notes to Condensed Consolidated Financial Statements.
4
Benthos, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Quarter Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Net Sales $ 4,352 $ 4,643
Cost of Sales 2,816 3,053
-------- --------
Gross Profit 1,536 1,590
Selling, General and Administrative
Expenses 1,257 1,278
Research and Development Expenses 397 228
Amortization of Acquired Intangibles 60 60
-------- --------
(Loss) Income from Operations (178) 24
Interest Expense (57) (65)
-------- --------
Loss Before Benefit for
Income Taxes (235) (41)
Benefit for Income Taxes -- 13
-------- --------
Net Loss $ (235) $ (28)
======== ========
Basic and Diluted Loss Per Share $ (0.17) $ (0.02)
======== ========
Weighted Average Number of
Shares Outstanding 1,383 1,383
======== ========
See accompanying notes to Condensed Consolidated Financial Statements.
5
Benthos, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Quarter Ended
December 31, 2002 December 31, 2001
----------------- -----------------
Cash Flows from Operating Activities:
Net Loss $ (235) $ (28)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 171 206
Changes in Assets and Liabilities:
Accounts Receivable 44 (694)
Inventories 366 855
Prepaid Expenses and Other Current Assets 50 (25)
Accounts Payable and Accrued Expenses 3 (104)
Customer Deposits and Deferred Revenue (196) 180
--------- --------
Net Cash Provided by Operating Activities 203 390
--------- --------
Cash Flows from Investing Activities:
Purchases of Property, Plant and Equipment (52) (39)
Increase in Other Assets (3) (87)
--------- --------
Net Cash Used in Investing Activities (55) (126)
--------- --------
Cash Flows from Financing Activities:
Payments on Line of Credit --- (100)
Payments on Long-Term Debt (197) (196)
--------- --------
Net Cash Used in Financing Activities (197) (296)
--------- --------
Net Decrease in Cash and Cash Equivalents (49) (32)
Cash and Cash Equivalents, Beginning of Period 76 46
--------- --------
Cash and Cash Equivalents, End of Period $ 27 $ 14
========= ========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 58 $ 61
========= ========
Income Taxes Paid, Net $ 1 $ 6
========= ========
See accompanying notes to Condensed Consolidated Financial Statements.
6
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, 2002, 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 2002 financial statements to conform with the 2003 presentation.
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
December 31, 2002 September 30, 2002
----------------- ------------------
Raw Materials $ 332 $ 317
Work-in-Process 2,488 2,869
Finished Goods 24 24
------- --------
$ 2,844 $ 3,210
======= ========
7
4. Assets Held for Sale
On November 1, 2002, the Company's Board of Directors approved management's plan
to sell certain excess real estate owned by the Company. Accordingly, the
Company has recently engaged a real estate broker to assist in the marketing of
this property. The Company anticipates disposing of some of this property within
fiscal 2003. The Company expects that the sale of such real estate, if
completed, could generate a significant gain. A portion of the sale proceeds
will be used to pay down the Company's term loan. The net book value of this
property has been recorded as Assets Held for Sale in the accompanying condensed
consolidated balance sheet as of December 31, 2002.
5. Earnings (Loss) Per Share
A reconciliation of basic and diluted shares outstanding is as follows:
Quarter Ended December 31,
2002 2001
----- -----
Basic weighted average common shares outstanding 1,383 1,383
Weighted average common share equivalents -- --
----- -----
Diluted weighted average shares outstanding 1,383 1,383
===== =====
The following securities were not included in computing earnings per share
because their effects would be anti-dilutive:
Quarter Ended December 31,
2002 2001
----- -----
Options to purchase common stock 415 337
===== =====
6. Stock Options
At December 31, 2002, 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. In
accordance with FASB Statement No. 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure," beginning in the quarter ending March 31, 2003,
the Company will adopt the disclosure requirements of FASB No. 148.
8
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.
Quarter Ended December 31,
2002 2001
---- ----
Sales to Unaffiliated Customers:
Undersea Systems $ 2,410 $ 3,016
Package Inspection Systems 1,942 1,627
--------- ---------
Total $ 4,352 $ 4,643
========= =========
(Loss) Income from Operations:
Undersea Systems $ (249) $ (111)
Package Inspection Systems 71 135
--------- ---------
Total $ (178) $ 24
========= =========
Identifiable Assets:
Undersea Systems $ 6,429 $ 9,990
Package Inspection Systems 1,999 2,928
Corporate Assets 2,536 2,922
--------- ---------
Total $ 10,964 $ 15,840
========= =========
Depreciation:
Undersea Systems $ 79 $ 83
Package Inspection Systems 49 59
Corporate Assets 11 13
--------- ---------
Total $ 139 $ 155
========= =========
Tax Benefit (Provision):
Undersea Systems $ -- 34
Package Inspection Systems -- (40)
Corporate Assets -- 19
--------- ---------
Total $ -- $ 13
========= =========
Purchases of Fixed Assets:
Undersea Systems $ 24 $ 20
Package Inspection Systems 8 2
Corporate Assets 4 2
--------- ---------
Total $ 36 $ 24
========= =========
9
Revenues by geographic area for the quarters ended December 31, 2002 and 2001
were as follows:
Geographic Area 2002 2001
---------- ----------
United States $ 3,274 $ 3,832
Other 1,078 811
---------- ----------
Total $ 4,352 $ 4,643
========== ==========
Revenues by product line within the Undersea Systems segment were as follows:
Quarter Ended
December 31,
2002 2001
Product Line: ---------- ----------
Underwater Acoustics $ 1,165 $ 890
Geophysical Exploration Equipment 1,002 1,524
Other Undersea Products 243 602
---------- ----------
Total $ 2,410 $ 3,016
========== ==========
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 with interest at prime (4.25% at December 31, 2002) plus 2%, or 7%,
whichever is higher. The term note matures in August 2006. Principal payments
under the term note will be $768 in each of the fiscal years 2003, 2004 and
2005, and $720 in fiscal 2006. The line of credit expires on January 31, 2004.
Borrowings under the line of credit are payable as follows: monthly payments of
interest only and unpaid principal and accrued and unpaid interest at maturity.
The interest rate under the line of credit is either prime (4.25% at December
31, 2002) 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 December 31, 2002. There were $400 in advances outstanding under the line
of credit as of December 31, 2002. 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, 2002, the
Company was in compliance with these covenants.
9. New Accounting Standards
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities." This statement superseded EITF No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity." Under this statement, a liability or a cost associated
with a disposal or exit activity is recognized at fair value when the liability
is incurred rather than at the date of an entity's commitment to an exit plan as
required under EITF 94-3. The provision of this statement is effective for exit
or disposal activities that are initiated after December 31, 2002, with early
adoption permitted. The Company is currently evaluating the effect that the
adoption of SFAS No. 146 will have on its consolidated financial position and
results of operations.
In November 2002, the Emerging Issues Task Force (EITF) reached consensus on
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." Revenue
arrangements with multiple deliverables include
10
arrangements which 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. The Company generally enters
into arrangements for multiple deliverables that occur at different points in
time when it contracts to provide installation services. EITF Issue No. 00-21 is
effective for the Company beginning October 1, 2003. The Company has not
completed the evaluation of the impact of this EITF.
10. 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.
11
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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 on-going basis, management evaluates the
Company's estimates and assumptions, including but not limited to those related
to revenue recognition, inventory valuation, warranty reserves and the
impairment of long-lived assets, goodwill and other intangible assets.
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
The Company recognizes revenue from product sales upon shipment, provided that a
purchase order has been received or a contract has been executed, there are no
uncertainties regarding customer acceptance, the sales price is fixed or
determinable and collection is deemed probable. If uncertainties regarding
customer acceptance exist, the Company recognizes revenue when those
uncertainties are resolved. Amounts collected or billed prior to satisfying the
above revenue recognition criteria are recorded as deferred revenue. The Company
generally enters into arrangements for multiple deliverables when it contracts
to provide installation services. Multiple deliverable arrangements include
arrangements which provide for the delivery of multiple products and/or the
performance of multiple services and/or rights to use assets, where performance
may occur at several different points in time or over different periods of time.
The Company generally recognizes revenue from each of these elements separately.
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 such 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. During the first quarter of fiscal 2003, the
Company reversed approximately $50 of a warranty reserve related to a specific
warranty issue on an older model hydrophone. The reduction in warranty reserve
was the result of a lower return rate and lower repair and replacement costs for
this older model hydrophone.
4. Goodwill
The goodwill associated with the Datasonics acquisition is subject to an annual
assessment for impairment by applying a fair-value based test. In the fourth
quarter of fiscal 2002, the Company
12
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 impaired. Accordingly, the Company recorded a
non-cash goodwill impairment charge of $2.1 million for the year ended September
30, 2002. 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.
Results of Operations -- First quarter of fiscal year 2003 compared with first
quarter of fiscal year 2002.
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, 2002 December 31, 2001
----------------- -----------------
(unaudited)
Net Sales 100.0% 100.0%
Cost of Sales 64.7% 65.7%
------------- -------------
Gross Profit 35.3% 34.3%
Selling, General and Administrative Expenses 28.9% 27.6%
Research and Development Expenses 9.1% 4.9%
Amortization of Acquired Intangibles 1.4% 1.3%
------------- -------------
(Loss) Income from Operations (4.1)% .5%
Interest Expense (1.3)% (1.4)%
------------- -------------
Loss Before Benefit
for Income Taxes (5.4)% (.9)%
Benefit for Income Taxes -- % .3%
------------- -------------
Net Loss (5.4)% (.6)%
============= =============
Revenues by product line within the Undersea Systems segment were as follows:
Quarter Ended
December 31,
2002 2001
Product Line: -------- --------
Underwater Acoustics $ 1,165 $ 890
Geophysical Exploration Equipment 1,002 1,524
Other Undersea Products 243 602
-------- --------
Total $ 2,410 $ 3,016
======== ========
The Package Inspection Systems segment has only one product line.
13
Sales. Net sales decreased by 6.3% in the first quarter of fiscal year 2003 to
$4,352 as compared to $4,643 in the first quarter of fiscal year 2002. Sales of
the Package Inspection Systems Division increased by 19.4% to $1,942 in the
first quarter of fiscal year 2003 as compared to $1,627 in the first quarter of
fiscal year 2002. The increase resulted largely from the timing of orders and
increased market penetration. Sales of the Undersea Systems Division decreased
by 20.1% to $2,410 in the first quarter of fiscal year 2003 as compared to
$3,016 in the first quarter of fiscal year 2002. The decrease in sales was
concentrated in the Geophysical Exploration Equipment product line and was a
result of decreased industry demand for geophysical hydrophones for use in
exploration by the oil and gas industries and in the Other Undersea Products
where there was decreased demand for the Company's remotely operated vehicles
(ROV's), as compared to the first quarter of fiscal year 2002.
Gross Profit. Gross Profit decreased by 3.4% to $1,536 for the first quarter of
fiscal year 2003 as compared to $1,590 for the first quarter of fiscal year
2002. As a percentage of sales, gross profit was 35.3% in the first quarter of
fiscal year 2003 as compared to 34.3% in the first quarter of fiscal year 2002.
The increase in gross profit percentage is attributed primarily to the higher
product mix of Package Inspection Systems Division products that provide higher
gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by 1.6% to $1,257 for the first quarter of
fiscal year 2003 as compared to $1,278 in the first quarter of fiscal year 2002.
As a percentage of sales, selling, general and administrative expenses increased
to 28.9% in the first quarter of fiscal year 2003 as compared to 27.6% for the
first quarter of fiscal year 2002. The increase in selling, general and
administrative expenses as a percentage of sales is a result of decreased sales
volume partially offset by decreased spending on selling, general and
administrative expenses as compared to the first quarter of fiscal year 2002.
Research and Development Expenses. Research and development expenses increased
74.1% to $397 for the first quarter of fiscal year 2003 as compared to $228 in
the first quarter of fiscal year 2002. As a percentage of sales, research and
development expenses increased to 9.1% of sales in the first quarter of fiscal
year 2003 from 4.9% in the first quarter of fiscal year 2002. The increase in
the overall level of expenditures in the first quarter of fiscal year 2003 is a
result of spending on more development projects than were active in the first
quarter of fiscal year 2002 and is consistent with the Company's operational
plans.
Amortization of Acquired Intangibles. Amortization of acquired intangibles was
$60 in the first quarters of fiscal years 2003 and 2002. The amortization of
acquired intangibles relates to the purchased technology in the Datasonics
acquisition during fiscal year 1999.
Interest Expense. Interest Expense decreased to $57 in the first quarter of
fiscal year 2003 as compared to $65 in the first quarter of fiscal year 2002.
The decrease in interest expense dollars was a result of reduced interest rates
and reduced principal on the variable rate term loan used to finance the
Datasonics acquisition.
Benefit for Income Taxes. The benefit for income taxes decreased to $0 in the
first quarter of fiscal year 2003 as compared to a benefit of $13 in the first
quarter of fiscal year 2002. The effective tax rate used in the first quarter of
fiscal year 2002 was 30.0%. The rate used in fiscal year 2002 is lower than the
statutory rate due primarily to the benefit from the Company's Foreign Sales
Corporation. In 2003, the Company has provided a valuation reserve against
deferred tax assets generated. Accordingly, no benefit was recorded.
Liquidity and Capital Resources. The Company's cash and cash equivalents
decreased $49 from September 30, 2002 to December 31, 2002. Cash of $203 was
generated in operating activities, primarily the result of the net loss incurred
during the quarter and a decrease in customer deposits and deferred revenue,
offset by depreciation and amortization and a decrease in inventory. The Company
has continued its focus on reducing inventory. The Company also used $55 and
$197 of cash in its investing and financing activities, respectively. Investing
activities represents primarily the purchase of capital
14
equipment and financing activities represents the payment of the installment
payments on the term note. The Company does not have any significant contractual
obligations or commercial commitments aside from its obligation to the bank that
requires quarterly payments of $197 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 with interest at prime (4.25% at December 31, 2002) plus 2%, or 7%,
whichever is higher. The term note matures in August 2006. Principal payments
under the term note will be $768 in each of the fiscal years 2003, 2004 and
2005, and $720 in fiscal 2006. The line of credit expires on January 31, 2004.
Borrowings under the line of credit are payable as follows: monthly payments of
interest only and unpaid principal and accrued and unpaid interest at maturity.
The interest rate under the line of credit is either prime (4.25% at December
31, 2002) 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 December 31, 2002. There were $400 in advances outstanding under the line
of credit as of December 31, 2002. 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, 2002, the
Company was in compliance with these covenants.
The Company believes it is well positioned to finance future working capital
requirements and capital expenditures during the next twelve months through
current cash balances, cash flow from operations, income tax refunds, and
availability from its line of credit. In addition, management is actively
pursuing the sale of certain excess real estate. It is expected that the sale of
such real estate, if completed, could generate a significant gain. A portion of
these sale proceeds will be used to pay down the Company's term loan.
"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 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.
15
Item 3. Control and Procedures
(a) Within 90 days prior to the filing date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Securities Exchange Act Rule
13a-15. "Disclosure controls and procedures" are controls and procedures that
are designed to ensure that information required to be disclosed by the Company
in reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. Based upon that evaluation, the Company's Chief Executive Office and
Chief Financial Officer concluded that Company's disclosure controls and
procedures are substantially effective for these purposes as of the date of the
evaluation.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses. "Internal
controls" are procedures which are designed with the objective of providing
reasonable assurance that (1) transactions are properly authorized; (2) assets
are safeguarded against unauthorized or improper use; and (3) transactions are
properly recorded and reported, all so as to permit the preparation of financial
statements in conformity with generally accepted accounting principles.
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
16
SIGNATURE
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: February 7, 2003
17
CERTIFICATIONS
I, Ronald L. Marsiglio, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Benthos, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) Presented in the quarterly report our conclusions about the
effectiveness of disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 7, 2003 RONALD L. MARSIGLIO
-----------------------------------
Ronald L. Marsiglio,
President and Chief
Executive Officer
18
I, Francis E. Dunne, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-KSB of Benthos, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) Presented in the quarterly report our conclusions about the
effectiveness of disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 7, 2003 FRANCIS E. DUNNE, JR.,
-----------------------------------
Francis E. Dunne, Jr.,
Vice President, Chief
Financial Officer and
Treasurer
19
STATEMENT PURSUANT TO 18 U.S.C.(S)1350
Pursuant to 18 U.S.C.(S)1350, each of the undersigned certifies that this
Quarterly Report on Form 10-QSB for the period ended December 31, 2002 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in this report fairly
presents, in all material respects, the financial condition and results of
operations of Benthos, Inc.
DATE: February 7, 2003 By /s/ Ronald L. Marsiglio
Ronald L. Marsiglio
President, Chief Executive Officer,
and Director
DATE: February 7, 2003 By /s/ Francis E. Dunne, Jr.
Francis E. Dunne, Jr.
Vice President, Chief Financial Officer,
and Treasurer
(Principal Financial and Accounting Officer)
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 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 Ronald L. Marsiglio dated May 21, 2001 (15)
10.7 Employment Agreement with Francis E. Dunne, Jr. (11)
10.8 Employee Stock Ownership Plan (1)
10.9 First Amendment to Employee Stock Ownership Plan (2)
10.10 Second Amendment to Employee Stock Ownership Plan (8)
10.11 Third Amendment to Employee Stock Ownership Plan (8)
10.12 Fourth Amendment to Employee Stock Ownership Plan (11)
10.13 Fifth Amendment to Employee Stock Ownership Plan (11)
10.14 Benthos, Inc. Employee Stock Ownership Plan as Amended and Restated
Effective as of October 1, 2002 (19)
10.15 401(k) Retirement Plan (1993)(1)
10.16 First Amendment to 401(k) Retirement Plan (2)
10.17 Second Amendment to 401(k) Retirement Plan (2)
10.18 Third Amendment to 401(k) Retirement Plan (3)
10.19 401(k) Retirement Plan (1999)(8)
10.20 First Amendment to 1999 401(k) Retirement Plan (11)
10.21 Second Amendment to 1999 401(k) Retirement Plan (11)
10.22 Third Amendment to 1999 401(k) Retirement Plan (14)
10.23 Supplemental Executive Retirement Plan (1)
10.24 1990 Stock Option Plan (1)
10.25 Stock Option Plan for Non-Employee Directors (1)
10.26 1998 Non-Employee Directors' Stock Option Plan (4)
10.27 Benthos, Inc. 2000 Stock Incentive Plan (9)
10.28 License Agreement between the Company and The Penn State Research
Foundation dated December 13, 1993 (1)
10.29 Technical Consultancy Agreement between the Company and William D.
McElroy dated July 12, 1994 (1)
10.30 Technical Consultancy Agreement between the Company and William D.
McElroy dated October 1, 1996 (3)
10.31 General Release and Settlement Agreement between the Company and
Lawrence W. Gray dated February 8, 1996 (1)
10.32 Line of Credit Loan Agreement between the Company and Cape Cod Bank
and Trust Company dated September 24, 1990, as amended (1)
2
10.33 Commercial Mortgage Loan Extension and Modification Agreement between
the Company and Cape Cod Bank and Trust Company, dated July 6, 1994
(1)
10.34 Credit Agreement between the Company and Cape Cod Bank and Trust
Company dated August 18, 1999 (8)
10.35 First Amendment to Credit Agreement dated March 23, 2001 (14)
10.36 Second Amendment to Credit Agreement dated December 12, 2001. (17)
10.37 License Agreement between the Company and Optikos Corporation dated
July 29, 1997 (3)
10.38 Hydrophone License Agreement between the Company and Syntron, Inc.
dated December 5, 1996 (6)
10.39 Amendment Number 1 to Hydrophone License Agreement between the
Company and Syntron, Inc. dated September 11, 1998 (6)
10.40 Asset Purchase Agreement among Benthos, Inc., Datasonics, Inc., and
William L. Dalton and David A. Porta (7)
10.41 Settlement Agreement and Mutual Release dated October 18, 2001
between the Company and RJE International, Inc (16)
10.42 Amendment of Settlement Agreement and General Release dated June 10,
2002. (19)
10.43 Amendment and Termination of Consulting Agreement between the Company
and William D. McElroy dated February 15, 2002 (18)
21 Subsidiaries of the Registrant (19)
(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. O-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.
O-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.
O-29024) and incorporated herein by this reference.
3
(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. O-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.
(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.
4
(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.
5