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 30, 1997
[_] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________ to ______________
Commission file number 0-28932
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
(Addresses of Principal Executive Offices) (Zip Code)
(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 $.0667 832,653
(Class) (Outstanding stock at May 5, 1997)
Traditional Small Business Disclosure Format (check one):
Yes X No
-------- --------
1
BENTHOS, INC. AND SUBSIDIARY
INDEX
Page No.
Face Sheet 1
Index 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
March 30, 1997 (unaudited) and
September 30, 1996
Consolidated Statements of Earnings (unaudited) 4
Thirteen Weeks Ended
March 30, 1997 and
March 31, 1996
Consolidated Statements of Earnings (unaudited) 5
Twenty-Six Weeks Ended
March 30, 1997 and
March 31, 1996
Consolidated Statements of Cash Flow (unaudited) 6
March 30, 1997 and
March 31, 1996
Other Financial Information 7
Item 2. Management's Discussion and Analysis 8-10
of Financial Condition and Results
of Operations
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Benthos, Inc. and Subsidiary
Consolidated Balance Sheets
Assets March 30, 1997 September 30, 1996
(unaudited)
Cash and Cash Equivalents $ 946,450 $ 751,357
Accounts Receivable 2,025,557 1,519,142
Inventories 2,995,589 3,551,258
Prepaid Expenses 354,599 70,039
Deferred Tax Asset 516,000 516,000
--------- ---------
Total Current Assets 6,838,195 6,407,796
Property, Plant and Equipment:
Land 127,339 127,339
Building and Improvement 1,845,303 1,845,303
Equipment and Fixtures 2,377,964 2,220,045
Demonstration Equipment 1,461,455 1,348,204
Construction in Progress 51,320 18,042
--------- ---------
5,863,381 5,558,933
Less Accumulated Depreciation 3,852,582 3,567,862
--------- ---------
2,010,799 1,991,071
Other Assets 230,776 215,077
--------- ---------
$9,079,770 $8,613,944
========== ==========
Liabilities and Stockholders' Investment
Current Maturities of Long-term Debt $32,542 $29,646
Accounts Payable 534,754 490,909
Accrued Expenses 1,104,322 1,680,893
Customer Deposits 189,901 275,911
--------- ---------
Total Current Liabilities 1,861,519 2,477,359
Long-term Debt, Net of Current Maturities 805,728 824,242
Common Stock 68,567 67,150
Capital in Excess of Par Value 869,029 807,555
Retained Earnings 6,321,666 5,335,733
Treasury Stock, at Cost (846,739) (898,095)
--------- ---------
Total Stockholders' Investment 6,412,523 5,312,343
--------- ---------
$9,079,770 $8,613,944
========== ==========
3
Benthos, Inc. and Subsidiary
Consolidated Statements of Earnings
(unaudited)
Thirteen Weeks Ended
March 30, 1997 March 31, 1996
Net Sales $ 4,431,393 $ 3,002,334
Cost of Sales 1,996,776 1,296,429
----------- -----------
Gross Profit 2,434,617 1,705,905
Selling, General & Administrative Expenses 1,333,818 971,315
Research and Development Expenses 360,505 183,441
----------- -----------
Income from Operations 740,294 551,149
----------- -----------
Interest Income 2756 56
Interest Expense (19,991) (33,952)
----------- -----------
Income before Provision for Income Taxes 723,059 517,253
Provision for Income Taxes 291,177 184,000
----------- -----------
Net Income $ 431,882 $ 333,253
=========== ===========
Net Income Per Common and Common
Equivalent Share Outstanding $ 0.48 $ 0.39
=========== ===========
Weighted Average Common and Common
Equivalent Share Outstanding 906,000 852,000
4
Benthos, Inc. and Subsidiary
Consolidated Statements of Earnings
(unaudited)
Twenty-Six Weeks Ended
March 30, 1997 March 31, 1996
Net Sales $ 9,275,649 $ 5,398,421
Cost of Sales 4,152,516 2,393,106
----------- -----------
Gross Profit 5,123,133 3,005,315
Selling, General & Administrative Expenses 2,838,735 1,678,479
Research and Development Expenses 602,972 328,063
----------- -----------
Income from Operations 1,681,426 998,773
----------- -----------
Interest Income 8849 81
Interest Expense (39,625) (60,982)
----------- -----------
Income before Provision for Income Taxes 1,650,650 937,872
Provision for Income Taxes 664,717 328,000
----------- -----------
Net Income $ 985,933 $ 609,872
=========== ===========
Net Income Per Common and Common
Equivalent Share Outstanding $ 1.08 $ 0.71
=========== ===========
Weighted Average Common and Common
Equivalent Share Outstanding 914,000 857,000
5
Benthos, Inc. and Subsidiary
Consolidated Statements of Cash Flow
(unaudited)
Twenty-Six Weeks Ended
March 30, 1997 March 31, 1996
Cash Flows From Operating Activities:
Net Income $ 985,933 $ 609,872
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 340,793 238,579
Changes in Assets and Liabilities:
Accounts Receivable (506,415) (658,310)
Inventories 555,669 (668,284)
Prepaid Expenses (284,560) 18,392
Accounts Payable & Accrued Expenses (532,726) 706,568
Customer Deposits (86,010) (194,984)
---------- ---------
Net Cash Provided by Operating Activities 472,684 51,833
Cash Flows from Financing Activities:
Purchase of Property, Plant & Equipment (191,196) (305,308)
Increase in Other Assets (70,777) (27,240)
---------- ---------
Net Cash Used in Investing Activities (261,973) (332,548)
Cash Flows from Financing Activities:
Increase in Demand Note Payable 0 300,000
Payments on long-term debt, net (15,618) (15,570)
---------- ---------
Net Cash Provided by (Used in) Financing Activities (15,618) 284,430
---------- ---------
Net Increase in Cash and Cash Equivalents 195,093 3715
Cash and Cash Equivalents, Beginning of Period 751,357 17,461
---------- ---------
Cash and Cash Equivalents, End of Period $ 946,450 $ 21,176
========== =========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 19,991 $ 60,983
Income Taxes Paid $1,555,392 $ 142,079
6
Other Financial Information
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared by Benthos, Inc. 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, 1996, 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 thirteen week and twenty-six week periods ended March 30,
1997 and March 31, 1996, are not necessarily indicative of the results to be
expected for the full fiscal year.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
March 30,1997 September 30, 1996
Raw Material $ 136,565 $ 203,314
Work-in-Process 2,823,721 3,226,405
Finished Goods 35,303 121,539
----------- -----------
$ 2,995,589 $ 3,551,258
7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations -- Second quarter of fiscal year 1997 compared with second
quarter of fiscal year 1996.
The following table presents, for the periods indicated, the percentage
relationship of Consolidated Statements of Earnings items to total sales:
Benthos, Inc. and Subsidiary
Consolidated Statements of Earnings
(unaudited)
Thirteen Weeks Ended
March 30, 1997 March 31, 1996
Net Sales 100.0% 100.0%
Cost of Sales 45.1% 43.2%
-------- --------
Gross Profit 54.9% 56.8%
Selling, General & Administrative Expenses 30.1% 32.4%
Research and Development Expenses 8.1% 6.1%
-------- --------
Income from Operations 16.7% 18.3%
Interest Expense, Net (0.4%) (1.1%)
-------- --------
Income Before Provision for Income Taxes 16.3% 17.2%
-------- --------
Provisions for Income Taxes 6.5% 6.1%
-------- --------
Net Income 9.8% 11.1%
======== ========
Sales. Total sales increased by 47.6% in the second quarter of fiscal year 1997
to $4,431,000 as compared to $3,002,000 in the second quarter of fiscal year
1996. Sales of the Undersea Systems Division increased by 118.3% to $2,912,000
in the second quarter of fiscal year 1997 as compared to $1,334,000 in the
second quarter of fiscal year 1996. The increase in Undersea Systems Division
sales was largely the result of increased shipments of hydrophones used for off
shore oil exploration as well as an overall increase in the sales of the
Company's acoustic and glass flotation product lines. Sales in the Container
Inspection Systems Division were $1,519,000 in the second quarter of fiscal year
1997 as compared to $1,668,000 in the second quarter of fiscal year 1996. This
8.9% decrease resulted primarily from the shipments to Miller Brewing in the
1996 period which were not entirely repeated in the 1997 period.
Gross Profit. Gross Profit increased by 42.7% to $2,435,000 for the second
quarter of fiscal year 1997 as compared to $1,706,000 for the second quarter of
fiscal year 1996. As a percentage of sales, gross profit was 54.9% in the second
quarter of fiscal year 1997 as compared to 56.8% for the second quarter of
fiscal year 1996. The decrease in gross profit percentage was attributed to a
higher sales mix in the Undersea Systems Division which was partially offset by
overhead efficiencies related to the increased sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 37.3% to $1,334,000 for the second quarter
of fiscal year 1997 as compared to $971,000 in the second
8
quarter of fiscal year 1996. The increase in total expenses was a result of
higher selling expenses coinciding with the increased volume, non recurring
expenses relating to obtaining the Company's listing on the Nasdaq SmallCap
Market, higher legal expenses in connection with the Company's proxy
solicitation in the second quarter of fiscal year 1997, and additional personnel
necessary to support the Company's growth . As a percentage of sales, selling,
general and administrative expenses decreased to 30.1% in the second quarter of
fiscal year 1997 as compared to 32.4.% for the second quarter of fiscal year
1996.
Research and Development Expenses. Research and development expenses increased
96.5% to $361,000 in the second quarter of fiscal year 1997 as compared to
$183,000 in the second quarter of fiscal year 1996. As a percentage of sales,
research and development expenses increased to 8.1% in the second quarter of
fiscal year 1997 from 6.1% in the first quarter of fiscal year 1996. The
increase in the overall level of expenditures is consistent with the Company's
current operational plans.
Interest Expense. Interest expense, net, decreased by 49.2% to $17,200 in the
second quarter of fiscal year 1997 as compared to $33,900 in the second quarter
of fiscal year 1996. The decreased level of interest expense, net, was a result
of decreased borrowing under the credit line and improved interest income.
Results of Operations - First half of fiscal year 1997 compared with first half
of fiscal year 1996.
The following table presents, for the periods indicated, the percentage
relationships of Consolidated Statements of Earnings items to total sales:
Benthos, Inc. and Subsidiary
Consolidated Statements of Earnings
(unaudited)
Twenty-Six Weeks Ended
March 30, 1997 March 31, 1996
Net Sales 100.0% 100.0%
Cost of Sales 44.8% 44.3%
-------- --------
Gross Profit 55.2% 55.7%
Selling, General & Administrative Expenses 30.6% 31.1%
Research and Development Expenses 6.5% 6.1%
-------- --------
Income from Operations 18.1% 18.5%
Interest Expense, Net (0.3%) (1.1%)
-------- --------
Income Before Provision for Income Taxes 17.8% 17.4%
-------- --------
Provisions for Income Taxes 7.2% 6.1%
-------- --------
Net Income 10.6% 11.3%
Sales. Total sales increased by 71.8% in the first half of fiscal year 1997 to
$9,276,000 as compared to $5,398,000 in the first half of fiscal year 1996.
Sales in the Container Inspection Systems Division increased by 16.8% to
$3,557,000 in the first half of fiscal year 1997as compared to $3,046,000 in the
first half of fiscal year 1996. This results from the company's continued
penetration of the food and beverage market and the domestic and international
brewery industries. Sales of the Undersea Systems Division increased by 143.2%
to $5,719,000 in the first half of fiscal year 1997 as compared to $2,352,000 in
the first
9
half of fiscal year 1996. The increase in sales of the Undersea Systems Division
was largely the result of increased shipments of hydrophones used for off shore
oil exploration as well as an increase in sales of the Company's acoustic and
glass flotation product lines.
Gross Profit. Gross Profit increased by 70.5% to $5,123,000 for the first half
of fiscal year 1997 as compared to $3,005,000 for the first half of fiscal year
1996. As a percentage of sales, gross profit was 55.2% in the first half of
fiscal year 1997 as compared to 55.7% for the first half of fiscal year 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 69.1% to $2,839,000 for the first half of
fiscal year 1997 as compared to $1,678,000 in the first half of fiscal year
1996. The increase in total expenses was a result of higher selling expenses
coinciding with the increased volume, investments in staff necessary to support
the company's growth, expenses relating to the registration of the Company's
securities, expenses related to obtaining the Company's listing on the Nasdaq
SmallCap Market, and legal expenses in connection with the Company's proxy
solicitation in the first half of fiscal year 1997. As a percentage of sales,
selling, general and administrative expenses decreased slightly to 30.6% in the
first half of fiscal year 1997 as compared to 31.1% for the first half of fiscal
year 1996.
Research and Development Expenses. Research and development expenses increased
83.8% to $603,000 in the first half of fiscal year 1997 as compared to $328,000
in the first half of fiscal year 1996. As a percentage of sales, research and
development expenses increased to 6.5% in the first half of fiscal year 1997
from 6.1% in the first half of fiscal year 1996. The increase in the percentage
of sales and dollars expended is consistent with the Company's current
operational plans.
Interest Expense. Interest expense, net, decreased by 49.5% to $31,000 in the
first half of fiscal year 1997 as compared to $61,000 in the first half of
fiscal year 1996. The decreased level of interest expense, net, was a result of
decreased borrowing under the credit line and improved interest income.
Liquidity and Capital Resources. The Company's cash and cash equivalents
increased $195,000 from September 30, 1996 to March 30, 1997. This increase
resulted primarily from cash generated from operations of $473,000. Accounts
receivable increased $506,000 to support the increased sales volume while asset
management programs were able to decrease inventories by $556,000. Customer
deposits decreased by $86,000 as the orders related to these deposits were
shipped. Cash flow from investing activities was a use of $262,000 and resulted
primarily from purchases of property, plant and equipment of $191,000. The
Company believes it is well positioned to finance future working capital
requirements and capital expenditures during the next twelve months through
current earnings 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: 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.
10
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
Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
DATE: May 5, 1997
11
EXHIBIT INDEX
Exhibit
3.1 Restated Articles of Organization (1)
3.2 Articles of Amendment dated April 28, 1997.
3.3 By-Laws (1)
4.1 Common Stock Certificate (1)
10.1 Employment Contract with Samuel O. Raymond (1)
10.2 Third Amendment to Employment Contract with Samuel O.
Raymond
10.3 Employment Contract with John L. Coughlin (1)
10.4 Employee Stock Ownership Plan (1)
10.5 First Amendment to Employee Stock Ownership Plan
10.6 401(k) Retirement Plan (1)
10.7 First Amendment to 401(k) Retirement Plan
10.8 Second Amendment to 401(k) Retirement Plan
10.9 Supplemental Executive Retirement Plan (1)
10.10 1990 Stock Option Plan (1)
10.11 Stock Option Plan for Non-Employee Directors(1)
10.12 License Agreement between the Company and The Penn State
Research Foundation dated December 13, 1993 (1)
10.13 Technical Consultancy Agreement between the Company and
William D. McElroy dated July 12, 1994 (1)
10.14 General Release and Settlement Agreement between the Company
and Lawrence W. Gray dated February 8, 1996(1)
10.15 Line of Credit Loan Agreement between the Company and Cape
Cod Bank and Trust Company dated September 24, 1990, as
amended(1)
10.16 Commercial Mortgage Loan Extension and Modification
Agreement between the Company and Cape Cod Bank and Trust
Company, dated July 6, 1994(1)
Exhibit
11 Computation of Earnings Per Share
21 Subsidiaries of the Registrant (1)
27 Financial Data Schedule
(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. 0-28932)
and incorporated herein by this reference.