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 June 29, 1997
-------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________ to ______________
Commission file number 0-28932
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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
(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 848,403
(Class) (Outstanding stock at August 11, 1997)
Traditional Small Business Disclosure Format (check one):
Yes X No ___
---
2
BENTHOS, INC. AND SUBSIDIARY
INDEX
Page No.
Face Sheet 1
Index 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) 3
June 29, 1997 and
September 30, 1996
Condensed Consolidated Statements of Earnings (unaudited) 4
Thirteen Weeks Ended
June 29, 1997 and
June 30, 1996
Condensed Consolidated Statements of Earnings (unaudited) 5
Thirty-Nine Weeks Ended
June 29, 1997 and
June 30, 1996
Condensed Consolidated Statements of Cash Flow (unaudited) 6
June 29, 1997 and
June 30, 1996
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis 9-12
of Financial Condition and Results
of Operations
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Benthos, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(unaudited)
Assets June 29, 1997 September 30, 1996
Cash and Cash Equivalents $2,068,584 $ 751,357
Accounts Receivable 1,467,158 1,519,142
Inventories 2,658,524 3,551,258
Prepaid Expenses 328,882 70,039
Deferred Tax Asset 516,000 516,000
---------- ----------
Total Current Assets 7,039,148 6,407,796
Property, Plant and Equipment:
Land 127,339 127,339
Building and Improvements 1,845,303 1,845,303
Equipment and Fixtures 2,528,042 2,220,045
Demonstration Equipment 1,462,556 1,348,204
Construction in Progress 0 18,042
---------- ----------
5,963,240 5,558,933
Less Accumulated Depreciation 3,992,003 3,567,862
---------- ----------
1,971,237 1,991,071
Other Assets 235,671 215,077
---------- ----------
$9,246,056 $8,613,944
========== ==========
Liabilities and Stockholders' Investment
Current Maturities of Long-term Debt $ 33,300 $ 29,646
Accounts Payable 388,591 490,909
Accrued Expenses 1,135,212 1,680,893
Customer Deposits 124,443 275,911
---------- ----------
Total Current Liabilities 1,681,546 2,477,359
Long-term Debt, Net of Current Maturities 797,204 824,242
Common Stock, $.0667 par value-
Authorized - 2,500,000 shares
Issued - 1,039,285 and 1,006,785 shares at
June 29, 1997 and September 30, 1996,
respectively 69,318 67,150
Capital in Excess of Par Value 925,481 807,555
Retained Earnings 6,619,246 5,335,733
Treasury Stock, at Cost (846,739) (898,095)
---------- ----------
Total Stockholders' Investment 6,767,306 5,312,343
---------- ----------
$9,246,056 $8,613,944
========== ==========
4
Benthos, Inc. and Subsidiary
Condensed Consolidated Statements of Earnings
(unaudited)
Thirteen Weeks Ended
June 29, 1997 June 30, 1996
Net Sales $3,913,430 $3,475,783
Cost of Sales 1,787,695 1,664,530
---------- ----------
Gross Profit 2,125,735 1,811,253
Selling, General & Administrative Expenses 1,278,536 1,104,366
Research and Development Expenses 404,846 150,188
---------- ----------
Income from Operations 442,353 556,699
Interest Income 6,802 1,654
Interest Expense (19,490) (22,695)
---------- ----------
Income before Provision for Income Taxes 429,665 535,658
Provision for Income Taxes 132,085 188,000
---------- ----------
Net Income $ 297,580 $ 347,658
========== ==========
Net Income Per Common and Common
Equivalent Share $0.33 $0.39
Weighted Average Common and Common ========== ==========
Equivalent Shares Outstanding 913,000 898,000
5
Benthos, Inc. and Subsidiary
Condensed Consolidated Statements of Earnings
(unaudited)
Thirty-Nine Weeks Ended
June 29, 1997 June 30, 1996
Net Sales $13,189,079 $8,874,204
Cost of Sales 5,940,211 4,057,636
----------- ----------
Gross Profit 7,248,868 4,816,568
Selling, General & Administrative Expenses 4,117,272 2,782,845
Research and Development Expenses 1,007,819 478,251
----------- ----------
Income from Operations 2,123,777 1,555,472
Interest Income 15,654 1,734
Interest Expense (59,116) (83,676)
----------- ----------
Income before Provision for Income Taxes 2,080,315 1,473,530
Provision for Income Taxes 796,802 516,000
----------- ----------
Net Income $ 1,283,513 $ 957,530
=========== ==========
Net Income Per Common and Common
Equivalent Share $1.41 $1.09
Weighted Average Common and Common =========== ==========
Equivalent Shares Outstanding 914,000 876,000
6
Benthos, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flow
(unaudited)
Thirty-Nine Weeks Ended
June 29, 1997 June 30, 1996
Cash Flows From Operating Activities:
Net Income $1,283,513 $ 957,530
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 583,773 446,074
Changes in Assets and Liabilities:
Accounts Receivable 51,984 134,943
Inventories 892,734 (434,123)
Prepaid Expenses (258,843) 3,971
Accounts Payable & Accrued Expenses (647,999) 835,569
Customer Deposits (151,468) (148,638)
---------- ----------
Net Cash Provided by Operating Activities 1,753,694 1,795,326
Cash Flows from Financing Activities:
Purchase of Property, Plant & Equipment (328,085) (520,389)
Increase in Other Assets (84,998) (33,876)
---------- ----------
Net Cash Used in Investing Activities (413,083) (554,265)
Cash Flows from Financing Activities:
Decrease in Demand Note Payable 0 (275,000)
Payments on long-term debt, net (23,384) (24,892)
---------- ----------
Net Cash Used in Financing Activities (23,384) (299,892)
---------- ----------
Net Increase in Cash and Cash Equivalents 1,317,227 941,169
Cash and Cash Equivalents, Beginning of Period 751,357 17,461
---------- ----------
Cash and Cash Equivalents, End of Period $2,068,584 $ 958,630
========== ==========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 59,116 $ 83,676
Income Taxes Paid $1,624,164 $ 235,337
7
Benthos, Inc.
Notes to Financial Statements
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 thirty-nine week periods ended June 29,
1997 and June 30, 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:
June 29,1997 September 30, 1996
Raw Materials $ 107,566 $ 203,314
Work-in-Process 2,515,655 3,226,405
Finished Goods 35,303 121,539
---------- ----------
$2,658,524 $3,551,258
========== ==========
3. Net Income Per Share
Net income per common and common equivalent share is based on the weighted
average number of common and common equivalent shares outstanding during each
period, computed in accordance with the treasury stock method. Fully diluted
net income per common and common equivalent share has not been presented as it
is not significantly different.
In February 1997 the Financial Accounting Standard Board issued the Statement of
Financial Accounting Standards No. 128 "Earnings per Share" (SFAS No. 128).
SFAS No. 128 must be adopted as of December 31, 1997 and all prior earnings per
share amounts must be retroactively restated.
In accordance with Staff Accounting Bulletin No. 74, the Company is disclosing
the effect this statement would have on the thirteen weeks and thirty-nine weeks
ended June 29, 1997 and June 30, 1996 on a pro forma basis. The following table
summarizes the pro forma earnings per share amounts under SFAS No. 128.
8
Net Income Shares Per Share Amount
For the thirteen weeks ended June 29, 1997
Net Income $ 297,600 -- --
Basic Earnings per share:
Income available to common stockholders 297,600 836,000 $0.36
=====
Diluted earnings per share:
Options issued to Directors, Officers, and -- 77,000 --
employees ---------- --------
Income available to common stockholders $ 297,600 913,000 $0.33
plus assumed conversions ========== ======== =====
For the thirteen weeks ended June 30, 1996
Net Income $ 347,700 -- --
Basic Earnings per share:
Income available to common stockholders 347,700 790,000 $0.44
=====
Diluted earnings per share:
Options issued to Directors, Officers, and -- 108,000 --
employees ---------- --------
Income available to common stockholders $ 347,700 898,000 $0.39
plus assumed conversions ========== ======== =====
Net Income Shares Per Share Amount
For the thirty-nine weeks ended June 29, 1997
Net Income $1,283,500 -- --
Basic Earnings per share:
Income available to common stockholders 1,283,500 821,000 $1.56
=====
Diluted earnings per share:
Options issued to Directors, Officers, and -- 93,000 --
employees ---------- --------
Income available to common stockholders $1,283,500 914,000 $1.41
plus assumed conversions ========== ======== =====
For the thirty-nine weeks ended June 30, 1996
Net Income $ 957,500 -- --
Basic Earnings per share:
Income available to common stockholders 957,500 790,000 $1.21
=====
Diluted earnings per share:
Options issued to Directors, Officers, and -- 86,000 --
employees ---------- --------
Income available to common stockholders $ 957,500 876,000 $1.09
plus assumed conversions ========== ======== =====
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
quarter. The computation of diluted earnings per common share is similar to the
computation of basic earnings per common share except that the denominator is
increased for the assumed exercise of dilutive options using the treasury stock
method.
9
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations -- Third quarter of fiscal year 1997 compared with third
quarter of fiscal year 1996.
The following table presents, for the periods indicated, the percentage
relationship of Condensed Consolidated Statements of Earnings items to total
sales:
Thirteen Weeks Ended
June 29, 1997 June 30, 1996
(unaudited)
Net Sales 100.0% 100.0%
Cost of Sales 45.7% 47.9%
----- -----
Gross Profit 54.3% 52.1%
Selling, General & Administrative Expenses 32.7% 31.8%
Research and Development Expenses 10.3% 4.3%
----- -----
Income from Operations 11.3% 16.0%
Interest Expense, Net (0.3%) (0.6%)
----- -----
Income Before Provision for Income Taxes 11.0% 15.4%
Provision for Income Taxes 3.4% 5.4%
----- -----
Net Income 7.6% 10.0%
===== =====
Sales. Total sales increased by 12.6% in the third quarter of fiscal year 1997
to $3,913,000 as compared to $3,476,000 in the third quarter of fiscal year
1996. Sales of the Undersea Systems Division increased by 62.4% to $2,239,000
in the third quarter of fiscal year 1997 as compared to $1,378,000 in the third
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, imaging and glass flotation product lines. Sales in the Container
Inspection Systems Division were $1,674,000 in the third quarter of fiscal year
1997 as compared to $2,098,000 in the third quarter of fiscal year 1996. This
20.2% decrease is due to the timing of purchases by customers of new equipment.
Gross Profit. Gross Profit increased by 17.4% to $2,126,000 for the third
quarter of fiscal year 1997 as compared to $1,811,000 for the third quarter of
fiscal year 1996. As a percentage of sales, gross profit was 54.3% in the third
quarter of fiscal year 1997 as compared to 52.1% for the third quarter of fiscal
year 1996. The increase in gross profit percentage was attributed primarily to
sales mix within the Undersea Systems Division and overhead efficiencies related
to the increased sales volume.
10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 15.9% to $1,279,000 for the third quarter
of fiscal year 1997 as compared to $1,104,000 in the third quarter of fiscal
year 1996. The increase in total expenses was a result of higher selling and
advertising expenses coinciding with the increased volume and product promotion,
the costs of the Company's sales meetings held in the third quarter of 1997,
expenses related to the Company's Annual Stockholders Meeting, the investor
relations function and additional personnel necessary to support the Company's
growth . As a percentage of sales, selling, general and administrative expenses
increased to 32.7% in the third quarter of fiscal year 1997 as compared to 31.8%
for the third quarter of fiscal year 1996.
Research and Development Expenses. Research and development expenses increased
170% to $405,000 in the third quarter of fiscal year 1997 as compared to
$150,000 in the third quarter of fiscal year 1996. As a percentage of sales,
research and development expenses increased to 10.3% in the third quarter of
fiscal year 1997 from 4.3% in the third quarter of fiscal year 1996. 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.
Interest Expense. Interest expense, net, decreased to $12,700 in the third
quarter of fiscal year 1997 as compared to $21,000 in the third 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 due to
higher cash balances invested.
Provision for Income Taxes. The provision for income taxes decreased to
$132,000 in the third quarter of fiscal year 1997 from $188,000 in the third
quarter of fiscal year 1996. The effective tax rate used in the third quarter
of fiscal year 1997 was 30.7% as compared to 35.1% in the third quarter of
fiscal year 1996. In the third quarter of fiscal year 1997, the Company
recognized a cumulative adjustment to the effective tax rate for fiscal year
1997 to 38.3% as compared to the rate of 40.3% used in the first two quarters of
fiscal year 1997. This adjustment recognizes the increased benefits to be
realized from the Company's Foreign Sales Corporation.
Results of Operations - First three quarters of fiscal year 1997 compared with
first three quarters of fiscal year 1996.
The following table presents, for the periods indicated, the percentage
relationships of Condensed Consolidated Statements of Earnings items to total
sales:
Thirty-Nine Weeks Ended
June 29, 1997 June 30, 1996
(unaudited)
Net Sales 100.0% 100.0%
Cost of Sales 45.0% 45.7%
----- -----
Gross Profit 55.0% 54.3%
Selling, General & Administrative Expenses 31.2% 31.4%
Research and Development Expenses 7.7% 5.4%
----- -----
Income from Operations 16.1% 17.5%
Interest Expense, Net (0.4%) (0.9%)
----- -----
Income Before Provision for Income Taxes 15.7% 16.6%
Provision for Income Taxes 6.0% 5.8%
----- -----
Net Income 9.7% 10.8%
===== =====
11
Sales. Total sales increased by 48.6% in the first three quarters of fiscal
year 1997 to $13,189,000 as compared to $8,874,000 in the first three quarters
of fiscal year 1996. Sales of the Undersea Systems Division increased by 113.3%
to $7,957,000 in the first three quarters of fiscal year 1997 as compared to
$3,730,000 in the first three quarters 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, imaging and glass flotation product
lines. Sales in the Container Inspection Systems Division were essentially flat
in the comparable 39 week periods.
Gross Profit. Gross Profit increased by 50.5% to $7,249,000 for the first three
quarters of fiscal year 1997 as compared to $4,817,000 for the first three
quarters of fiscal year 1996. As a percentage of sales, gross profit was 55.0%
in the first three quarters of fiscal year 1997 as compared to 54.3% for the
first three quarters of fiscal year 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 47.9% to $4,117,000 for the first three
quarters of fiscal year 1997 as compared to $2,783,000 in the first three
quarters of fiscal year 1996. The increase in total expenses was a result of
higher selling and commission 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, legal expenses in
connection with the Company's proxy solicitation, costs of the Annual
Stockholders Meeting, trade show activity, sales meeting expenses, and investor
relations activities in the first three quarters of fiscal year 1997. As a
percentage of sales, selling, general and administrative expenses decreased
slightly to 31.2% in the first three quarters of fiscal year 1997 as compared to
31.4% for the first three quarters of fiscal year 1996.
Research and Development Expenses. Research and development expenses increased
110.7% to $1,008,000 in the first three quarters of fiscal year 1997 as compared
to $478,000 in the first three quarters of fiscal year 1996. As a percentage of
sales, research and development expenses increased to 7.7% in the first three
quarters of fiscal year 1997 from 5.4% in the first three quarters of fiscal
year 1996. The increase in the percentage of sales and dollars expended is due
to investments in new product development and is consistent with the Company's
current operational plans.
Interest Expense. Interest expense, net, decreased to $43,000 in the first three
quarters of fiscal year 1997 as compared to $82,000 in the first three quarters
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 due to
higher invested cash balances.
Liquidity and Capital Resources. The Company's cash and cash equivalents
increased $1,317,000 from September 30, 1996 to June 29, 1997. This increase
resulted primarily from cash generated from operations of $1,754,000. Accounts
receivable decreased $52,000 as improved collection activities offset the
increased sales volume and asset management programs were able to decrease
inventories by $893,000. Customer deposits decreased by $151,000 as the orders
related to these deposits were shipped. Cash flow from investing activities was
a use of $413,000 and resulted primarily from purchases of property, plant and
equipment of $328,000. 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, current earnings and available credit
facilities.
12
"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.
13
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: August 12, 1997
EXHIBIT INDEX
Exhibit
3.1 Restated Articles of Organization (1)
3.2 Articles of Amendment dated April 28, 1997. (2)
3.3 By-Laws (1)
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 Employee Stock Ownership Plan (1)
10.5 First Amendment to Employee Stock Ownership Plan (2)
10.6 401(k) Retirement Plan (1)
10.7 First Amendment to 401(k) Retirement Plan (2)
10.8 Second Amendment to 401(k) Retirement Plan (2)
10.9 Third Amendment to 401(k) Retirement Plan
10.10 Supplemental Executive Retirement Plan (1)
10.11 1990 Stock Option Plan (1)
10.12 Stock Option Plan for Non-Employee Directors(1)
10.13 License Agreement between the Company and The Penn State
Research Foundation dated December 13, 1993 (1)
10.14 Technical Consultancy Agreement between the Company and
William D. McElroy dated July 12, 1994 (1)
10.15 Technical Consultancy Agreement between the Company and
William D. McElroy dated October 1, 1996
10.16 General Release and Settlement Agreement between the Company
and Lawrence W. Gray dated February 8, 1996 (1)
10.17 Line of Credit Loan Agreement between the Company and Cape
Cod Bank and Trust Company dated September 24, 1990, as
amended (1)
Exhibit
10.18 Commercial Mortgage Loan Extension and Modification
Agreement between the Company and Cape Cod Bank and Trust
Company, dated July 6, 1994 (1)
10.19 License Agreement between the Company and Optikos
Corporation dated July 29, 1997
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.
(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-
28932) and incorporated herein by this reference.