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, 1997
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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 0-28932
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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
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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 $.0667 1,317,490
(Class) (Outstanding stock at February 5, 1998)
Traditional Small Business Disclosure Format (check one):
Yes X No
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2
BENTHOS, INC. AND SUBSIDIARY
FORM 10-QSB
FOR THE THIRTEEN WEEKS ENDED
DECEMBER 31, 1997
INDEX
Page No.
Face Sheet 1
Index 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) 3
December 31, 1997 and
September 30, 1997
Condensed Consolidated Statements of Earnings (unaudited) 4
Thirteen Weeks Ended
December 31, 1997 and
December 31, 1996
Condensed Consolidated Statements of Cash Flow (unaudited) 5
Thirteen Weeks Ended
December 31, 1997 and
December 31, 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 7-8
of Financial Condition and Results
of Operations
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signature 9
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, 1997 September 30, 1997
Current Assets:
Cash and Cash Equivalents $3,064 $2,663
Accounts Receivable, Net 1,459 2,170
Inventories 2,421 2,063
Prepaid Expenses 346 469
Deferred Tax Asset 516 516
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Total Current Assets 7,806 7,881
Property, Plant and Equipment, Net 1,894 1,961
Other Assets 234 234
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$9,934 $10,076
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Liabilities and Stockholders' Investment
Current Liabilities:
Current Maturities of Long-term Debt $ 69 $ 34
Accounts Payable 394 314
Accrued Expenses 1,140 1,373
Customer Deposits 206 141
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Total Current Liabilities 1,809 1,862
Long-term Debt, Net of Current Maturities 442 791
Stockholders' Investment:
Common Stock, $.0667 par value-
Authorized - 2,500 shares
Issued - 1,586 shares at December 31, 1997
and September 30, 1997 106 106
Capital in Excess of Par Value 1,270 1,270
Retained Earnings 7,084 6,894
Treasury Stock, at Cost (777) (847)
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Total Stockholders' Investment 7,683 7,423
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$ 9,934 $10,076
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See accompanying notes to Condensed Consolidated Financial Statements
4
Benthos, Inc. and Subsidiary
Condensed Consolidated Statements of Earnings
(in thousands, except per share amounts)
(unaudited)
Thirteen Weeks Ended
December 31, 1997 December 31, 1996
Net Sales $ 3,404 $ 4,844
Cost of Sales 1,283 2,156
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Gross Profit 2,121 2,688
Selling, General & Administrative Expenses 1,524 1,505
Research and Development Expenses 312 242
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Income from Operations 285 941
Interest Income 39 6
Interest Expense (16) (19)
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Income before Provision for Income Taxes 308 928
Provision for Income Taxes 118 374
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Net Income $ 190 $ 554
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Basic Earnings Per Share $0.15 $0.46
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Diluted Earnings Per Share $0.14 $0.40
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Common Shares Outstanding 1,293 1,210
Common Shares Assuming Dilution 1,394 1,383
See accompanying notes to Condensed Consolidated Financial Statements
5
Benthos, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flow
(in thousands)
(unaudited)
Thirteen Weeks Ended
December 31, 1997 December 31, 1996
Cash Flows From Operating Activities:
Net Income $ 190 $ 554
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 191 195
Changes in Assets and Liabilities:
Accounts Receivable 711 (1,039)
Inventories (358) 208
Prepaid Expenses 123 22
Accounts Payable & Accrued Expenses (153) (92)
Customer Deposits 65 (144)
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Net Cash Provided by (used in) Operating Activities 769 (296)
Cash Flows from Financing Activities:
Purchases of Property, Plant & Equipment (40) (196)
Increase in Other Assets (14) (86)
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Net Cash Used in Investing Activities (54) (282)
Cash Flows from Financing Activities:
Payments on long-term debt, net (314) (8)
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Net Cash Used in Financing Activities (314) (8)
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Net Increase (Decrease) in Cash and Cash Equivalents 401 (586)
Cash and Cash Equivalents, Beginning of Period 2,663 751
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Cash and Cash Equivalents, End of Period $3,064 $ 165
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Supplemental Disclosure of Cash Flow Information:
Interest Paid $16 $19
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Income Taxes Paid $20 $759
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See accompanying notes to Condensed Consolidated Financial Statements
6
Benthos, Inc.
Notes to Financial Statements
1. Fiscal Periods
The Company's fiscal year is comprised of 52 weeks and 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 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, 1997, 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.
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
December 31,1997 September 30, 1997
(in thousands)
Raw Materials $ 91 $ 90
Work-in-Process 2,285 1,928
Finished Goods 45 45
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$2,421 $2,063
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4. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 ("APB 15") and related
interpretations. Statement No. 128 has been adopted in the accompanying
financial statements with retroactive application. Basic earnings per share
excludes dilution and is computed by dividing net earnings by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Diluted earning per share is computed based upon the weighted average number of
common shares and dilutive common equivalent shares outstanding. Common stock
options, which are common stock equivalents, have a dilutive effect on earnings
per share in all periods and are therefore included in the computation of
diluted earnings per share. Diluted earnings per share in the accompanying
statements of operations is identical to the primary earnings per share
previously presented in accordance with APB 15. The Company has stock options
for 32 shares of common stock at an average exercise price of $17.54, which have
not been included in basic or diluted earnings per share as they are
antidilutive.
7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Dollars in thousands, except per share data)
Results of Operations -- First quarter of fiscal year 1998 compared with first
quarter of fiscal year 1997.
The following table presents, for the periods indicated, the percentage
relationship of Condensed Consolidated Statements of Earnings items to total
sales:
Thirteen Weeks Ended
December 31, 1997 December 31, 1996
(unaudited)
Net Sales 100.0% 100.0%
Cost of Sales 37.7% 44.5%
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Gross Profit 62.3% 55.5%
Selling, General & Administrative Expenses 44.8% 31.1%
Research and Development Expenses 9.1% 5.0%
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Income from Operations 8.4% 19.4%
Interest Income/(Expense), Net .7% (.3%)
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Income Before Provision for Income Taxes 9.1% 19.1%
Provision for Income Taxes 3.5% 7.7%
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Net Income 5.6% 11.4%
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Sales. Net sales decreased by 29.7% in the first quarter of fiscal year 1998 to
$3,404 as compared to $4,844 in the first quarter of fiscal year 1997. Sales of
the Container Inspection Systems Division decreased by 7.4% to $1,888 in the
first quarter of fiscal year 1998 as compared to $2,038 in the first quarter of
fiscal year 1997. The decrease resulted largely from the timing of project
orders. Sales of the Undersea Systems Division decreased by 46% to $1,516 in the
first quarter of fiscal year 1998 as compared to $2,806 in the first quarter of
fiscal year 1997. The decrease resulted mainly from lower sales of hydrophones
in the first quarter of fiscal year 1998 as compared to the first quarter of
fiscal year 1997 related to the transitioning to a new hydrophone product.
Gross Profit. Gross Profit decreased by 21.1% to $2,121 for the first quarter of
fiscal year 1998 as compared to $2,688 for the first quarter of fiscal year
1997. As a percentage of sales, gross profit was 62.3% in the first quarter of
fiscal year 1998 as compared to 55.5% in the first quarter of fiscal year 1997.
The increase in gross profit percentage is attributed primarily to the higher
sales mix of Container Inspection Systems Division products, which carry a
higher gross profit, in the first quarter of fiscal year 1998.
8
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 1.3% to $1,524 for the first quarter of
fiscal year 1998 as compared to $1,505 in the first quarter of fiscal year 1997.
As a percentage of sales, selling, general and administrative expenses increased
to 44.8% in the first quarter of fiscal year 1998 as compared to 31.1% for the
first quarter of fiscal year 1997. This increase in percentage of sales is
primarily a result of a reduced level of sales in the first quarter of fiscal
year 1998.
Research and Development Expenses. Research and development expenses increased
28.9% to $312 for the first quarter of fiscal year 1998 as compared to $242 in
the first quarter of fiscal year 1997. As a percentage of sales, research and
development expenses increased to 9.1% of sales in the first quarter of fiscal
year 1998 from 5.0% in the first quarter of fiscal year 1997. 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 Income. Interest income increased to $39 in the first quarter of fiscal
year 1998 as compared to $6 in the first quarter of fiscal year 1997. The
increase in interest income was a result of higher invested cash balances.
Provision for Income Taxes. The provision for income taxes decreased to $118 in
the first quarter of fiscal year 1998 as compared to $374 in the first quarter
of fiscal year 1997. The effective tax rate used in the first quarter of fiscal
year 1998 was 38.3% as compared to the rate of 40.3% used in the first quarter
of fiscal year 1997. The rate used in the first quarter of fiscal year 1998 is
the same rate as was applied to the full year of fiscal 1997 and is lower than
the statutory rate due to the benefit from the Company's Foreign Sales
Corporation.
Liquidity and Capital Resources. The Company's cash and cash equivalents
increased $401 from September 30, 1997 to December 31, 1997. This increase
resulted primarily from cash generated from operations of $769. Accounts
receivable decreased $711 resulting from improved collections and lower sales
volume and inventories increased by $358 to support future sales. Cash flow from
financing activities was a use of $314 resulting from payments on the Company's
long term debt. 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.
"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.
9
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: February 5, 1998
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)
3.4 By-Law Amendments adopted January 23, 1998
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 (3)
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 1998 Non-Employee Directors' Stock Option Plan
10.14 License Agreement between the Company and The Penn State
Research Foundation dated December 13, 1993 (1)
10.15 Technical Consultancy Agreement between the Company and
William D. McElroy dated July 12, 1994 (1)
10.16 Technical Consultancy Agreement between the Company and
William D. McElroy dated October 1, 1996 (3)
10.17 General Release and Settlement Agreement between the Company
and Lawrence W. Gray dated February 8, 1996 (1)
Exhibit
10.18 Line of Credit Loan Agreement between the Company and Cape
Cod Bank and Trust Company dated September 24, 1990, as
amended (1)
10.19 Commercial Mortgage Loan Extension and Modification
Agreement between the Company and Cape Cod Bank and Trust
Company, dated July 6, 1994 (1)
10.20 License Agreement between the Company and Optikos
Corporation dated July 29, 1997 (3)
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. O-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.
(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-28932) and incorporated hereby by this reference.