10QSB 1 0001.txt FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2000 ----------------- [_] 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 Corporation or Organization) Identification No.) 49 Edgerton Drive, North Falmouth, Massachusetts 02556 (Address of Principal Executive Offices) (508) 563-1000 Issuer's Telephone Number Including Area Code Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- State the number of shares outstanding of each of the issuer's classes of Common equity as of the latest practicable date: Common Stock par value $.06 2/3 1,387,149 (Class) (Outstanding stock at February 9, 2001) Transitional Small Business Disclosure Format (check one): Yes No X ---- ---- 2 BENTHOS, INC. AND SUBSIDIARY FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 2000 INDEX
Page No. Face Sheet 1 Index 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets (unaudited) 3 December 31, 2000 and September 30, 2000 Condensed Consolidated Statements of Operations (unaudited) 4 Quarter Ended December 31, 2000 and December 31, 1999 Condensed Consolidated Statements of Cash Flow (unaudited) 5 Quarter Ended December 31, 2000 and December 31, 1999 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis 9 of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 Signatures 12
3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Benthos, Inc. and Subsidiary Condensed Consolidated Balance Sheets (in thousands, except per share amounts) (unaudited)
Assets December 31, 2000 September 30, 2000 ----------------- ------------------ Current Assets: Cash and Cash Equivalents $ 404 $ 1,474 Accounts Receivable, Net 3,331 3,448 Inventories 4,832 4,974 Prepaid Expenses and Other Current Assets 121 159 Deferred Tax Asset 1,354 1,354 ------- ------- Total Current Assets 10,042 11,409 Property, Plant and Equipment, Net 2,041 1,960 Other Assets, Net 4,445 4,496 ------- ------- $16,528 $17,865 ======= ======= Liabilities and Stockholders' Investment Current Liabilities: Current Portion of Long-Term Debt $ 4,453 $ 786 Accounts Payable 1,104 1,160 Accrued Expenses 1,331 1,729 Customer Deposits 272 350 ------- ------- Total Current Liabilities 7,160 4,025 ------- ------- Long-Term Debt, Net of Current Portion -- 3,863 Stockholders' Investment: Common stock, $.06 2/3 Par Value- Authorized - 7,500 Shares Issued - 1,653 Shares at December 31, 2000 and September 30, 2000 110 110 Capital in Excess of Par Value 1,569 1,569 Retained Earnings 8,350 8,959 Treasury Stock, at Cost (661) (661) ------- ------- Total Stockholders' Investment 9,368 9,977 ------- ------- $16,528 $17,865 ======= =======
See accompanying notes to Condensed Consolidated Financial Statements 4 Benthos, Inc. and Subsidiary Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited)
Quarter Ended December 31, 2000 December 31, 1999 ----------------- ----------------- Net Sales $4,173 $5,411 Cost of Sales 3,046 3,286 ------ ------ Gross Profit 1,127 2,125 Selling, General and Administrative Expenses 1,280 1,345 Research and Development Expenses 508 464 Amortization of Goodwill and Other Acquired Intangibles 126 123 ------ ------ Income (Loss) from Operations (787) 193 Interest Income 21 28 Interest Expense (104) (109) ------ ------ Income (Loss) Before Provision for Income Taxes (870) 112 Provision (Benefit) for Income Taxes (261) 34 ------ ------ Net Income (Loss) $ (609) $ 78 ====== ====== Basic Earnings (Loss) Per Share $(0.44) $0.06 ====== ====== Diluted Earnings (Loss) Per Share $(0.44) $0.06 ====== ====== Weighted Average Number of Shares Outstanding 1,379 1,368 ====== ====== Weighted Average Number of Shares Outstanding, Assuming Dilution 1,379 1,412 ====== ======
See accompanying notes to Condensed Consolidated Financial Statements 5 Benthos, Inc. and Subsidiary Condensed Consolidated Statements of Cash Flow (in thousands) (unaudited)
Quarter Ended December 31, 2000 December 31, 1999 ------------------ ------------------ Cash Flows from Operating Activities: Net Income (Loss) $ (609) $ 78 Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities: Depreciation and Amortization 287 347 Changes in Assets and Liabilities: Accounts Receivable 117 (1,006) Inventories 142 513 Prepaid Expenses and Other Current Assets 38 (42) Accounts Payable and Accrued Expenses (454) (568) Customer Deposits (78) (144) ------- ------- Net Cash Used in Operating Activities (557) (822) Cash Flows from Investing Activities: Purchases of Property, Plant and Equipment (235) (105) Increase in Other Assets (82) (70) ------- ------- Net Cash Used in Investing Activities (317) (175) Cash Flows from Financing Activities: Payments on Long-Term Debt (196) (197) ------- ------- Net Decrease in Cash and Cash Equivalents (1,070) (1,194) Cash and Cash Equivalents, Beginning of Period 1,474 2,930 ------- ------- Cash and Cash Equivalents, End of Period $ 404 $ 1,736 ======= ======= Supplemental Disclosure of Cash Flow Information: Interest Paid $ 104 $ 105 ======= ======= Income Taxes Paid, Net of Refunds $ 50 $ 100 ======= ======= Supplemental Disclosure of Noncash Activities: Issuance of Treasury Stock to the Company's ESOP $ 0 $ 74 ======= =======
See accompanying notes to Condensed Consolidated Financial Statements 6 Benthos, Inc. and Subsidiary Notes to Financial Statements (in thousands, except per share amounts) 1. Fiscal Periods The fiscal year of Benthos, Inc. (the Company) ends on September 30 each year. Interim quarters are comprised of 13 weeks unless otherwise noted and end on the Sunday closest to December 31, March 31, and June 30. All references in the unaudited condensed consolidated financial statements to fiscal periods ended on December 31, March 31, or June 30 mean the interim quarters referred to above. 2. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended September 30, 2000, included in the Company's previously filed Form 10-KSB. The accompanying condensed consolidated financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for the interim periods presented. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full fiscal year. Certain reclassifications have been made to the 2000 financial statements to conform with the 2001 presentation. 3. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
December 31, 2000 September 30, 2000 ----------------- ------------------ Raw Materials $ 423 $ 423 Work-in-Process 4,396 4,538 Finished Goods 13 13 ------ ------ $4,832 $4,974 ====== ======
7 4. Earnings (Loss) Per Share A reconciliation of basic and diluted shares outstanding is as follows:
Quarter Ended December 31, 2000 1999 ----- ----- Basic weighted average common shares outstanding 1,379 1,368 Weighted average common share equivalents -- 44 ----- ----- Diluted weighted average shares outstanding 1,379 1,412 ===== =====
The following securities were not included in computing earnings per share because their effects would be anti-dilutive.
Quarter Ended December 31, 2000 1999 ---- ---- Options to purchase common stock 197 135 ==== ====
5. Segment Reporting The Company views its operations and manages its business as two segments, Undersea Systems and Container Inspection Systems, as being strategic business units that offer different products. The Company evaluates performance of its operating segments based on revenues from external customers, income from operations and identifiable assets.
Quarter Ended December 31, 2000 1999 ------- ------- Sales to Unafilliated Customers: Undersea Systems $ 2,915 $ 4,076 Container Inspection Systems 1,258 1,335 ------- ------- Total $ 4,173 $ 5,411 Income (Loss) from Operations: Undersea Systems $ (585) $ 213 Container Inspection Systems (202) (20) ------- ------- Total $ (787) $ 193 Identifiable Assets: Undersea Systems $11,240 $11,317 Container Inspection Systems 2,945 2,488 Corporate Assets 2,343 4,226 ------- ------- Total $16,528 $18,031 ======= =======
8 Revenues by geographic area for the quarter ended December 31, 2000 and 1999 were as follows:
Geographic Area 2000 1999 ------ ------ United States $2,877 $3,159 Japan 199 693 Other 1,097 1,559 ------ ------ Total $4,173 $5,411 ====== ======
6. Credit Facility The Company has a credit facility with a bank. This facility provides for loans under two notes: a $5,500 variable rate term note and a $2,000 variable rate revolving note. The term note is payable in 84 consecutive equal monthly installments of principal with interest at either prime (9.50% at December 31, 2000) less 0.50% or LIBOR (6.56% at December 31, 2000) plus 2.38%. At any time during the remaining term of the term note, the Company may elect to fix the interest rate at 2.25% above the Federal Home Loan Bank of Boston Classic Credit Rate (5.89% at December 31, 2000), as defined therein, or the Company may continue to pay interest at either prime less 0.50% or LIBOR plus 2.38%. The term note matures in August 2006. The revolving note expires on January 31, 2001. Advances under the revolving note are payable as follows: monthly payments of interest only and unpaid principal and accrued and unpaid interest at maturity. The interest rate under the revolving note is either prime (9.50% at December 31, 2000) less 0.50% or LIBOR (6.56% at December 31, 2000) plus 2.38%. There were no advances outstanding under the revolving note as of December 31, 2000. The credit facility is secured by substantially all of the assets of the Company and requires the Company to meet certain covenants, including debt service coverage. As of December 31, 2000, the Company was not in compliance with one of these covenants. In February 2001, the Company obtained a waiver of this default and also obtained an extension of the maturity date of the revolving note until March 31, 2001. The Company is currently negotiating with its bank to have the financial covenants under the credit facility reset for the remainder of the year to ensure compliance based on its updated projections. As the financial covenants have not yet been reset, the Company has classified the amounts outstanding under the term note as current. In addition, the Company and the bank are negotiating an extension of the maturity date of the revolving note until January 31, 2002. 7. CEO Resignation In January of 2001, the CEO of the Company resigned. In connection with his resignation the Company made a payment to the CEO of $55,000 in exchange for cancellation of his 64,500 outstanding stock options, continued availability to assist the Company for a specified period of time, and severance. This amount will be recorded as compensation expense during the quarter ended March 31, 2001. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Thousands) Results of Operations -- First quarter of fiscal year 2001 compared with first quarter of fiscal year 2000. The following table presents, for the periods indicated, the percentage relationship of Condensed Consolidated Statements of Earnings items to total sales:
Quarter Ended December 31, 2000 December 31, 1999 ------------------ ------------------ (unaudited) Net Sales 100.0% 100.0% Cost of Sales 73.0% 60.7% ------ ----- Gross Profit 27.0% 39.3% Selling, General & Administrative Expenses 30.7% 24.8% Research and Development Expenses 12.2% 8.6% Amortization of Goodwill and Other Acquired Intangibles 3.0% 2.3% ------ ----- Income (Loss) from Operations (18.9)% 3.6% Interest Income .5 % .5% Interest Expense (2.5)% (2.0)% ------ ----- Income (Loss) Before Provision (Benefit) for Income Taxes (20.9)% 2.1% Provision (Benefit) for Income Taxes (6.3)% .6% ------ ----- Net Income (Loss) (14.6)% 1.5% ====== =====
Sales. Net sales decreased by 22.9% in the first quarter of fiscal year 2001 to $4,173 as compared to $5,411 in the first quarter of fiscal year 2000. Sales of the Undersea Systems Division decreased by 28.5% to $2,915 in the first quarter of fiscal year 2001 as compared to $4,076 in the first quarter of fiscal year 2000. This decrease is a result of continued softness in the markets served by the Undersea Systems Division. The decrease in sales extended to almost all of the product areas, with the exception of acoustic and glass flotation. Sales of the Container Inspection Systems Division decreased by 5.8% to $1,258 in the first quarter of fiscal year 2001 as compared to $1,335 in the first quarter of fiscal year 2000. The decrease resulted largely from the timing of orders. Gross Profit. Gross Profit decreased by 47.0% to $1,127 for the first quarter of fiscal year 2001 as compared to $2,125 for the first quarter of fiscal year 2000. As a percentage of sales, gross profit was 27.0% in the first quarter of fiscal year 2001 as compared to 39.3% in the first quarter of fiscal year 2000. The decrease in gross profit percentage is attributed primarily to unabsorbed overhead resulting from decreased sales volume, product mix, new product startup costs and inventory related provisions. 10 Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by 4.8% to $1,280 for the first quarter of fiscal year 2001 as compared to $1,345 in the first quarter of fiscal year 2000. As a percentage of sales, selling, general and administrative expenses increased to 30.7% in the first quarter of fiscal year 2001 as compared to 24.8% for the first quarter of fiscal year 2000. The decrease in selling, general, and administrative dollars is a result of the removal of duplicate expenses relating to the integration of the operations of Datasonics, Inc. in the first quarter of fiscal year 2000. The increase in percentage of sales is a result of lower sales volume. Research and Development Expenses. Research and development expenses increased 9.5% to $508 for the first quarter of fiscal year 2001 as compared to $464 in the first quarter of fiscal year 2000. As a percentage of sales, research and development expenses increased to 12.2% of sales in the first quarter of fiscal year 2001 from 8.6% in the first quarter of fiscal year 2000. The increase in the overall level of expenditures is due to investments in new product development and is consistent with the Company's current operational plans. Amortization of Goodwill and Other Acquired Intangibles. Amortization of goodwill and other acquired intangibles was $126 in the first quarter of fiscal year 2001 as compared to $123 in the first quarter of fiscal 2000. The amortization of goodwill and other acquired intangibles relates to the Datasonics acquisition in fiscal year 1999. Interest Income. Interest income decreased to $21 in the first quarter of fiscal year 2001 as compared to $28 in the first quarter of fiscal year 2000. The decrease in interest income was a result of lower invested cash balances. Interest Expense. Interest Expense decreased to $104 in the first quarter of fiscal year 2001 as compared to $109 in the first quarter of fiscal year 2000. The decrease in interest expense dollars was a result of reduced principal on the variable rate term loan used to finance the Datasonics acquisition. Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes decreased to $(261) in the first quarter of fiscal year 2001 as compared to $34 in the first quarter of fiscal year 2000. The effective tax rate used in the first quarter of fiscal years 2001 and 2000 was 30.0%. The rate used is lower than the statutory rate due primarily to the benefit from the Company's Foreign Sales Corporation. Liquidity and Capital Resources. The Company's cash and cash equivalents decreased $1,070 from September 30, 2000 to December 31, 2000. Cash of $557 was used in operating activities, primarily the result of the net loss incurred during the quarter offset by depreciation and amortization and changes in operational assets and liabilities. The Company also used $317 and $196 of cash in its investing and financing activities, respectively. Investing activities represents primarily the purchase of capital equipment and financing activities represents the payment of the installment payments on the term note. 11 The Company has a credit facility with a bank. This facility provides for loans under two notes: a $5,500 variable rate term note and a $2,000 variable rate revolving note. The term note matures in August 2006. The revolving note expires on January 31, 2001. There were no advances outstanding under the revolving note as of December 31, 2000. The credit facility is secured by substantially all of the assets of the Company and requires the Company to meet certain covenants, including debt service coverage. As of December 31, 2000, the Company was not in compliance with one of these covenants. In February 2001, the Company obtained a waiver of this default and also obtained an extension of the maturity date of the revolving note until March 31, 2001. The Company is currently negotiating with its bank to have the financial covenants under the credit facility reset for the remainder of the year to ensure compliance based on its updated projections. In addition, the Company and the bank are negotiating an extension of the maturity date of the revolving note until January 31, 2002. The Company believes it is well positioned to finance future working capital requirements and capital expenditures during the next twelve months through cash on hand and available credit facilities. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995. The statements in this Quarterly Report on Form 10-QSB and in oral statements which may be made by representatives of the Company relating to plans, strategies, economic performance and trends and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors which include: the timing of large project orders, competitive factors, shifts in customer demand, government spending, economic cycles, availability of financing as well as the factors described in this report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein as anticipated, believed, estimated, expected or intended. 12 PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The exhibits set forth in the Exhibit Index on the following page are filed herewith as a part of this report. (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BENTHOS, INC By /s/ Francis E. Dunne, Jr. Francis E. Dunne, Jr. Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer) DATE: February 14, 2001 BENTHOS, INC. EXHIBIT INDEX Exhibit ------- 3.1 Restated Articles of Organization (1) 3.2 Articles of Amendment dated April 28, 1997 (2) 3.3 Articles of Amendment dated April 20, 1998 (5) 3.4 By-Laws (1) 3.5 By-Law Amendments adopted January 23, 1998 (4) 4.1 Common Stock Certificate (1) 10.1 Employment Contract with Samuel O. Raymond (1) 10.2 Amendment to Employment Contract with Samuel O. Raymond (2) 10.3 Employment Contract with John L. Coughlin (1) 10.4 Amended and Restated Employment Agreement with John L. Coughlin (10) 10.5 Severance Agreement with John L. Coughlin (13) 10.6 Employment Agreement with Francis E. Dunne, Jr. (11) 10.7 Employee Stock Ownership Plan (1) 10.8 First Amendment to Employee Stock Ownership Plan (2) 10.9 Second Amendment to Employee Stock Ownership Plan (8) 10.10 Third Amendment to Employee Stock Ownership Plan (8) 10.11 Fourth Amendment to Employee Stock Ownership Plan (11) 10.12 Fifth Amendment to Employee Stock Ownership Plan (11) Exhibit ------- 10.13 401(k) Retirement Plan (1993) (1) 10.14 First Amendment to 401(k) Retirement Plan (2) 10.15 Second Amendment to 401(k) Retirement Plan (2) 10.16 Third Amendment to 401(k) Retirement Plan (3) 10.17 401(k) Retirement Plan (1999) (8) 10.18 First Amendment to 1999 401(k) Retirement Plan (11) 10.19 Second Amendment to 1999 401(k) Retirement Plan (11) 10.20 Supplemental Executive Retirement Plan (1) 10.21 1990 Stock Option Plan (1) 10.22 Stock Option Plan for Non-Employee Directors (1) 10.23 1998 Non-Employee Directors' Stock Option Plan (4) 10.24 Benthos, Inc. 2000 Stock Incentive Plan (9) 10.25 License Agreement between the ompany and The Penn State Research Foundation dated December 13, 1993 (1) 10.26 Technical Consultancy Agreement between the Company and William D. McElroy dated July 12, 1994 (1) 10.27 Technical Consultancy Agreement between the Company and William D. McElroy dated October 1, 1996 (3) 10.28 General Release and Settlement Agreement between the Company and Lawrence W. Gray dated February 8, 1996 (1) 10.29 Line of Credit Loan Agreement between the Company and Cape Cod Bank and Trust Company dated September 24, 1990, as amended (1) 10.30 Commercial Mortgage Loan Extension and Modification Agreement between the Company and Cape Cod Bank and Trust Company, dated July 6, 1994 (1) 10.31 Credit Agreement between the Company and Cape Cod Bank and Trust Company dated August 18, 1999 (8) 10.32 License Agreement between the Company and Optikos Corporation dated July 29, 1997 (3) 10.33 Hydrophone License Agreement between the Company and Syntron, Inc. dated December 5, 1996 (6) 10.34 Amendment Number 1 to Hydrophone License Agreement between the Company and Syntron, Inc. dated September 11, 1998 (6) 10.35 Asset Purchase Agreement among Benthos, Inc., Datasonics, Inc., and William L. Dalton and David A. Porta (7) 21 Subsidiaries of the Registrant (1) (1) Previously filed as an exhibit to Registrant's Registration Statement on Form 10-SB filed with the Commission on December 17, 1996 (File No. 0-29024) and incorporated herein by this reference. (2) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended March 30, 1997 (File No. 0-29024) and incorporated herein by this reference. (3) Previously filed as an exhibit to Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 29, 1997 (File No. 0-29024) and incorporated herein by this reference. (4) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 1997 (File No. 0-29024) and incorporated herein by this reference. (5) Previously filed as an exhibit to the Registrant's Quarterly Report on Form on Form 10-QSB for the quarterly period ended March 31, 1998 (File No. 0-29024) and incorporated herein by this reference. (6) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 1998 (File No. 0-29024) and incorporated herein by this reference. (7) Previously filed as an exhibit to Registrant's Current Report on Form 8-K filed on or about August 27, 1999 (File No. 0-29024) and incorporated herein by this reference. (8) Previously filed as an exhibit to Registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30, 1999 (File No. 0-29024) and incorporated herein by this reference. (9) Previously filed as an exhibit to the Registrant's definitive proxy statement filed on Schedule 14A on or about January 18, 2000 and incorporated herein by this reference. (10) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended December 31, 1999 (File No. 0-29024) and incorporated herein by this reference. (11) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2000 (File No. 0-29024) and incorporated herein by this reference. (12) Previously filed as an exhibit to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2000 (File No. 0-29024) and incorporated herein by this reference. (13) Previously filed as an exhibit to Amendment No. 1 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2000 (File No. 0-29024) and incorporated herein by this reference.