<PAGE>
<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
- --------------------------------------------------------------------------------
FORM 10-KSB/A1
- --------------------------------------------------------------------------------
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934. For the fiscal year ended June 30, 1996.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934. For the period from _____ to ______.
COMMISSION FILE NUMBER: 0-20753
SONICS & MATERIALS, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 060854713
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation Or organization) Identification No.)
4 WEST KENOSIA AVENUE, DANBURY, CT 06810
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (203) 744-4400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock par value $.03
(Title of class)
Warrants to purchase Common Stock
(Title of class)
Check whether the Company (1) 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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the most recent fiscal year was: $9,376,170
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Company's Common Stock on
September 18, 1996, as reported on the Nasdaq National Market System, was
approximately $13,125,000. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of September 18, 1996, Issuer had outstanding 3,500,100 shares of Common
Stock, par value $.03 per share and 1,725,000 Warrants to purchase shares of
Common Stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No[X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the 1996 Annual Meeting of
Shareholders are incorporated in Part III.
<PAGE>
<PAGE>
THE REGISTRANT HEREBY AMENDS ITEM 5 OF ITS ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 TO READ AS FOLLOWS:
"ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since February 27, 1996, the Common Stock and Warrants to purchase
Common Stock of the Company have been traded and quoted through the National
Association of Securities Dealers Inc. National Market System ("NASDAQ") under
the symbols "SIMA" and "SIMAW", respectively. The following table sets forth the
range of high and low bids for the Company's Common Stock and Warrants for the
periods indicated as reported by NASDAQ.
<TABLE>
<CAPTION>
Stock Warrants
------------------------------- ------------------------------
Quarter Ended High Low High Low
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
March 31, 1996 11 1/4 6 3/4 5 3/4
June 30, 1996 13 11 7/8 6 5/8 4
</TABLE>
The prices presented in the table are bid prices, which represent prices
between broker-dealers and do not include retail mark-ups and mark-downs or any
commission to the dealer. The prices presented may not reflect actual
transactions.
On September 18, 1996, the closing price of the Common Stock of the
Company, as reported by NASDAQ, was 13 1/8 per share, and the closing price of
the Warrants, as reported by NASDAQ was $6 per warrant. On September 18,1996,
the Company had eight stockholders of record and two warrant holders of record.
The Company has been informed by its registrar and transfer agent that these are
holders in nominee name. The Company believes that the number of beneficial
holders is greater.
The Company intends to follow a policy of retaining any earnings to
finance the development and growth of its business. Accordingly, it does not
anticipate other payments of cash dividends in the foreseeable future. The
payment of dividends, if any, rests within the discretion of the Board of
Directors and will depend upon, among other things, on the Company's earnings,
its capital requirements and its overall financial condition."
1
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<PAGE>
THE REGISTRANT HEREBY AMENDS THE FINANCIAL STATEMENTS APPEARING IN ITS
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1996 TO READ AS
FOLLOWS:
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheets F-3
Statements of Income F-4
Statement of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
SONICS & MATERIALS, INC.
We have audited the accompanying balance sheets of Sonics & Materials, Inc. as
of June 30, 1995 and 1996, and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sonics & Materials, Inc. as of
June 30, 1995 and 1996, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
/s/ Grant Thornton LLP
New York, New York
August 20, 1996
F-2
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<PAGE>
Sonics & Materials, Inc.
BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 1995 1996
--------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note B-4) $ 187,490 $ 73,129
Short-term investments (Note C) 3,028,032
Accounts receivable, net of allowance for doubtful
accounts of $45,000 in 1995 and 1996 (Note K) 1,949,958 1,953,941
Inventories (Notes B-1 and D) 2,058,307 3,248,782
Prepaid income taxes 30,465
Deferred income taxes (Note L) 80,000
Other current assets 89,741 111,327
----------- ------------
Total current assets 4,285,496 8,525,676
PROPERTY AND EQUIPMENT - NET (Notes B-2 and E) 277,807 301,706
OTHER ASSETS - NET (Note B-6) 422,102 353,124
---------- ----------
$4,985,405 $9,180,506
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note F) $ 650,000 $ 832,813
Demand note payable (Note G) 500,000 500,000
Accounts payable 537,625 767,620
Commissions payable 152,812 160,081
Other accrued expenses and sundry liabilities (Note B-7) 261,201 254,677
---------- ----------
Total current liabilities 2,101,638 2,515,191
COMMITMENTS
(Note H)
STOCKHOLDERS' EQUITY (Note I)
Common stock - par value $.03 per share; authorized, 10,000,000
shares issued and outstanding, 1,350,000 shares at
June 30, 1995 and 3,500,100 shares at June 30, 1996 40,500 105,003
Additional paid-in capital 139,237 6,417,126
Retained earnings 2,704,030 143,186
--------- ----------
2,883,767 6,665,315
---------- ----------
$4,985,405 $9,180,506
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<PAGE>
Sonics & Materials, Inc.
STATEMENTS OF INCOME
Year ended June 30,
<TABLE>
<CAPTION>
1995 1996
----------- -------
<S> <C> <C>
Net sales $8,574,845 $9,376,170
Cost of sales 4,228,024 5,091,789
--------- ---------
Gross profit 4,346,821 4,284,381
Operating expenses
Selling 2,450,438 2,832,251
General and administrative 676,239 588,923
Research and development 349,360 372,087
Compensation expense - stock options 106,000
---------- -----------
Total operating expenses 3,582,037 3,793,261
Other income (expense)
Interest expense (12,817) (100,011)
Other 27,751 45,201
----------- -----------
14,934 (54,810)
Income before income taxes 779,718 436,310
Provision for income taxes (Note L) 45,000 (8,000)
----------- -----------
NET INCOME $ 734,718 $ 444,310
========== ==========
Pro forma data (Note P)
Historical income before taxes $ 779,718 $ 436,310
Subchapter S stockholders' tax distribution recorded as salary 160,000 -
---------- ---------
Income before provision for income taxes 939,718 436,310
Provision for income taxes 375,887 174,524
---------- ----------
NET INCOME $ 563,831 $ 261,786
========== ==========
Primary income per share
Net income per share $.22 $.09
==== ====
Weighted average common shares outstanding 2,624,000 3,409,303
========= =========
Fully diluted income per share
Net income per share $.22 $.08
==== ====
Weighted average common shares outstanding 2,624,000 3,440,770
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
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Sonics & Materials, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock
------------------------ Additional
Par paid-in Retained Stockholders'
Shares value capital earnings equity
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - June 30, 1994 455,555 $ 45,556 $ 210,181 $2,524,312 $2,780,049
Purchase of options (76,000) (76,000)
transactions
Distribution to stockholder (555,000) (555,000)
2.96-for-1 stock split 894,445 (5,056) 5,056
Net income 734,718 734,718
--------- ------- --------- ----------- ---------
Balance - June 30, 1995 1,350,000 40,500 139,237 2,704,030 2,883,767
1.85-for-1 stock split 1,150,000 34,500 (34,500)
Distribution to stockholder (495,730) (495,730)
Capital contribution from
S-corporation earnings 2,509,424 (2,509,424)
Issuance of common stock 1,000,100 30,003 3,802,965 3,832,968
Net income 444,310 444,310
--------- ------- --------- ----------- ---------
BALANCE - JUNE 30, 1996 3,500,100 $105,003 $6,417,126 $ 143,186 $6,665,315
========= ======= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
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<PAGE>
Sonics & Materials, Inc.
STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
1995 1996
--------- -------
<S> <C> <C>
Cash flows from operating activities
Net income $ 734,718 $ 444,310
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Depreciation of equipment and leasehold improvements 203,425 236,105
Deferred income taxes (80,000)
Compensation expense - stock options 106,000
Gain on sale of equipment (2,500)
Increase (decrease) in cash flows from changes in
operating assets and liabilities
Accounts receivable (715,587) (3,983)
Inventory (165,867) (1,190,475)
Prepaid income taxes (30,465)
Other assets (169,351) (43,901)
Accounts payable and accrued liabilities 62,721 244,354
----------- -----------
Net cash provided by (used in) operating activities 56,059 (426,555)
----------- -----------
Cash flows from investing activities
Capital expenditures on equipment and leasehold
improvements (148,595) (149,512)
Proceeds from sale of equipment 2,500
Short-term investments (3,028,032)
----------- -----------
Net cash used in investing activities (148,595) (3,175,044)
----------- -----------
Cash flows from financing activities
Distribution to stockholder (555,000) (495,730)
Cash paid for stock options (182,000)
Proceeds from note payable, net 525,000 150,000
Proceeds from demand note payable 500,000
Deferred registration costs (70,000)
Proceeds from issuance of common stock 3,832,968
----------- -----------
Net cash provided by financing activities 218,000 3,487,238
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 125,464 (114,361)
Cash and cash equivalents at beginning of year 62,026 187,490
----------- -----------
Cash and cash equivalents at end of year $ 187,490 $ 73,129
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 9,400 $ 94,000
=========== ===========
Income taxes $ 32,000 $ 150,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
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<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
NOTE A - BUSINESS
Sonics & Materials, Inc.'s (the "Company") primary business is the
manufacturing and distribution of ultrasonic assembly and liquid processing
machinery and equipment. Sales are made throughout the United States,
Europe, Asia, South America and Australia. The Company's primary location of
operations is Danbury, Connecticut.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
2. Equipment and Leasehold Improvements
Equipment and leasehold improvements are carried at cost less
accumulated depreciation and amortization. Depreciation using both the
declining-balance and straight-line methods is designed to amortize the
cost of various classes of assets over their estimated useful lives,
which range from five to seven years. Leasehold improvements are
amortized over the shorter of the life of the related asset or the term
of the lease. Expenditures for replacements are capitalized and the
replaced items are retired. Maintenance and repairs are expensed as
incurred.
3. Taxes
In 1989, the Company elected to be treated as an S Corporation for
Federal income tax reporting. An S Corporation is generally treated like
a partnership, and is exempt from Federal income taxes with certain
exceptions. Accordingly, no provision or liability for Federal income
taxes was reflected in the accompanying statements during the period the
Company was treated as an S Corporation. Instead, the stockholder
reported his pro rata share of corporate taxable income or loss on his
respective individual income tax returns. A provision for state income
taxes was made for those states not recognizing S Corporation status.
On February 26, 1996, the Company's S Corporation status terminated with
the completion of the Offering as described in Note I. Upon termination
of its S Corporation status, the Company uses the liability method for
both Federal and state income tax purposes. The effect of the change in
status is reflected in income from continuing operations. Such change in
status resulted in an increase in deferred tax assets at February 26,
1996 by approximately $91,000 and earnings by the same amount.
4. Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
F-7
<PAGE>
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE B (CONTINUED)
5. Revenue Recognition
Revenue is recognized upon the shipment of finished merchandise to
customers. Allowances for sales returns are recorded as a component of
net sales in the periods in which the related sales are recognized.
6. Other Assets
Demonstration equipment is carried at cost less accumulated
depreciation. Depreciation is provided for using the declining-balance
method over the estimated useful life of seven years. The net book value
is used to calculate any gain or loss on sale of the related
demonstration equipment.
At June 30, 1995 and 1996, the major components of other assets were:
<TABLE>
<CAPTION>
June 30, JUNE 30,
1995 1996
--------- ----------
<S> <C> <C>
Demonstration equipment - net of accumulated
depreciation of $150,557 and $196,973 for
1995 and 1996, respectively $247,960 $270,863
Deferred registration costs 70,000
Other 104,142 82,261
------- --------
$422,102 $353,124
======= =======
</TABLE>
7. Other Accrued Expenses and Sundry Liabilities
At June 30, 1995 and 1996, the major components of other accrued
expenses and sundry liabilities were:
<TABLE>
<CAPTION>
June 30, JUNE 30,
1995 1996
--------- ----------
<S> <C> <C>
Accrued payroll $ 81,100 $ 76,120
Accrued vacation pay 54,808 59,477
Other 125,293 119,080
------- -------
$261,201 $254,677
======= =======
</TABLE>
F-8
<PAGE>
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE B (CONTINUED)
8. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
9. Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for bank
loans with similar terms and maturities, the fair value of the Company's
short-term debt approximates the carrying value. Furthermore, the
carrying values of all other financial instruments potentially subject
to valuation risk (principally consisting of cash, accounts receivable
and accounts payable) also approximate fair value.
10. Net Income Per Share
Net income per share is based on the weighted average number of common
and common equivalent shares (warrants and options) outstanding during
the period, calculated using the modified treasury stock method in
fiscal 1996 and the treasury stock method in fiscal 1995 (see Note P).
The modified treasury stock method limits the assumed purchase of
treasury shares to 20% of the outstanding common shares.
In connection with the initial public offering (see Note I), the Company
paid down $670,000 of outstanding debt. If this transaction had occurred
as of July 1, 1995, the net income per share would have been the same as
the reported net income per share.
11. Advertising Costs
All costs related to advertising are expensed in the period incurred.
Advertising costs were approximately $221,000 and $180,000 for the years
ended June 30, 1996 and 1995, respectively.
NOTE C - SHORT-TERM INVESTMENT
The Company has a short-term investment comprised of a U.S. Government
agency issue. This investment is classified as available-for-sale and is
reported at fair value on the Company's balance sheet. Quoted market prices
have been used in determining the fair value of this investment.
F-9
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<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE D - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, JUNE 30,
1995 1996
--------- ----------
<S> <C> <C>
Raw materials $ 615,462 $ 975,332
Work-in-process 1,086,773 1,501,716
Finished goods 356,072 771,734
---------- ----------
$2,058,307 $3,248,782
========== ==========
</TABLE>
NOTE E - PROPERTY AND EQUIPMENT
A summary of equipment and leasehold improvements follows:
<TABLE>
<CAPTION>
June 30, JUNE 30,
1995 1996
--------- ----------
<S> <C> <C>
Trade show booth $ 50,494 $ 50,494
Machinery and equipment 518,029 586,063
Tooling 103,173 103,762
Office furniture and equipment 133,498 143,235
Leasehold improvements 159,688 174,081
Automobiles 32,408 32,408
Data processing equipment 301,280 365,240
---------- ----------
1,298,570 1,455,283
Less accumulated depreciation 1,020,763 1,153,577
---------- ----------
$ 277,807 $ 301,706
========== ==========
</TABLE>
NOTE F - NOTES PAYABLE
a. Bank Line of Credit
The loan agreement with the Village Bank & Trust Company provides for a
$1,000,000 collateralized line of credit at one half percent (1/2%)
above the prime rate. Notes payable under the loan agreement are
collateralized by a security interest in all of the Company's tangible
and intangible assets. The Company must also meet certain covenants to
comply with the loan agreement, the most important of which are: (a) the
Company must maintain its stockholders' equity at a sum at least equal
to 75% of the outstanding principal balance of the note, and (b) the
President/shareholder must be continuously and actively engaged in the
Company business.
F-10
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<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE F (CONTINUED)
b. Note Payable to President/Shareholder
In connection with the initial public offering (see Note I), the Company
paid $45,730 in cash and issued a $450,000 noninterest-bearing note
payable to the President and major shareholder as a dividend for the
amount of taxes due by him personally for the earnings of the Company
from January 1, 1995 through February 26, 1996, a period through which
the Company was an S Corporation (see Note B-3). As of June 30, 1996, a
balance of $32,813 is due.
NOTE G - DEMAND NOTE PAYABLE
The Company has a demand note payable from Village Bank & Trust Company
bearing interest at one-half percent (1/2%) above the prime rate (8.25% at
June 30, 1996).
NOTE H - COMMITMENTS
Leases
The Company leases certain facilities and automobiles under lease
agreements that are classified as operating leases and expire in various
years through 1998.
The following is a schedule of future minimum lease payments for
operating leases as of June 30, 1996:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
1997 $232,000
1998 84,000
--------
$316,000
========
</TABLE>
Rental expense for operating leases totaled approximately $236,000 and
$229,000 for the years ended June 30, 1995 and 1996, respectively.
F-11
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<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE I - STOCKHOLDERS' EQUITY
1. Initial Public Offering
On February 26, 1996, the Company successfully completed an initial
public offering of 1,000,100 shares of common stock of the Company at an
initial offering price of $5.00 per share, and 1,725,000 warrants to
purchase 1,725,000 shares of common stock at an exercise price of $6.00
per share with an offering price of $.15 per warrant. The proceeds from
the offering were approximately $3,833,000, net of $1,426,000 of costs
associated with the offering.
In connection with the offering, the Company granted to the underwriter
an option to purchase 100,000 shares of common stock at an exercise
price of $8.25 per share and an option to purchase 100,000 warrants at
an exercise price of $.25 per warrant over a period of four years
commencing on February 26, 1997.
2. Stock Splits
In August 1995, the Company's Board of Directors approved a 2.96-for-1
split of the Company's common stock. A total of 894,445 shares of common
stock were issued in connection with the split. The stated par value of
each share was changed from $.10 to $.03. A total of $5,056 was
reclassified from the Company's common stock account to the Company's
additional paid-in capital account.
In February 1996, the Company's Board of Directors approved a 1.85-for-1
split of the Company's common stock. A total of 1,150,000 shares of
common stock were issued in connection with the split. The stated par
value of each share remained at $.03. A total of $34,500 was
reclassified from the Company's additional paid-in capital account to
the Company's common stock account.
All share and per share amounts in the financial statements have been
restated to retroactively reflect the above stock splits.
3. Distribution to Stockholder
During the period from July 1, 1995, through the termination of the S
Corporation status, the Company distributed approximately $496,000,
including an adjustable note payable to the stockholder of $450,000, to
cover estimated taxes on S Corporation income (see Note F).
4. Capital Contribution
As of February 26, 1996, undistributed S Corporation retained earnings
of approximately $2,509,000 have been reclassified as additional paid-in
capital as if the earnings had been distributed to the stockholder and
then contributed to the Company.
F-12
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<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE I (CONTINUED)
5. Stock Options
a. Incentive Stock Option Plan
Under the Company's Incentive Stock Option Plan (the "Plan"), options
to purchase a maximum of 250,000 shares of its common stock may be
granted to officers, directors and other key employees of Sonics.
Options granted under the Plan are intended to qualify as incentive
stock options as defined in the Internal Revenue Code of 1986, as
amended.
The Plan is administered by the Board of Directors and a Committee
presently consisting of two members of the Board that determine which
persons are to receive options, the number of options granted and
their exercise prices. In the event an optionee voluntarily
terminates their employment with the Company, the optionee has the
right to exercise their accrued options within thirty (30) days of
such termination. However, the Company may redeem any accrued option
held by each optionee by paying them the difference between the
option exercise price and the then fair market value.
On February 11, 1996, the Board of Directors approved a plan to grant
options for 80,000 shares of common stock of the Company at the
initial offering price of $5.00 per share. Subsequently, the approval
to grant options to acquire 10,500 shares of the common stock was
rescinded by the Board of Directors. As of June 30, 1996, five year
options to purchase 69,500 shares of common stock were granted to 26
officers, directors and key employees of the Company. The Plan will
expire on February 11, 2006.
F-13
<PAGE>
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE I (CONTINUED)
b. Nonqualified Stock Options
The Company has also granted a nonqualified stock option for 10,976
shares of common stock to an officer at an option price of $.31 per
share. In January 1994, the Company granted a nonqualified stock
option for 274,390 shares of common stock to an officer at an option
price of $1.03 per share. These options expire on January 1, 2004.
For the two years ended June 30, 1996, option activity was as
follows:
<TABLE>
<CAPTION>
Incentive options Nonqualified options
------------------------ ------------------------
Number Option Number Option
of shares prices of shares prices
--------- ------ --------- ----------
<S> <C> <C> <C> <C>
Outstanding at July 1, 1994
Granted 285,366 $0.31 - $1.03
Exercised
Canceled
-------
Outstanding at June 30, 1995
Granted 69,500 $5.00 285,366 0.31 - 1.03
Exercised
Canceled
------ -------
OUTSTANDING AT JUNE 30,
1996 69,500 $5.00 285,366 $0.31 - 1.03
====== =======
</TABLE>
NOTE J - 401(k) PLAN
The Company has a 401(k) plan for eligible employees. The 401(k) plan
provides for eligible employees to elect to contribute to the plan up to 15%
of their annual compensation. In addition, the 401(k) plan provides for the
Company to make additional distributions at its discretion up to 4% of the
participant's annual compensation. Expenses under the plan totaled
approximately $90,000 and $64,000 for the years ended June 30, 1995 and
1996, respectively, which have been allocated to cost of sales, selling,
general and administrative, and research and development expenses.
F-14
<PAGE>
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE K - CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of accounts receivable. Credit risk on
receivables is minimized as a result of the diverse nature of the Company's
worldwide customer base. The Company generally requires no collateral from
its customers.
Net sales by geographic area for the periods ended are as follows:
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------
1995 1996
-------- ---------
<S> <C> <C>
United States $5,699,000 $6,320,000
Europe 1,279,000 1,376,000
Asia/Pacific Rim 1,159,000 967,000
Canada and Mexico 269,000 396,000
Other 169,000 317,000
---------- ----------
$8,575,000 $9,376,000
========== ==========
</TABLE>
NOTE L - INCOME TAXES
Prior to the completion of the initial public offering, the Company had,
since 1989, elected to be treated as an S Corporation for Federal income tax
reporting purposes. An S Corporation is generally treated like a
partnership, and is exempt from Federal income taxes with certain
exceptions. The S Corporation stockholder reported his pro rata share of
corporate taxable income or loss on his individual income tax returns. A
provision for state income taxes was made for those states not recognizing S
Corporation status. The Company's S Corporation status terminated with the
completion of the initial public offering described in Note I-1.
Subsequent to the initial public offering, the Company accounts for income
taxes using the liability method under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
F-15
<PAGE>
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE L (CONTINUED)
The components of the provision for taxes on income are as follows:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------
1995 1996
-------- ------
<S> <C> <C>
U.S. Federal
Current tax provision $ 50,000
Deferred tax benefit (68,000)
-------
(18,000)
-------
State
Current tax provision $45,000 22,000
Deferred tax benefit (12,000)
------ -------
45,000 10,000
------ -------
Total income tax provision (benefit) $45,000 $ (8,000)
====== =======
The tax effect of temporary differences which give rise to deferred tax
assets and liabilities at June 30, 1996 are as follows:
Accrued expenses $22,000
Allowance for doubtful accounts 17,000
Inventory 41,000
------
Net deferred tax asset $80,000
=======
</TABLE>
F-16
<PAGE>
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE L (CONTINUED)
The following is a reconciliation of the statutory Federal income tax rate
to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------------------------
1995 1996
-------------------------- ---------------------------
Percent of PERCENT OF
Amount income AMOUNT INCOME
-------- ----------- ------ -----------
<S> <C> <C> <C> <C>
Provision for Federal income
taxes at the statutory rate $148,000 34.0%
State and local taxes, net of
Federal income tax benefit $45,000 5.8% 15,000 3.4
Tax effect of S Corporation
earnings during the year (99,000) (22.8)
Deferred tax benefit from
the effect of conversion to
C Corporation status (91,000) (20.9)
Nondeductible expenses 7,000 1.6
Other 12,000 2.8
------ --- --------- ------
Actual provision (benefit) for
income taxes $45,000 5.8% $ (8,000) (1.9)%
====== === ========= ======
</TABLE>
NOTE M - EMPLOYMENT AGREEMENT
Effective July 1, 1995, the Company entered into an employment agreement
with its President for an initial term expiring in three years at an initial
annual base salary of $180,000, $198,000 and $218,000 in each of the three
years, respectively. Such base salary may be increased at the discretion of
the Board of Directors as follows: (i) any bonus arrangement provided by the
Company in its discretion and (ii) other compensation or employee benefit
plans and arrangements, if any, provided to other officers and key employees
of the Company.
NOTE N - FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of the expected future cash flows
(undiscounted) is less than the carrying amount of the asset, an impairment
loss is recognized. Measurement of that loss would be based on the fair
value of the assets.
F-17
<PAGE>
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE N (CONTINUED)
SFAS No. 121 also generally requires long-lived assets and certain
identifiable intangibles to be disposed of to been reported at the lower of
the carrying amount or the fair value less cost to sell. Effective July 1,
1996, the Company adopted SFAS No. 121 and no impairment losses have been
required.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." SFAS No. 123 defines a fair value based method of
accounting for an employee stock option. Fair value of the stock option is
determined considering factors such as the exercise price, the expected life
of the option, the current price of the underlying stock and its volatility,
expected dividends on the stock, and the risk-free interest rate for the
expected term of the option. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and
is recognized over the service period. A company may elect to adopt SFAS No.
123 or elect to continue accounting for its stock option or similar equity
awards using the intrinsic method, where compensation cost is measured at
the date of grant based on the excess of the market value of the underlying
stock over the exercise price. If a company elects not to adopt SFAS No.
123, then it must provide pro forma disclosure of net income and earnings
per share, as if the fair value based method has been applied.
SFAS No. 123 is effective for the fiscal year beginning on July 1, 1996. Pro
forma disclosures for entities that elect to continue to measure
compensation cost under the old method must include the effects of all
awards granted in fiscal years that begin after December 15, 1994. Effective
July 1, 1996, the Company has elected to account for stock-based
compensation plans under the intrinsic method.
NOTE O - RELATED PARTY TRANSACTIONS
The Company paid $22,000 to a member of the Board of Directors for
consulting services during the year ended June 30, 1996.
NOTE P - PRO FORMA INFORMATION
a. Pro Forma Statements of Income
Pro forma adjustments in the statements of income for the years ended
June 30, 1995 and 1996 reflect: (1) a provision for income taxes based
upon pro forma pretax income as if the Company had been subject to
Federal and additional state and local taxes for the full periods; (2)
adjustments for distribution of additional salary for the
President/stockholder, representing the estimated personal income tax
owed on the S Corporation income.
F-18
<PAGE>
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 and 1996
NOTE P (CONTINUED)
b. Pro Forma Income Taxes
As discussed in Note B-3, the Company elected to be taxed as an S
Corporation pursuant to the Internal Revenue Code. In connection with
the Offering, the Company terminated its S election and became subject
to Federal and additional state and local income tax. The pro forma
provision for income taxes represents the income tax provisions that
would have been reported had the Company been subject to Federal and
additional state and local income taxes for the years ended June 30,
1995 and 1996.
The pro forma income tax provision has been prepared in accordance with
SFAS No. 109. The pro forma provision for income taxes, after giving
effect to the Federal statutory rate of 34% and state and local taxes, a
net effective rate of 6%, consists of the following:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------
1995 1996
------- -------
<S> <C> <C>
Federal $291,312 $135,256
State and local 84,575 39,268
-------- --------
$375,887 $174,524
======== ========
</TABLE>
c. Pro Forma Net Income
Represents the historical amounts after the pro forma adjustments
discussed above.
d. Pro Forma Net Income Per Share
Represents net income per share including the weighted average number of
shares outstanding immediately prior to the closing of the offering,
after giving effect to a 2.96-for-1 stock split and a second stock split
of 1.85-for-1 and shares issued in the Offering (see Note I). The
calculations also reflect the dilutive effect of shares issuable for
common stock equivalents.
F-19
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: November 1, 1996
SONICS & MATERIALS, INC.
By: /s/ ROBERT S. SOLOFF
--------------------------------
ROBERT S. SOLOFF
CHAIRMAN AND PRESIDENT
