- -----------------------------------------------------------------
Registration No. 33-96414
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM SB-2
Registration Statement
Under The
Securities Act of 1933
(Post-Effective Amendment No. 1)
________________
SONICS & MATERIALS, INC.
(Name of Small Business Issuer in Its Charter)
___________________
Delaware 3662-723 06-0854713
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction Industrial Classification Identification No.)
of Incorporation Code Number)
or Organization)
Sonics & Materials, Inc.
West Kenosia Avenue
Danbury, CT 06810
(203) 744-4400
(Address and Telephone Number of Principal Executive Offices)
(Address of Principal Place of Business
or Intended Principal Place of Business)
Robert S. Soloff, President
c/o Sonics & Materials, Inc.
West Kenosia Avenue
Danbury, CT 06810
(203) 744-4400
(Name, Address and Telephone Number of Agent for Service)
___________________
Please address a copy of all correspondence to:
Jon T. Hirschoff
Kathleen A. Maher
Tyler Cooper & Alcorn
205 Church Street
New Haven, CT 06510
____________________
Approximate Date of Proposed Sale to the Public: As soon as
practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, check the following box. [x]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier
effective registration statement for the same offering.
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
SONICS & MATERIALS, INC.
CROSS REFERENCE SHEET
Form SB-2 Post Effective Amendment
Item Number & Caption Caption in Prospectus
1. Front of Registration Statement
and Outside Front Cover of Prospectus....Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus......................Cover Page, Outside Back
Cover Page, Reports to
Stockholders, Additional
Information
3. Summary Information and Risk Factors.....Prospectus Summary, Risk
Factors, Business
4. Use of Proceeds..........................Risk Factors, Use of
Proceeds, Business
5. Determination of Offering Price..........*
6. Dilution.................................Dilution, Risk Factors
7. Selling Security Holders.................Concurrent Offering
8. Plan of Distribution.....................Prospectus Summary,
Concurrent Offering,
Certain Relationships
and Related Transactions,
Warrant Solicitation Fee
9. Legal Proceedings........................Business
10. Directors, Executive Officers,
Promoters and Control Persons............Management
11. Security Ownership of Certain
Beneficial Owners and Management.........Security Ownership of
Certain Beneficial Owners
12. Description of Securities................Description of Securities
13. Interest of Named Experts and Counsel....*
14. Disclosure of Commission Position
on Indemnification For Securities
Act Liabilities..........................Description of Securities
15. Organization Within Last Five Years......*
16. Description of Business..................Prospectus Summary, Risk
Factors, Business
17. Management's Discussion and
Analysis or Plan of Operation............Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
18. Description of Property..................Business
19. Certain Relationships and
Related Transactions.....................Certain Relationships and
Related Transactions
20. Market For Common Equity
and Related Stockholder Matters..........Prospectus Summary, Risk
Factors, Description of
Securities, Market for
Company's Common Equity and
Related Stockholder Matters
21. Executive Compensation...................Management
22. Financial Statements.....................Financial Statements
23. Changes in and Disagreements
With Accountants on Accounting
and Financial Disclosure.................*
_____________________
* Not Applicable
ii
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. One to Registration
Statement No. 33-96414 covers the registration of (i) up to
1,725,000 shares of Common Stock, par value $.03 per share (the
"Common Stock"), underlying the exercise of certain outstanding
Class A Redeemable Common Stock Purchase Warrants (the
"Warrants") issued by the Company in its initial public offering
effective on February 26, 1996, pursuant to a Prospectus dated February
26, 1996, and (ii) an additional 100,000 Options to
Purchase Shares of Common Stock and Warrants (the "Selling
Securityholder Options"), 100,000 shares of Common Stock
underlying the exercise of the Selling Securityholder Options,
100,000 Warrants (the "Selling Securityholder Warrants")
underlying the exercise of the Selling Securityholder Options,
and 100,000 shares of Common Stock underlying the exercise of the
Selling Securityholder Warrants (which together with the 100,000
shares of Common Stock underlying the exercise of the Selling
Securityholder Options are hereinafter collectively referred to
as the "Selling Securityholder Common Stock"), for resale from
time to time by the Selling Securityholders. The Selling
Securityholder Options, Selling Securityholder Warrants and
Selling Securityholder Common Stock are sometimes collectively
referred to herein as the "Selling Securityholder Securities."
iii
<PAGE>
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 8, 1997
SONICS & MATERIALS, INC.
1,725,000 SHARES OF COMMON STOCK
(Underlying the Exercise of Outstanding Warrants)
100,000 OPTIONS TO PURCHASE SHARES OF COMMON STOCK AND WARRANTS
100,000 SHARES OF COMMON STOCK
(Underlying the Exercise of the Options)
100,000 WARRANTS TO PURCHASE COMMON STOCK
(Underlying the Exercise of the Options)
100,000 SHARES OF COMMON STOCK
(Underlying the Exercise of the Warrants)
This Prospectus is being delivered to the holders of 1,725,000 Class
A Redeemable Common Stock Purchase Warrants (the "Warrants") that were
issued by Sonics & Materials, Inc., a Delaware corporation ("Sonics" or
the "Company"), in its initial public offering that was effective on
February 26, 1996 (the "Initial Offering"). Each Warrant entitles the
registered holder thereof to purchase one share of Common Stock at a
price of $6.00 per share, subject to adjustment, for four years
commencing February 26, 1997 (the "Offering"). The Warrants are subject
to redemption by the Company under certain circumstances at a price of
$.05 per Warrant. See "Description of Securities."
The Common Stock and the Warrants are included in the Nasdaq
National Market System under the symbols "SIMA" and "SIMAW,"
respectively.
Concurrently with the Initial Offering, the Company registered for
resale by certain affiliates (the "Selling Securityholders") of Monroe
Parker Securities, Inc., the underwriters for the Company in the Initial
Offering ("Monroe Parker"), 100,000 Options to Purchase Shares of Common
Stock and Warrants (the "Selling Securityholder Options"), 100,000 shares
of Common Stock underlying the exercise of the Selling Securityholder
Options, 100,000 Warrants (the "Selling Securityholder Warrants")
underlying the exercise of the Selling Securityholder Options, and
100,000 shares of Common Stock underlying the exercise of the Selling
Securityholder Warrants (which together with the 100,000 shares of Common
Stock underlying the exercise of the Selling Securityholder Options are
hereinafter collectively referred to as the "Selling Securityholder
Common Stock"), for resale from time to time by the Selling
Securityholders. The Selling Securityholder Options, Selling
Securityholder Warrants and Selling Securityholder Common Stock are
sometimes collectively referred to herein as the "Selling Securityholder
Securities."
The Selling Securityholder Securities may be sold from time to time
by the Selling Securityholders or by their transferees (the "Concurrent
Offering"). The distribution of the Selling Securityholder Securities
offered hereby by the Selling Securityholders may be effected in one or
more transactions that may take place on the over-the-counter market,
including ordinary brokers' transactions in privately negotiated
transactions or through sales to one or more dealers for resale of such
securities as principals, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders. See "Concurrent
Offering."
The Selling Securityholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered, and any profits realized or
commissions received may be deemed underwriting compensation. The
Company has agreed to indemnify the Selling Securityholders against
certain liabilities, including liabilities under the Securities Act.
Sales of the Selling Securityholder Securities, or the potential of
such sales, may have an adverse effect on the market price of the
securities offered hereby. The Company will not receive any proceeds
from the sale of any of the Selling Securityholder Securities. See "Risk
Factors."
_________________
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" AND "DILUTION" ON PAGES 5 and 9 OF THE PROSPECTUS FOR CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
_______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_________________________
Price to Underwriting Discounts Proceeds to
Warrantholder (1) and Commissions (2) Company (3)
Per Share $6.00 $.24 $5.76
Total $10,350,000 $414,000 $9,936,000
__________________________
(1) There is no assurance that the market value of the shares of
Common Stock underlying the Warrants will at any time after
exercise thereof exceed the exercise price paid therefor.
(2) Pursuant to an Underwriting Agreement entered into between the
Company and Monroe Parker on February 26, 1996 in connection
with the Company's Initial Offering, the Company has agreed to
pay Monroe Parker a warrant solicitation fee of 4% of the
exercise price of any of the Warrants exercised if the market
price of the Company's Common Stock on the date the Warrant is
exercised is greater than the exercise price of the Warrant, and
certain other conditions are met. See "Warrant Solicitation
Fee." The Company cannot presently estimate to what extent any
such warrant solicitation fee will be paid.
(3) Assumes exercise of all of the presently outstanding Warrants
(excluding the Selling Securityholder Warrants). All funds
received from the exercise of the Warrants will be retained by
the Company with the exception of (i) expenses incurred in
connection with the preparation of this Prospectus, including
printing and professional fees, estimated at $40,000, and (ii) a
4% warrant solicitation fee which may be paid to Monroe Parker
upon the exercise of Warrants. See "Warrant Solicitation Fee."
Does not include additional proceeds to be received by the
Company upon the exercise by the Selling Securityholders of the
Selling SecurityholderOptions and Selling Securityholder
Warrants.
______________________
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1997
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to,
and should be read in conjunction with, the more detailed information and
financial statements (including the notes thereto) appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this
Prospectus: (i) gives effect to a 2.96 for 1 split of the Common Stock
effective August, 1995 (the "First Stock Split") and (ii) gives effect to
a 1.85 for 1 split of Common Stock effective February, 1996 (the "Second
Stock Split"; together the "Stock Splits"). The information in this
Prospectus, however, does not give effect to the exercise of (x) the
Warrants, (y) the Selling Securityholder Options issued in connection
with the Offering, and (z) options to purchase shares of Common Stock
reserved for issuance under the Company's Incentive Stock Option Plan and
certain outstanding non-qualified stock options. See "Description of
Securities," "Management--Option and Stock Appreciation Rights" and
"Security Ownership of Certain Beneficial Owners."
THE COMPANY
Sonics & Materials, Inc. (the "Company" or "Sonics") designs,
manufactures and sells (i) ultrasonic bonding equipment for the welding,
joining and fastening of thermoplastic components, textiles and other
synthetic materials and (ii) ultrasonic liquid processors for dispersing,
blending, cleaning, degassing, atomizing and reducing particles as well
as expediting chemical reactions. To further address the needs of its
customers, the Company introduced two new product lines in fiscal year
1996, the spin welder and the vibration welder, both of which are used
for the bonding of thermoplastic components.
Robert S. Soloff, the Company's chairman, president and founder,
invented the ultrasonic plastic welding process early in his career. He
has been granted nine patents in the field of power ultrasonics and is
considered to be a pioneer in the application of ultrasonic technology to
industrial processes. Howard Deans, general manager of the Company's
Ultra Sonic Seal division, has also invented ultrasonic devices and
processes covered by patents primarily for packaging and sealing. The
patents granted to Messrs. Soloff and Deans have expired and the
technology related to them is now in the public domain and is used in
part in the development and manufacture of the Company's products.
The Company was incorporated in New Jersey in April 1969, and was
reincorporated in Delaware in October 1978. Its principal executive
offices are located at West Kenosia Avenue, Danbury, Connecticut 06810.
Its telephone number is (203) 744-4400.
2
<PAGE>
THE OFFERING
Securities Offered..................1,725,000 shares of Common Stock
underlying the exercise of 1,725,000
Warrants issued in the Company's
initial public offering that was
effective on February 26, 1996 (the
"Initial Offering"). Each Warrant
entitles the holder to purchase one
share of Common Stock at an exercise
price of $6.00, subject to
adjustment, at any time commencing
February 26, 1997 and ending
February 26, 2001. The Warrants are
subject to redemption in certain
circumstances. See "Description of
Securities."
Securities Offered Concurrently
by Selling Securityholders..........100,000 Options to Purchase Shares of
Common Stock and Warrants (the
"Selling Securityholder Options"),
100,000 shares of Common Stock
underlying the exercise of the
Selling Securityholder Options,
100,000 Warrants (the "Selling
Securityholder Warrants") underlying
the exercise of the Selling
Securityholder Options, and 100,000
shares of Common Stock underlying the
exercise of the Selling
Securityholder Warrants (which
together with the 100,000 shares of
Common Stock underlying the exercise
of the Selling Securityholder Options
are hereinafter collectively refered
to as the "Selling Securityholder
Common Stock"). See "Concurrent
Offering."
Shares Outstanding Prior to
Offering (1)........................3,500,100 shares.
Shares Outstanding After
Offering (1)(2).....................5,225,100 shares.
Use of Proceeds.....................The net proceeds which may be
realized by the Company upon the
exercise of all of the Company's
Warrants (assuming no exercise of the
Selling Securityholder Options),
after provision for the possible
payment of a warrant solicitation fee
of 4% (see "Warrant Solicitation
Fee") and deduction of expenses of
this Offering are estimated to be
$***. Any net proceeds received from
the exercise of the Warrants are
intended to be used for expansion of
domestic and international marketing
activities, research and development
and working capital. See "Use of
Proceeds." The Company will not
receive any proceeds from the sale of
securities offered concurrently by
the Selling Securityholders. See
"Concurrent Offering."
Nasdaq Symbols......................Common Stock - SIMA
Warrant - SIMAW
Risk Factors........................An investment in the securities
offered hereby involves a high degree
of risk and immediate substantial
dilution to public investors. See
"Risk Factors" and "Dilution."
___________
(1) Does not include 250,000 shares reserved for issuance under the
Company's Incentive Stock Option Plan, 285,366 shares reserved for
issuance under certain outstanding non-qualified stock options or an
aggregate of 200,000 shares which may be issued upon the exercise in full
of the Selling Securityholder Securities. See "Management--Option and
Stock Appreciation Rights," "Certain Relationships and Related
Transactions" and "Concurrent Offering."
(2) Assumes exercise of all the Warrants. Does not include an aggregate
of 200,000 shares which may be issued upon the exercise of the Selling
Securityholder Options and Selling Securityholder Warrants. Inasmuch as
the Company has received no firm commitments therefor, there can be no
assurance, however, as to the number of Warrants that will be exercised.
See "Risk Factors."
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------- ---------- ---------- ----------
- ----------
1994 1995 1996 1995 1996
---------- ---------- ---------- ----------
- ----------
(unaudited)
<S>
STATEMENT OF
INCOME DATA
Net Sales
Ultrasonic bonding <C> <C> <C> <C> <C>
systems $4,946,000 $6,061,000 $6,422,000 $3,127,000 $
Ultrasonic liquid
processors 2,394,000 2,413,000 2,916,000 1,261,000
Ultrasonic surgical
instruments 197,000 101,000 38,000 4,000
---------- ---------- ---------- ----------
- ----------
Total net sales 7,537,000 8,575,000 9,376,000 4,392,000
Gross profit 3,795,000 4,347,000 4,284,000 2,198,000
Operating income 429,000 765,000 491,000 280,000
Income before
income taxes 425,000 780,000 436,000 243,000
Income taxes
(benefit) 35,000 45,000 (8,000) 22,000
---------- ---------- ---------- ----------
- ----------
Net income $ 390,000 $ 735,000 $ 444,000 $ 221,000 $
========== ========== ========== ==========
==========
PRO FORMA STATEMENT
OF INCOME DATA (1):
Income before
income taxes $ 782,000 $ 940,000 $ 436,000 $ 243,000 $
Provision for
income taxes 313,000 376,000 175,000 97,000
---------- ---------- ---------- ----------
- ----------
Net income $ 469,000 $ 564,000 $ 262,000 $ 146,000 $
========== ========== ========== ==========
==========
Primary net
income per share $ .17 $ .22 $ .09 $ .05 $
========== ========== ========== ==========
==========
Weighted average
number of shares
outstanding 2,746,000 2,624,000 3,409,000 2,696,000
========== ========== ========== ==========
==========
Fully diluted net
income per share $ .17 $ .22 $ .08 $ .05 $
========== ========== ========== ==========
==========
Weighted average
number of shares
outstanding 2,746,000 2,624,000 3,441,000 2,696,000
========== ========== ========== ==========
==========
</TABLE>
<TABLE>
<CAPTION>
AS
ADJUSTED
JUNE 30, DEC. 31, DEC.
31,
---------- ---------- ---------- ----------
- ----------
1994 1995 1996 1995 1996
---------- ---------- ---------- ----------
- ----------
(unaudited)
<S>
Balance Sheet Data: <C> <C> <C> <C> <C>
Working capital $2,267,000 $2,184,000 $6,010,000 $ $
Total assets 3,794,000 4,985,000 9,181,000
Total liabilities 1,014,000 2,101,000 2,515,000
Stockholders'
equity 2,780,000 2,884,000 6,665,000
</TABLE>
============
(1) Pro forma statement of income data reflects (i) Common Stock expected
to be outstanding immediately prior to the exercise of any of the
Warrants after giving effect to the First and Second Stock Splits; (ii)
adjustments for payment of additional salary to Mr. Soloff representing
the personal income tax owed on the S corporation income; and (iii)
federal, state and local taxes as if the Company had been a C corporation
based on rates that would have been in effect for each period presented.
See "Management--Executive Compensation."
4
<PAGE>
RISK FACTORS
Prospective investors should give careful attention to these risk
factors, as well as to the other information described elsewhere in this
Prospectus, including the financial statements and notes thereto, in
evaluating the Company, its business and management before making a
decision to exercise the Warrants or purchase the Selling Securityholder
Securities.
IMPORTANCE OF FOREIGN SALES
For the fiscal years ended June 30, 1994, 1995 and 1996, and for the
six months ended December 31, 1995 and 1996, the Company derived
approximately 30%, 34%, 33%, 35% and ***% of its total sales,
respectively, from foreign markets. Sonics expects that foreign sales
will continue to represent a significant portion of its future revenues.
Foreign sales are subject to numerous risks, including political and
economic instability in foreign markets, restrictive trade policies of
foreign governments, inconsistent product regulation by foreign agencies
or governments, currency valuation variations, exchange control problems,
the imposition of product tariffs and the burdens of complying with a
wide variety of international and U.S. export laws and differing
regulatory requirements. To date, the Company's foreign sales have
usually been transacted in U.S. dollars and payments have been at times
supported by letters of credit. To the extent, however, that any foreign
sales are transacted in a foreign currency or not supported by letters of
credit, Sonics would also be subject to possible losses due to foreign
currency fluctuations and difficulties associated with collection of
accounts receivable abroad. See "Business--Sales and Marketing,"
"--International Operations" and "--Government Regulation."
TECHNOLOGICAL OBSOLESCENCE OR RESPONSIVENESS
The markets served by the Company are characterized by rapid
technological advances, changes in customer requirements and frequent new
product introductions and enhancements. Sonics' business requires
substantial ongoing research and development efforts and expenditures,
and its future success will depend on its ability to enhance its current
products and develop and introduce new products that keep pace with
technological developments in response to evolving customer requirements.
The Company's failure to anticipate or respond adequately to
technological developments and changing customer requirements or the
occurrence of significant delays in new product development or
introduction or the technological failures of its products or the systems
in which they are incorporated, could result in a material loss or
failure to realize revenues and seriously impair its competitiveness.
See "Business--Competition" and "--Research and Development."
NEW PRODUCT DEVELOPMENT
Sonics may introduce products that fail to gain market acceptability
due to a variety of factors. Accordingly, it is uncertain whether new
products or enhancements of existing products can be successfully
marketed and sold by the Company. See "Business--New Products," "--Sales
and Marketing" and "--Research and Development."
COMPETITION
The Company competes with a variety of manufacturers, foreign and
domestic, many of which are larger, better known and have more resources
in finance, technology, manufacturing and marketing. Sonics competes on
the basis of price, performance, delivery and quality. See
"Business--Industrial Background" and "--Competition."
DEPENDENCE UPON KEY PERSONNEL
The Company is highly dependent on the services of Robert S. Soloff,
its Chairman, President and Chief Executive Officer. On June 30, 1995,
Sonics entered into a three-year employment contract with him containing
a non-competition clause and other provisions. The Company has obtained
"key-man" term insurance in the amount of $1,700,000 on Mr. Soloff's life
of which $1,000,000 would go to Sonics in the event of his death. The
loss of his services to the Company would materially and adversely affect
its business operations. Moreover, Mr. Soloff also serves as Sonics'
Chief Financial Officer and Treasurer and has no formal training in
accounting or financial matters. Although Sonics has an Accounting
Manager who joined it in 1990 and has served in that capacity since 1992,
there may be an adverse impact on the internal controls of the Company
due to the concentration of many important functions in Mr. Soloff. See
"Management."
RELIANCE ON SUB-CONTRACTORS AND SUPPLIES
The Company subcontracts the fabrication of its sheet metal and
castings to a few third party manufacturers. It purchases certain other
components for its equipment from sole sources both in the U.S. and
abroad. Management believes that the loss of any
5
<PAGE>
of its sole source suppliers would not have a material adverse effect on
Sonics' business. It does not have written agreements with any of these
subcontractors or suppliers. This reliance on subcontractors, sole
sources and other suppliers can result in some delays in deliveries as
well as quality control and production problems. Moreover, the
discontinuation of a necessary component by a subcontractor or supplier
can also be a significant negative development for the Company. In
addition, interference, suspension or termination of such fabrication or
supply sources will cause greater delays due to the difficulties and time
required to find suitable replacements or substitute sources and may have
a material adverse impact on the Company's business. However, Sonics
continues to refine its technology and seeks to procure more advanced
components from varied domestic sources. See "Business--Manufacturing
and Supply."
UNCERTAINTY REGARDING ULTRASONIC SURGICAL INSTRUMENT
The Company has designed and developed an ultrasonic medical device
for surgical liposuction procedures. See "Business--Products." This
device has not been qualified under Food and Drug Administration ("FDA")
regulations for general sale or use in the United States. See
"Business--Government Regulation." The Company is presently attempting to
locate another party to assist it in obtaining FDA approval of the
device, as well as to assist with distribution of the device.
Qualification of the device under applicable FDA regulations may be
expensive and time-consuming and may never occur. In addition, it is
uncertain whether the Company will be able to locate another party to
assist it in obtaining FDA approval. The Company has no direct
experience in regulatory compliance with the FDA, any clinical trials
necessary for such compliance or in marketing medical devices. However,
Sonics has retained Alan Broadwin, a director of the Company, as a
consultant for these purposes. Mr. Broadwin has extensive experience in
such regulatory compliance and in the marketing and development of
medical devices, including those using ultrasonic technology. In the
event that Sonics finds it too difficult or expensive to obtain FDA
qualification or market this product, it may opt not to proceed in this
regard. See "Use of Proceeds" and "Business--Government Regulation."
POSSIBLE PRODUCT LIABILITY
The Company's products may malfunction and cause loss of man hours,
damage to or destruction of equipment or products, injury, death or
delays. Sonics may be subject to product liability claims if such
malfunctions, damage, destruction or delays occur. The sale of its
ultrasonic surgical instruments would increase the risk of product
liability due to possible harm to patients. Since the Company has been
in business, no material product liability or other claims have been
filed against it. While Sonics presently maintains product liability
insurance of $1,000,000, it cannot be certain that such coverage will be
adequate to satisfy future claims, if any.
CONTINUED CONTROL BY MANAGEMENT
Robert S. Soloff, the Company's Chairman, President and Chief
Executive Officer and, prior to the Company's Initial Offering, its
former sole stockholder, beneficially owns 71.4% of the Company's
voting shares and thereby retains effective voting control of Sonics
Common Stock. The Company's stockholders do not have the right to
cumulative voting in the election of directors. Consequently, Mr. Soloff
is able to elect all of the members of the Board of Directors and
effectively controls the Company. In the event of the exercise of
currently outstanding and exercisable Warrants and options, including the
Selling Securityholder Options, the Soloff family would own in excess of
48.4% of the current total outstanding shares of Common Stock. See
"Security Ownership of Certain Beneficial Owners" and "Description of
Securities."
DEPENDENCE ON INTELLECTUAL PROPERTY
The Company has no current patent protection on its products. On
February 23, 1996, however, Sonics submitted a patent application with
the U.S. Patent and Trademark Office for one of its bonding machines.
Sonics' ability to compete effectively with other companies may depend,
in part, on its ability to maintain the proprietary nature of its
technologies. Sonics intends to rely substantially on unpatented
proprietary information and know-how, and there can be no assurance that
others will not develop such information and know-how independently or
otherwise obtain access to and use its technology. Also, it is uncertain
that the Company's proprietary technology will not infringe patents or
other rights owned by others and that, as a result, it may not be in a
position to license such technology at a reasonable cost. Moreover, the
Company is aware that there are two existing patents applicable to
ultrasonic surgical liposuction devices. Management believes that all
principal patents by others relating to ultrasonic bonding and liquid
processor lines have expired. See "Business--New Products--Ultrasonic
Surgical Instruments," "Business--Intellectual Property" and "--Legal
Proceedings."
6
<PAGE>
LACK OF DIVIDENDS; DILUTION
The Company has made payments to its former sole stockholder in the
form of additional compensation in order to pay personal taxes due from S
corporation earnings and an additional payment as a distribution relating
to previously taxed accumulated earnings. During the period from July 1,
1995 through the termination of the Company's S corporation status, the
Company made distributions to Mr. Soloff of approximately $496,000,
including an adjustable note payable to Mr. Soloff of $450,000, to cover
estimated personal income taxes on the Company's S corporation income.
The Company currently does not anticipate paying any other cash dividends
on its Common Stock. See "Description of Securities."
There will be immediate substantial dilution to purchasers of the
shares offered hereby, since the net tangible book value of the Company's
securities after the Offering will be substantially less than the public
offering price. See "Dilution."
SELLING SECURITYHOLDER OPTIONS
The Company sold the Selling Securityholder Options to affiliates of
Monroe Parker at an aggregate price of $100. The Selling Securityholder
Options enable the holders thereof to purchase 100,000 shares of Common
Stock and 100,000 Warrants to purchase Common Stock. The Selling
Securityholder Options are exercisable for a four-year period commencing
February 26, 1997 at exercise prices equal to $8.25 per share of Common
Stock and $.25 per Warrant. Selling Securityholder Warrants that are
issuable upon exercise of the Selling Securityholder Options are subject
to the same terms and conditions as the Warrants described under
"Description of Securities."
For the life of the Selling Securityholder Options, the holders
thereof are given the opportunity to profit from a rise in the market
price of the Common Stock or Warrants, which may result in a dilution of
the interests of other stockholders. As a result, the Company may find
it more difficult to raise additional equity capital if it should be
needed for its business while the Selling Securityholder Options are
outstanding. See "Concurrent Offering--Plan of Distribution."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF THE WARRANTS
The Warrants may be redeemed by the Company at any time commencing
February 26, 1997 and ending February 26, 2001 at a redemption price of
$.05 per Warrant upon 30 days' prior written notice provided the average
closing bid price of the Common Stock on Nasdaq (or the closing sale
price of the Common Stock if traded on another national securities
exchange) for 20 consecutive trading days ending within 10 days of the
notice of redemption equals or exceeds $8.00 per share, subject to
adjustment. Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants,
or to accept the redemption price, which is likely to be substantially
less than the market value of the Warrants at the time of redemption.
See "Description of Securities--Warrants."
MARKET MAKING ACTIVITIES
Rule 10b-6 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), prohibits certain persons participating in a
distribution from trading in or inducing any person to purchase any
security which is the subject of the distribution, any security of the
same class and series, or any right to purchase any such security, until
after they have completed their participation in the distribution.
Though there are exceptions to this general rule which may apply to
Monroe Parker, Rule 10b-6 may prevent Monroe Parker from providing a
market for the Company's securities during certain periods while the
Warrants are exercisable. The possibility that there will be no other
market maker for the Company's securities during any periods when Monroe
Parker is unable to trade in those securities may adversely affect the
market price and liquidity of the securities offered hereby. Therefore,
purchasers of the securities offered hereby may suffer a lack of
liquidity in their investment or a material diminution of the value of
their investments. See "Warrant Solicitation Fee" and "Concurrent
Offering--Selling Securityholders' Plan of Distribution."
QUALIFICATIONS AND MAINTENANCE REQUIREMENTS FOR NASDAQ NATIONAL MARKET
LISTINGS: MARKET VOLATILITY
The Company's Common Stock and Warrants are listed for trading on
the Nasdaq National Market System. The continued trading of these
securities on Nasdaq is conditioned upon the Company meeting certain
tests. If the Company fails to meet any of these tests, such securities
could be delisted from trading on the Nasdaq System, which could
materially affect the trading market for them. See "Description of
Securities."
The Nasdaq National Market System has experienced, and is likely to
experience, significant price and volume fluctuations in the future,
which could adversely affect the market price of the Common Stock and
Warrants without regard to the operating
7
<PAGE>
performance of the Company. Sonics considers that factors such as
quarterly fluctuations in financial results and developments in its
industry could contribute to the volatility of the prices of its Common
Stock and Warrants causing the value of these securities to fluctuate
significantly. These factors, as well as general economic conditions
such as increasing inflation, recessions or high interest rates, may
adversely affect the market prices of the Common Stock and Warrants. In
addition, if the bid price of the Common Stock falls below the minimum
bid price required to be maintained for inclusion in the Nasdaq National
Market System ($1 per share) the Common Stock could be delisted from the
Nasdaq National Market System. If the Common Stock is delisted and is
not eligible for trading on any other approved national securities
exchange, any broker or dealer effecting a purchase or sale of unlisted
Common Stock would be required to comply with the "penny stock" rules set
forth in Section 15(g) of the Exchange Act, and the regulations
promulgated thereunder, unless the transaction is otherwise exempt
pursuant to specified exemptions contained in such rules. The "penny
stock" rules require that, prior to the transaction, the broker or dealer
has (i) approved the prospective investor's account for the transaction
in "penny stock" in accordance with specified procedures and (ii)
received from the investor a written agreement related to the transaction
setting forth the identity and quantity of the "penny stock" to be
purchased. These requirements, if imposed, may further adversely affect
the liquidity of and market for the Company's securities.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS
The Warrants and Selling Securityholder Securities have been
registered pursuant to a Registration Statement, as amended, filed with
the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Securities Act"), of which this Prospectus is a part.
Unless the Company continues to keep such Registration Statement current
and continues to take measures to qualify or keep qualified such
securities in certain states, holders of the Warrants and the Selling
Securityholder Options will not be able to exercise the Warrants or
Options, although they may be immediately exercisable, or sell the
underlying shares of Common Stock issuable upon exercise of the Warrants
or Selling Securityholder Securities in the public market. In connection
with the Initial Offering, the Company agreed to use its best efforts to
qualify and maintain a current registration statement covering such
Warrants, Options and shares of Common Stock. There can be no assurance,
however, that Sonics will be able to maintain a current registration
statement or to effect appropriate qualifications under applicable state
securities laws, the failure of which may result in the exercise of the
Warrants and Options and the resale or other disposition of Common Stock
issued, upon such exercise, being unlawful. See "Description of
Securities--Warrants" and "Concurrent Offering--Selling Securityholder
Options."
POSSIBLE ISSUANCES OF PREFERRED STOCK
Shares of Preferred Stock of the Company may be issued by the Board
of Directors, without stockholder approval, on such terms as the Board
may determine. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. Moreover, although the
ability to issue Preferred Stock may provide flexibility in connection
with possible acquisitions and other corporate purposes, such issuance
may make it more difficult for a third party to acquire, or may
discourage a third party from acquiring, a majority of the voting stock
of the Company. This result could prevent an increase in the market
price of Sonics' Common Stock or cause a decline in such price. Sonics
has no current plans to issue any shares of Preferred Stock. See
"Description of Securities--Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders pursuant to
Rule 144 under the Securities Act, pursuant to the Concurrent Offering or
otherwise, could have an adverse effect on the price of the Company's
securities. Robert Soloff, an officer and director of the Company, holds
2,500,000 shares of Common Stock. In connection with the Initial
Offering, Mr. Soloff agreed not to publicly offer, sell or otherwise
dispose of any such shares until February 26, 1998 without the prior
written consent of Monroe Parker. In connection with the Concurrent
Offering, 100,000 Selling Securityholder Options, 100,000 shares of
Selling Securityholder Common Stock, and 100,000 Selling Securityholder
Warrants and the securities underlying such Warrants were registered for
resale concurrently with this Offering. Monroe Parker has "demand" and
"piggy-back" registration rights covering the securities underlying the
Selling Securityholder Options. Future sales of Common Stock, or the
possibility of such sales in the public market, may adversely affect the
market price of the securities offered hereby. See "Description of
Securities" and "Concurrent Offering."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Any statements in this Prospectus that are not statements of
historical fact are forward-looking statements that are subject to a
number of important risks and uncertainties that could cause actual
results to differ materially. Specifically, any forward-looking
statements in this Prospectus related to the Company's objectives of
future growth, profitability and financial returns are subject to a
number of risks and uncertainties, including, but not limited to, risks
related to a growing market demand for Sonics' existing and new products,
continued growth in sales and market share of Sonics and its Ultra Sonic
Seal division's products, pricing, market
8
<PAGE>
acceptance of existing and new products, fluctuation in the sales product
mix, general economic conditions, competitive products, and product and
technology development. There can be no assurance that such objectives
will be achieved. In addition, the Company's objectives of future
growth, profitability and financial returns are also subject to the
uncertainty of the Company being able to locate another party willing to
assist Sonics in obtaining FDA approval for its ultrasonic surgical
device and in developing a distribution network for this product. See
"Business--New Products." It is also uncertain whether a patent will be
granted for the Company's ultrasonic surgical device. Factors that could
cause actual results to differ materially include, but are not limited
to, those discussed herein under "Risk Factors." The Company undertakes
no obligation to release publicly the result of any revisions to these
forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
DILUTION
After giving effect to the Stock Splits, the net tangible book value
of the Company as of December 31, 1996 was $******* or $****** per share.
Net tangible book value per share is determined by dividing the tangible
net worth of the Company, consisting of tangible assets (total assets
exclusive of capitalized public offering expenses) less total
liabilities, by the number of shares of Common Stock outstanding. After
giving effect to the issuance of 1,725,000 shares of Common Stock to
persons exercising the Warrants (the "New Investors") at an exercise
price of $6.00 per Warrant and receipt of the net proceeds therefrom
(after deduction of estimated public offering expenses and warrant
solicitation fees), and assuming no exercise of the Selling
Securityholder Options, the pro forma net tangible book value of the
Company at December 31, 1996 would be $******* or $****** per share,
representing an immediate increase in net book value of $***** per share
to present shareholders and an immediate dilution of $***** per share or
*****% to New Investors from the Warrant exercise price. "Dilution"
means the difference between the Warrant exercise price per share and the
pro forma net tangible book value per share after giving effect to this
Offering. The following table illustrates the dilution of a New
Investor's equity as of December 31, 1996.
Assumed Warrant exercise price per share.......................
Net tangible book value per share before Offering.........
Increase per share attributable to New Investors..........
Pro Forma net tangible book value per share after Offering.....
Dilution to New Investors......................................
The following table summarizes, as of the date of this Prospectus,
the difference between the existing stockholders and the New Investors
with respect to the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the price per
share:
<TABLE>
<CAPTION>
AVERAGE
STOCK PURCHASED TOTAL CONSIDERATION
CONSIDERATION
--------------------- ---------------------
- ----------
NUMBER PERCENT AMOUNT PERCENT PER
SHARE
---------- ---------- ---------- ----------
- ----------
<S>
Existing
Stockholders....... <C> <C> <C> <C> <C>
New Investors........
Total (1).......
</TABLE>
________________
(1) Excludes: (i) up to 200,000 shares of Common Stock reserved for
issuance upon the exercise in full of the Selling Securityholder Options;
(ii) 250,000 shares of Common Stock reserved for issuance under the
Company's incentive stock option plan; and (iii) 285,366 shares of Common
Stock reserved for issuance upon exercise of certain non-qualified stock
options. See "Management -- Option and Stock Appreciation Rights,"
"Certain Relationships and Related Transactions," "Description of
Securities" and "Concurrent Offering."
9
<PAGE>
MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
On February 26, 1996, the Company's Common Stock and Warrants were
listed for quotation on the Nasdaq National
Market System under the symbols "SIMA" and "SIMAW," respectively. Prior
to that date, the Company's equity was not traded on any public market.
The following table sets forth, for the periods indicated, the high and
low bid prices for the Common Stock and Warrants as reported by Nasdaq.
Quotations reflect prices between dealers, without retail mark-up,
mark-down or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
---------------------
- ---------------------
<S>
COMMON STOCK <C> <C>
Quarter ended March 31, 1996 10 1/2 6 3/4
(commencing February 26, 1996)
Quarter ended June 30, 1996 12 7/8 9
Quarter ended September 30, 1996 14 1/4 10 13/16
Quarter ended December 31, 1996 13 1/2 3 3/4
Quarter ended March 31, 1997
(through February ***, 1997)
WARRANTS
Quarter ended March 31, 1996
(commencing February 26, 1996) 4 3/4 3/4
Quarter ended June 30, 1996 6 1/2 4
Quarter ended September 30, 1996 7 1/4 4 1/4
Quarter ended December 31, 1996 6 1/4 1/2
Quarter ended March 31, 1997
(through February ***, 1997)
</TABLE>
On February ____, 1997, the Company had **** stockholders of record
and *** 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.
USE OF PROCEEDS
The net proceeds which may be realized by the Company upon the
exercise of all of the Company's Warrants (assuming no exercise of the
Selling Securityholder Options), after provision for the possible payment
of a warrant solicitation fee of 4% (see "Warrant Solicitation Fee") and
deduction of expenses of this Offering, are estimated to be $[ ].
Inasmuch as the Company has received no firm commitments for the exercise
of the Warrants, no assurance can be given that all of the Warrants will
be exercised.
Any net proceeds received from the exercise of the Warrants are
intended to be used for expansion of domestic and international marketing
activities, research and development, and working capital.
DIVIDEND POLICY
Sonics has made payments in the form of additional compensation to
its former sole stockholder, Mr. Soloff, to pay taxes due during its S
corporation status and on June 29, 1995 made an additional $500,000
payment to Mr. Soloff as a distribution relating to previously taxed
accumulated earnings. In addition, the Company distributed, in the form
of a dividend to Mr. Soloff upon the effective date of the Company's
Initial Offering, approximately 43% of the earnings of the Company from
January 1, 1995 until February 26, 1996, or $496,000, which equals
approximately the amounts Mr. Soloff would be expected to pay personally
for income
10
<PAGE>
taxes based on such earnings. The distribution included an adjustable
note payable to Mr. Soloff of $450,000 to cover the estimated personal
income taxes on the Company's S corporation income. Such distribution to
its former sole stockholder for purposes of tax payments has been charged
to Sonics' retained earnings and does not affect its statement of income.
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 or other dividends in the
foreseeable future. See "Risk Factors--Lack of Dividends; Dilution."
The payment of dividends, if any, rests within the discretion of the
Board of Directors and will depend upon, among other things, the
Company's earnings, its capital requirements and its overall financial
condition. See "Description of Securities."
CAPITALIZATION
The following table sets forth the capitalization of the Company (i)
at December 31, 1996 and (ii) as adjusted to give effect to the sale of
the 1,725,000 shares of Common Stock underlying the exercise of the
Warrants. See "Use of Proceeds." This table should be read in
conjunction with the Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------
- ---------------
ACTUAL AS
ADJUSTED
---------------
- ---------------
(UNAUDITED)
<S> <C> <C>
Indebtedness (1):
Short-term debt, including current
portion of long-term debt.............. ===============
===============
Stockholders' equity (2):
Common stock, par value $.03 per share;
10,000,000 shares authorized;
3,500,100 shares issued and
outstanding; 5,225,100 shares issued
and outstanding as adjusted............
Additional paid-in capital...............
Retained earnings........................
Total stockholders' equity........... ===============
===============
</TABLE>
===================
(1) [BREAKDOWN OF DEBT AS OF 12/31/96 WHEN AVAILABLE,]
(2) Does not include (i) 250,000 shares of Common Stock reserved for
issuance under the Company's incentive stock option plan, (ii)
285,366 shares of Common Stock reserved for issuance under certain
non-qualified stock options, and (iii) up to 200,000 shares of
Common Stock issuable upon the exercise of the Selling
Securityholder Options. See "Management--Option and Stock
Appreciation Rights," "Certain Relationships and Related
Transactions," "Description of Securities," and "Concurrent
Offering."
11
<PAGE>
SELECTED FINANCIAL DATA
The financial information set forth below for the years ended June
30, 1994, 1995 and 1996 and the six months ended December 31, 1995 and
1996 summarizes certain selected financial data which should be read in
conjunction with the Company's audited financial statements and related
notes thereto and with Management's Discussion and Analysis of Financial
Condition and Results of Operations, all of which are included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------- ---------- ---------- ----------
- ----------
1994 1995 1996 1995 1996
---------- ---------- ---------- ----------
- ----------
(unaudited)
<S>
STATEMENT OF
INCOME DATA
Net Sales
Ultrasonic bonding <C> <C> <C> <C> <C>
systems $4,945,633 $6,060,827 $6,422,005 $3,127,572 $
Ultrasonic liquid
processors 2,394,314 2,412,733 2,915,885 1,260,635
Ultrasonic surgical
instruments 196,667 101,285 38,280 3,950
---------- ---------- ---------- ----------
- ----------
Total net sales 7,536,614 8,574,845 9,376,170 4,392,157
Cost of sales 3,741,849 4,228,024 5,091,789 2,193,824
---------- ---------- ---------- ----------
- ----------
Gross profit 3,794,765 4,346,821 4,284,381 2,198,333
Operating expenses 3,365,395 3,582,037 3,793,261 1,918,713
---------- ---------- ---------- ----------
- ----------
Income from
operations 429,370 764,784 491,120 280,520
Other income
(expense)
Miscellaneous
income 4,764 27,751 45,201 10,048
Interest expense (9,346) (12,817) (100,011) (46,518)
---------- ---------- ---------- ----------
- ----------
Income before income
taxes 424,788 779,718 436,310 243,150
Income taxes
(benefit) 35,000 45,000 (8,000) 21,668
---------- ---------- ---------- ----------
- ----------
Net income $ 389,788 $ 734,718 $ 444,310 $ 221,482 $
========== ========== ========== ==========
==========
PRO FORMA STATEMENT
OF INCOME DATA (1)
Income before income
taxes $ 782,000 $ 940,000 $ 436,310 $ 243,000 $
Provision for income
taxes 313,000 376,000 174,524 97,000
---------- ---------- ---------- ----------
- ----------
Net income $ 469,000 $ 564,000 $ 261,786 $ 146,000 $
========== ========== ========== ==========
==========
Net income per share $ .17 $ .22 $ .09 $ .05 $
========== ========== ========== ==========
==========
Weighted average
number of shares
outstanding 2,746,000 2,624,000 3,409,303 2,696,000
========== ========== ========== ==========
==========
Fully diluted net
income per share $ .17 $ .22 $ .08 $ .05 $
========== ========== ========== ==========
==========
Weighted average
number of shares
outstanding 2,746,000 2,624,000 3,441,000 2,696,000
========== ========== ========== ==========
==========
BALANCE SHEET DATA
Cash and cash
equivalents $ 62,026 $ 187,490 $ 73,129 $ - $
Working capital 2,267,119 2,183,858 6,010,485 2,229,126
Total assets 3,793,966 4,985,405 9,180,506 5,061,597
Long-term
obligations, less
current portion - - - 13,755
Stockholders' equity 2,780,049 2,883,767 6,665,315 3,083,299
</TABLE>
==================
(1) Pro forma statement of income data reflects (i) Common Stock expected
to be outstanding immediately prior to the exercise of any of the
Warrants after giving effect to the First and Second Stock Splits; (ii)
adjustments for payment of additional salary to Mr. Soloff representing
the personal income tax owed on the S corporation income totaling $0,
$160,000 and $357,000 for the years ended June 30, 1996, 1995, 1994, and
$0 and $85,000 for the six months ended December 31, 1996 and 1995,
respectively; and (iii) federal, state and local taxes as if the Company
had been a C corporation based on rates that would have been in effect
for each period presented. See "Management--Executive Compensation."
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company relates to the fiscal years ended June 30,
1994, 1995 and 1996 and the six months ended December 31, 1995 and 1996
and should be read in conjunction with the preceding Selected Financial
Data and the Company's Financial Statements and notes thereto included
elsewhere in this Prospectus. All references to full years are to the
applicable fiscal year of the Company.
Until February 26, 1996, the effective date of the Company's Initial
Offering, the Company was an S corporation under the Federal Internal
Revenue Code. In lieu of federal income taxes on the corporation's
income, the stockholders of an S corporation are taxed on their
proportionate share of the corporation's net income. No provision or
liability for Federal income taxes has been included, therefore, in the
Company's financial statements or below for fiscal years 1994 or 1995, or
for the six months ended December 31, 1995. However, adjustments for
federal income taxes as if the Company were a C corporation on a pro
forma basis have been made. See "Selected Financial Data" and
"Financial Statements."
RESULTS OF OPERATIONS
RECENT FINANCIAL DEVELOPMENTS
The following table sets forth, for the three most recent fiscal
years and the six months ended December 31, 1995 and 1996, respectively,
the percentage relationship to net sales of principal items in the
Company's Statement of Income.
STATEMENT OF INCOME AS PERCENT OF SALES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, DECEMBER 31,
---------- ---------- ---------- ----------
- ----------
1994 1995 1996 1995 1996
---------- ---------- ---------- ----------
- ----------
(unaudited)
<S>
STATEMENT OF INCOME
DATA <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
100.0%
Cost of Sales 49.7 49.3 54.3 49.9
---------- ---------- ---------- ----------
- ----------
Gross profit 50.3 50.7 45.7 50.1
Operating expenses
Selling 29.5 28.5 30.2 32.5
General and
administrative 10.7 7.9 6.3 6.8
Research and
development 4.5 4.1 4.0 4.4
Compensation
expense - stock
options - 1.2 - -
---------- ---------- ---------- ----------
- ----------
Total operating
expense 44.7 41.7 40.5 43.7
---------- ---------- ---------- ----------
- ----------
Other income
(expense)
Interest expense (.1) (.2) (1.1) (1.1)
Other .1 .3 .5 .2
---------- ---------- ---------- ----------
- ----------
Total other income
(expense) - .1 (.6) (.9)
---------- ---------- ---------- ----------
- ----------
Income before income
taxes 5.6 9.1 4.6 5.5
Income taxes
(benefit) .5 .5 (.1) .5
---------- ---------- ---------- ----------
- ----------
Net income 5.1% 8.6% 4.7% 5.0%
========== ========== ========== ==========
==========
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1996
COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1995
[TO BE ADDED BY AMENDMENT.]
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
Net Sales. Net sales for the year ended June 30, 1996 increased
$801,000 or 9.3% over the prior year. This is primarily the result of
increased sales volume for the liquid processor product line, as well as
increased sales volume generated by the Company's
13
<PAGE>
ultrasonic bonding product line. In addition, the Company implemented a
limited price increase for some of its products during the 1996 fiscal
year.
Cost of Sales. Cost of sales for the period increased from
$4,228,000 in fiscal 1995 to $5,092,000 in fiscal 1996. This represents
an increase of approximately 20.4%. A substantial portion of this
increase is attributable to increased sales. The remaining increase is
primarily attributable to the introduction of two new product lines as
well as the introduction of the new generation of ultrasonic welders, in
fiscal 1996. As a percentage of sales, cost of sales increased from 49.3%
in fiscal 1995 to 54.3% in fiscal 1996. Initial costs associated with
the startup of the spin welder line and the vibration welder line caused
the cost of these products, as a percentage of their net sales during the
start-up period, to be higher than the Company has experienced with other
product lines. The Company was not able to pass these increased costs on
to the customer. Management does not expect these increased costs to
continue once these product lines are established. A fluctuation in the
sales product mix also contributed to the increase. Since not all
products have the same markup due to market considerations, the cost of
sales may fluctuate depending on the actual sales mix for the period.
Selling Expenses. Selling expenses for the year ended June 30, 1996
increased $382,000 or 15.6% over the prior year. A substantial portion
of the increase is attributable to increased sales. The primary factor
contributing to the remaining portion of the increase is the costs
associated with two new product lines, the vibration welder and the spin
welder. These costs of approximately $141,000 include the design and
printing of product literature, as well as associated personnel
expenses. The Company also incurred an additional expense relating to
the design and printing of a new brochure for its ultrasonic welders.
The increase is also attributable to $56,000 of increased travel
expenses, including travel associated with the Company's international
sales meeting held in November of 1995, and expenses related to the
Company's liaison to the Korean marketplace.
General and Administrative Expenses. General and administrative
expenses for the year ended June 30, 1996 decreased by approximately
$87,000 or 12.9% from the prior year. In fiscal 1995, the Company paid
its shareholder approximately $160,000 to cover his personal tax
liability resulting from the Company's subchapter S status. No such
payments were made in fiscal year 1996. Offsetting the elimination of
the bonus was an increase of approximately $80,000 in professional fees.
This increase is primarily attributable to legal fees associated with the
litigation related to the Company's dispute with Sonique Surgical
Systems, Inc. ("Sonique") and Mentor Corp. ("Mentor"), which has been
settled. See "Business--Legal Proceedings."
Research and Development Expenses. Research and development
expenses increased by approximately $23,000 in fiscal 1996. This
represents an increase of approximately 6.6%. The increase is primarily
attributable to expenses of approximately $46,000 incurred in fiscal year
1996 relating to CE testing of Sonics' existing ultrasonic equipment. CE
approval is required for all equipment shipped into countries belonging
to the European Community. The increase resulting from the CE testing
was partially offset by a decrease in research and development materials.
Total Operating Expenses. Total operating expenses for fiscal 1996
increased $211,000 or 5.9% over fiscal 1995. This increase is a result
of the factors discussed above offset by a one-time charge to
compensation expense in fiscal 1995 resulting from the repurchase and
cancellation of stock options formerly held by two officers of the
Company.
Interest Expense. Total interest expense for fiscal 1996 increased
$87,000 or 680%. This is due to increased borrowings on the Company's
line of credit with its bank. In fiscal 1995 the average daily balance
under this line of credit was approximately $141,000, compared to
approximately $661,000 in fiscal 1996. The Company has reduced
borrowings on its line of credit by utilizing proceeds from its Initial
Offering.
Income Taxes. Income taxes decreased by $53,000 or 117.8% due to
the Company recording an income tax benefit of $91,000 for the
recognition of a Federal deferred tax asset upon conversion of the
Company from an S-corporation to a C-corporation due to the completion of
the Initial Offering. This amount has been offset by an income tax
provision of $50,000 based on the income earned by the Company from the
date of the Initial Offering.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
Net Sales. Net sales increased from $7,537,000 for fiscal 1994 to
$8,575,000 for fiscal 1995, an increase of 13.8%. The increase in net
sales was primarily attributable to increased sales of plastic welding
equipment and expanded foreign markets for plastic bonding and liquid
processor equipment. As a percentage of net sales, plastic welding
equipment increased from 65.6% for fiscal 1994 to 70.7% for fiscal 1995.
14
<PAGE>
Cost of Sales. Cost of sales increased by $486,000 in fiscal 1995
from the previous fiscal year. However, as a percentage of net sales,
these expenses remained relatively constant, decreasing from 49.7% in
fiscal 1994 to 49.3% for the same period in 1995. This small decrease is
attributable to the sales mix.
Selling Expenses. Selling expenses for fiscal 1995 increased
$226,000 or 10.2% over fiscal 1994. The increase in selling expenses is
primarily attributable to increased participation in foreign trade shows,
costs associated with opening a new sales office, increased foreign
shipping costs and other sales expenditures. As a percentage of net
sales over the periods, these expenses remained relatively consistent at
28.6% for fiscal 1995 and 29.5% for fiscal 1994.
General and Administrative Expenses. General and administrative
expenses for fiscal 1995 decreased $129,000 or 16.1% when compared to
fiscal 1994. This decrease was primarily due to lower amounts paid to
Mr. Soloff, the Company's then sole stockholder, during fiscal 1995 to
cover his income tax liability for S corporation income. As a percentage
of net sales, these expenses decreased to 7.9% in fiscal 1995 from 10.7%
in fiscal 1994.
Research and Development Expenses. Research and development
expenses for fiscal 1995 increased $14,000 or 4.1% in comparison with
fiscal 1994. This increase is due to the addition of a new engineering
position in research and development and the Company's continuing efforts
to improve existing products as well as to develop future products.
Additional in-house engineering permitted decreases in expenditures to
outside consultants.
Total Operating Expenses. Total operating expenses for fiscal 1995
increased $217,000 or 6.4% over fiscal 1994. This increase was due, in
part, to the Company's repurchase of two stock options held by officers
of the Company. A one-time charge of $106,000 in operating expense
reflects the compensation expense relating to the repurchase of these
options.
LIQUIDITY AND CAPITAL RESOURCES
[TO BE COMPLETED BY AMENDMENT.]
IMPACT OF INFLATION
The Company does not believe that inflation significantly affected
its results of operations for the 1994, 1995 and 1996 fiscal years or for
the six months ended December 31, 1995 and December 31, 1996.
BUSINESS
GENERAL
Sonics designs, manufactures and sells (i) ultrasonic bonding
equipment for the welding, joining and fastening of thermoplastic
components, textiles and other synthetic materials, and (ii) ultrasonic
liquid processors for dispersing, blending, cleaning, degassing,
atomizing and reducing particles as well as expediting chemical
reactions. To further address the needs of its customers, the Company
introduced two new product lines in fiscal year 1996, the spin welder and
the vibration welder, both of which are used for the bonding of
thermoplastic components.
The Company was incorporated in New Jersey in April 1969, and was
reincorporated in Delaware in October 1978. Robert S. Soloff, its
chairman, president and founder, invented the ultrasonic plastic welding
process early in his career. He has been granted nine patents in the
field of power ultrasonics and is considered to be a pioneer in the
application of ultrasonic technology to industrial processes. Howard
Deans, general manager of the Company's Ultra Sonic Seal division, has
also invented ultrasonic devices and processes covered by patents
primarily for packaging and sealing. The patents granted to Messrs.
Soloff and Deans have expired and the technology related to them is now
in the public domain and is used in part in the development and
manufacture of the Company's products.
PRODUCTS
The Company is primarily a manufacturer of equipment in the
following categories:
Ultrasonic Welders -- Manufactured by the Company since its
founding, this line of ultrasonic devices welds, bonds, fastens, sews and
rivets thermoplastic components and other synthetic materials. As new
applications were requested by industrial customers, the line has
expanded over the years. Plastic welders and related devices are used in
a wide variety of industries and applications.
15
<PAGE>
These include the automotive, computer, electronics, packaging, toy, home
entertainment, medical device, textile and garment and home appliance
industries.
There are certain advantages to ultrasonic bonding in comparison to
more traditional welding techniques. Uniform production is often
accomplished due to the consistency, speed and focusing of the energy
applied to the welded part. The bond created between the components is
generally strong and clean. Because no solvents, adhesives or external
heat are involved, adverse environmental factors are minimized.
Materials which may not be easily assembled or welded by other
technologies can be effectively bonded ultrasonically. Moreover,
ultrasonic bonding is generally faster and requires less skilled labor or
training than many other methods.
Liquid Processors -- Liquid processors, which are sold under the
Company's trade name "Vibra-Cell" or under private label, are ultrasonic
devices that disperse, break up, emulsify, atomize, mix and blend
substances in a liquid or semi-liquid medium. Substances affected by
liquid processing include molecules, cells, tissues, fluids, chemicals
and particles. These devices are available in different power
configurations for low, medium and high volume applications with various
capacities, features and accessories. Operating similarly to ultrasonic
bonding systems and composed of many of the same components, liquid
processors produce a different result because they are utilized in
liquid, semi-liquid and powdered media.
Liquid processors are utilized in biotechnology by scientists,
biologists, chemists and pharmacologists, primarily in laboratories for
research and testing purposes. The Company has extended the applications
for its liquid processors from the research laboratories to industrial
settings. The liquid processor also functions to process and test
materials and substances on the production line and in vats and tanks.
In the manufacture of pharmaceuticals and in the processing of petroleum
products and certain specialty chemicals, they reduce particle size and
facilitate mixing; in the preparation of paint and dyes, they blend and
homogenize materials. In the ink industry, processors disperse black
carbon. In the beverage and other industries, they are used to de-gas
carbonated soda, wine, beer, spirits and solvents. The Company's liquid
processors are also used as high-intensity cleaners. These ultrasonic
cleaning devices are effective in spot cleaning and removing various
contaminants, such as radioactive particles, proteins, rust, blood and
oil from laboratory equipment.
The Company recently began to manufacture a liquid processor with a
spray nozzle that atomizes fluids by producing ultra-fine sprays in
precisely measured dosage or at extremely low flow rates. Utilized in
laboratories and plants, ultrasonic atomizers can coat, moisten, or
deposit micro-droplets of liquid on glass, fabric, paper, semiconductors,
pharmaceuticals, ceramics or tubes. They are also used to apply silicone
and Teflon, disinfect surfaces and lubricate small parts.
NEW PRODUCTS
In fiscal 1996, the Company expanded its product line to include
both a vibration welder and a spin welder. Each of these products
provides customers with an alternative method of bonding plastics,
neither of which utilizes ultrasonic technology.
Vibration Welder -- Vibration welders are generally used to weld
larger plastic components together, and have the ability to weld a wider
variety of plastics. In this technology, a non-vibrating part is
hydraulically lifted from below to meet a horizontally-vibrating part.
The vibrations cause friction and heat, melting the plastic, and a bond
is effectuated between the plastic parts. The vibration welder that has
been designed and is currently being manufactured by the Company is
computer-controlled and has a power supply, digital display and other
features similar to the Company's ultrasonic welder.
Spin Welder -- The Company has developed and currently manufactures
spin welders based on a non-ultrasonic process known as rotary friction
welding. Rotary friction welding is a bonding technology generally used
only when assembling cylindrical or round-shaped thermoplastic parts. It
is also better suited for plastics of a semi-crystalline nature and
assemblies requiring significant tooling relief. In spin welding, one
plastic component is spun against a mating plastic part that is held
stationary in a nesting fixture. Friction generated by the spinning
action produces heat which melts the plastic and fuses the two parts
together.
The spin welding system offered by Sonics features, among other
things, a multi-function programmable controller, RPM display, and a two
horsepower electronic drive motor that spins the plastic part. The spin
welder is composed of a steel frame and column with a control box. Other
components of the system include a pneumatic head, an automotive spindle
bearing, an air brake and clutch system, and steel plates.
ULTRASONIC SURGICAL INSTRUMENT
The Company has designed and developed an ultrasonic medical device
for surgical liposuction procedures which dissolves and liquefies fat in
humans and then suctions the remaining substance from the body by a
vacuum pump. The Company's device
16
<PAGE>
differs from traditional liposuction devices in that it ultrasonically
assists in the removal of fatty tissue. Instead of tearing and sucking
the tissue away, the ultrasonic probe liquefies much of the fat which is
extracted from the body.
This device has not been qualified under FDA regulations for
general sale or use in the United States. The Company is presently
attempting to locate another party to assist it in obtaining FDA approval
of the device, as well as to assist with distribution of the device.
Management estimates that if a suitable party is located and FDA approval
is obtained, it could be at least three years before full-scale
marketing commences. If another party is not located by the Company to
participate in this endeavor, the Company will reevaluate the feasibility
of its entry into this field.
Sonics intends to file a patent application covering its new
ultrasonic surgical instrument with the U.S. Patent and Trademark Office.
It is not certain whether a patent for this application will be issued
or, if issued, that such patent will offer adequate protection or will
not be challenged by the holders of prior or other patents issued or to
be issued for similar purposes. It is also not certain that FDA approval
for such a device will be obtained.
INDUSTRY BACKGROUND
Management believes that in recent years the market for ultrasonic
bonding systems has undergone steady and consistent growth. It appears
that more companies are seeking to replace metal components with
thermoplastics in order to reduce the weight of products or to capitalize
on other special properties of synthetic substances. Consequently,
ultrasonic bonding systems and related welding devices have been more
extensively utilized in industrial processing and in new assembly
applications. In contrast, management believes that the market for
liquid processors in the past has experienced inconsistent growth and
occasional contractions. One of the major reasons for this inconsistent
growth appears to be the decrease in Federal government spending on
research and development. These budget cutbacks have adversely affected
expenditures for new testing equipment, including liquid processors, by
university, medical and industrial laboratories. To a certain extent,
the past decline in sales of liquid processors in the research laboratory
area has been offset by new and more extensive applications of such
technology in other industries, such as the paint, chemical, petroleum
and beverage industries, and medical industries. The market for liquid
processors has only recently stabilized and appears to have resumed its
growth.
MANUFACTURING AND SUPPLY
Sonics' manufacturing operations, conducted at its facilities
located in Danbury, Connecticut and Aston, Pennsylvania, are run on a
batch basis in which a series of products move irregularly from station
to station. The Company manufactures its products pursuant to historical
and projected sales data as well as specific customer orders.
Most supplies and materials required in the manufacture of the
Company's products are available from many sources. Many of its
suppliers are based in the same general locality as the Company's
manufacturing operations. To date, Sonics has experienced few shortages
and delays regarding supplies and materials. However, it is not certain
that such shortages or delays may not have an adverse impact on Sonics'
operations in the future. No one supplier accounted for more than 5% of
its total purchases for inventory made in fiscal years 1995 or 1996.
Although management believes that in all cases alternate sources of
supplies can be located, a certain amount of time would inevitably be
required to find substitutes. During any such interruption in supplies,
the Company may have to curtail the production and sale of its devices
and systems for an indefinite period.
Sonics is not a party to any formal written contract regarding the
delivery of its supplies and materials. It generally purchases such
items pursuant to written purchase orders of both the individual and
blanket varieties. Blanket purchase orders usually entail the purchase
of larger amounts of items at fixed prices for delivery and payment on
specific dates, ranging from two months to one year from delivery.
Sonics has qualified its Connecticut facility to meet the quality
management and assurance standards of an international rating
organization (ISO 9001). ISO 9001 certification indicates that the
Company has successfully implemented a quality assurance system that
satisfies this standard. Sonics has also obtained CE approvals, which
are now necessary for sales in Europe, for many models of its ultrasonic
welder and liquid processor. It is working to obtain CE approvals for
its other product lines.
MAINTENANCE AND SERVICE
The Company offers warranties on all its products, including parts
and labor, that range from one year to three years depending upon the
type of product concerned. For fiscal years ended June 30, 1995 and 1996
and for the six months ended December 31, 1995 and 1996, expenses
attributable to warranties were approximately $78,000, $63,000, $46,000
and $***, respectively. Sonics performs repair services on all of its
products sold domestically either at its Connecticut or Pennsylvania
17
<PAGE>
facilities or at customer locations. Servicing of foreign sales is
usually handled by distributors abroad or in the Company's Swiss branch
office regarding its devices sold in Europe. These services are
performed upon specific order without contracts at various rates. The
Company usually charges for the time that its employees spend on the task
and the cost of the materials or parts involved in the repair. For
fiscal years ended June 30, 1995 and 1996, and the six months ended
December 31, 1995 and 1996, the Company had income of approximately
$321,000, $358,000, $168,000 and ***, respectively, for out-of-warranty
services performed. Company devices generally have a long operating
life, and Sonics has repaired machines manufactured by it that are more
than 25 years old.
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<PAGE>
SALES AND MARKETING
Sonics generally markets and sells its products in the United States
and abroad through a network of sales representatives and distributors to
end users and original equipment manufacturers ("OEMs"). In the United
States, the Company and its Ultra Sonic Seal division utilize
approximately 50 sales representatives in 48 states. In the overseas
market, it relies on approximately 67 distributors and several sales
representatives to distribute its products in 49 countries. The areas
covered by these third parties include North and South America, the
Middle and Far East, Europe and Australia.
SALES REPRESENTATIVES
The Company's relationship with its sales representatives is usually
governed by a written contract which is generally terminable by either
party on 30 days prior notice. The contract provides for exclusive
territorial and product representation and commissions payable to them on
their sales depending on whether basic units or accessories are involved
and typically covers ultrasonic bonding systems and liquid processors.
OEM sales made by the Company are excluded from the commission
arrangements. Generally, the sales representatives do not purchase for
their own account, but merely sell Sonics' products on the Company's
behalf. They also may represent other manufacturers but generally not
those competitive with the Company's products. Except for one sales
representative which accounted for 10.1% in fiscal 1996, no one sales
representative accounted for more than 5% of Sonics' sales for fiscal
years 1995 and 1996. The loss of such representatives representing in
the aggregate significant sales may have a material adverse impact on the
Company's business.
The Company's Ultra Sonic Seal division ("USS") sells its plastic
welder under its division name. USS maintains a network of sales
representatives in the United States different from those for Sonics'
main product lines. The terms of these arrangements with its sales
representatives are similar.
DISTRIBUTORS
Sales of Sonics' products to distributors are also generally made
pursuant to written contracts. Under such contracts, distributors are
prevented from selling devices competitive to the Company's products and
provide repair service. Generally, payments must be made in U.S. dollars
within 30 days of delivery of the product. Distribution arrangements are
either exclusive or non-exclusive and are cancelable upon 30 days notice.
The contracts generally exclude private label sales made by Sonics in the
distributor's territory even if the relationship is of an exclusive type
and typically cover sales of both ultrasonic bonding systems and liquid
processor lines. The Company now also offers both its spin welder and
vibration welder to its sales representatives and distributors. The
Company also sells these products directly to end-users or under private
label. The Company usually grants discounts to distributors, depending
on the product and quantity sold. No one distributor accounted for more
than 5% of Sonics' sales in fiscal years 1995 and 1996. The loss of
distributors in substantial numbers or at key locations could have a
material adverse effect on the Company's business. USS maintains
separate but similar arrangements with at least three foreign
distributors abroad.
The Company promotes the sale of its products through direct
mailings, trade shows, product literature, press releases, advertising in
trade magazines and listings in catalogs. The Company occasionally
engages in cooperative advertising with some of its distributors.
CUSTOMERS
Sonics sells its products, directly or indirectly, to numerous
customers, ranging in size from small companies to large Fortune 100
corporations. Its customers are end-users, original equipment
manufacturers, system integrators and resellers, and distributors. Many
of its customers are repeat purchasers. None of its customers
represented more than 5% of Sonics' sales for fiscal 1995 or 1996.
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<PAGE>
INTERNATIONAL OPERATIONS
The Company's international activities are an important portion of
its business. Approximately 34%, 33% , 35% and ***, of its sales for
fiscal years 1995 and 1996, and the six months ended December 31, 1995
and 1996, respectively, are attributable to sales of its products outside
the United States. The Company also operates a branch office in Gland,
Switzerland where it sells and services its ultrasonic devices for the
European market except for the United Kingdom.
Internationally, the Company sells its ultrasonic products under its
own label to end users and distributors or under the trade name of the
distributor. In most cases, Sonics' devices are shipped to foreign
distributors and end users as completed units. However, in certain
situations, especially with regard to distributors of ultrasonic welders
located in Asia and, South America, the Company's systems are made
available in kit form and assembled there. Kits frequently contain all
components for devices but in some instances only a portion of the
requisite components is provided. For some foreign sales, no written
distribution arrangement exists.
COMPETITION
The Company competes in each of its markets against a variety of
other concerns, many of which are larger and have greater financial,
technical, marketing, distribution and other resources than Sonics. It
competes on the basis of service, performance, reliability, price and
delivery.
Prior to making a sale, the Company will invest time and resources
exploring whether it can profitably handle a new application for
potential and existing customers. Generally, the Company receives no
compensation for this pre-sale activity except when special tooling is
required and payment for such services only occurs when and if product
sales are consummated. Like nearly all manufacturers in this industry,
the Company invests heavily in this pre-sale examination of new
applications. Such examination represents another area in which such
manufacturers compete, and those with greater resources and manpower may
possess a competitive advantage.
With respect to its ultrasonic bonding equipment, the Company
encounters competition from Branson Ultrasonics Co. ("Branson"), a
subsidiary of Emerson Electric Co., Dukane Corp. ("Dukane"), Herrmann
Ultrasonics, Inc., Forward Technology Industries, Inc. and other smaller
manufacturers. The two dominant companies in this area are Branson and
Dukane. Some of these competitors also offer spin and vibration devices
as well as ultrasonic ones.
In the ultrasonic liquid processor market, the Company's principal
competitors are Branson and Misonix Inc. Management believes that in
this market Sonics has the largest market share.
BACKLOG
As of December 31, 1996, the Company's backlog was approximately ***
as compared with a backlog of $1,251,650 as of December 31, 1995. No one
customer accounted for more than 10% of such backlog at December 31,
1996.
Substantially all of the Company's backlog figures are based on
written purchase orders executed by the customer and involve product
deliveries and not engineering services. All orders are subject to
cancellation.
RESEARCH AND DEVELOPMENT
The Company maintains an engineering staff responsible for the
improvement of existing products, modification of products to meet
customer needs and the engineering, research and development of new
products and applications. Engineering and research and development
expenses were approximately $349,000 for fiscal 1995 and $372,000 for
fiscal 1996, and $192,000 and *** for the six months ended December 31,
1995 and 1996, respectively.
20
<PAGE>
INTELLECTUAL PROPERTY
Proprietary information and know-how are important to the Company's
success. Sonics holds no active patents but has trademark protection for
its "Vibra-Cell" trade name. There can be no assurance that others have
not developed, or will not develop, independently, the same or similar
information or obtain and use proprietary information of the Company.
Sonics has obtained written assurances from its employees, sales
representatives and distributors under confidentiality agreements
regarding its proprietary information.
On February 23, 1996, the Company filed a patent application with
the U.S. Patent and Trademark office for one of its bonding machines.
The Company intends to file a patent application with the U.S. Patent and
Trademark Office covering its new ultrasonic surgical instrument. The
Company cannot predict whether either patent will be granted or the
extent of protection offered thereby.
GOVERNMENT REGULATION
Sonics' bonding and liquid processor lines generally are not
governed by specific legal rules and laws. The Company's ultrasonic
surgical instrument, however, is subject to a variety of FDA regulations
before it can be manufactured or sold in the United States. The FDA has
rules which govern the design, manufacture, distribution, approval and
promotion of medical devices in the United States. Full FDA approval may
often take a number of years and involves the expenditure of substantial
resources.
Various states and foreign countries in which Sonics' products are,
or may be, sold may impose additional regulatory requirements, such as
the Medical Device Directive in the European Common Market.
Sonics intends to file a patent application for its ultrasonic
surgical instrument. The Company is also seeking another party to assist
it in obtaining FDA approval for the use and marketing of its ultrasonic
surgical instrument, as well as for assistance in the distribution of the
device. Obtaining FDA approval for the device's use and marketing
requires the implementation of two separate procedures. First, a 510(k)
notification for the use of its product as a general surgical removal
device would have to be submitted with the FDA. Second, regulatory
approval from the FDA for the specific application of its device to
liposuction procedures would be sought through the filing of a pre-market
approval application ("PMA") or through reclassification. No assurance
can be given that any FDA approval application procedure would be
successful, if such an application is filed. Further, if another party
is not located by the Company to participate in this endeavor, the
Company will reevaluate the feasibility of its entry into this field.
Sonics' sales abroad may make it subject to other U.S. and foreign
laws. The Company and its agents are also governed by the restrictions
of the Foreign Corrupt Practices Act of 1977, as amended (the "FCPA").
FCPA prohibits the promise or payments of any money, remuneration or
other items of value to foreign government officials, public office
holders, political parties and others with regard to the obtaining or
preserving of commercial contracts or orders. Sonics has urged its
foreign distributors to comply with the requirements of FCPA. All these
restrictions may hamper the Company in its marketing efforts abroad.
In addition, other federal, state and local agencies, including
those in the environmental, fire hazard control, and working conditions
areas could have a material adverse affect upon the Company's ability to
do business. Sonics is not involved in any pending or threatened
proceedings which would require curtailment of, or otherwise restrict,
its operations because of such regulations and compliance with applicable
environmental or other regulations. None of these laws has had a
material effect upon its capital expenditures, financial condition or
results of operations.
EMPLOYEES
As of December 31, 1996, the Company had 96 full-time employees
including its officers, of whom 57 were engaged in manufacturing, four
in repair services, seven in administration and financial control, nine
in engineering and research and development, and 19 in marketing and
sales.
None of Sonics' employees are covered by a collective bargaining
agreement or represented by a labor union. Sonics considers its
relationship with its employees to be good.
The design and manufacture of the Company's equipment requires
substantial technical capabilities in many disparate disciplines, from
mechanics and computer science to electronics and mathematics. While
management believes that the capability and experience of its technical
employees compares favorably with other similar manufacturers, there can
be no assurance that it can retain existing employees or attract and hire
the highly capable technical employees necessary in the future on
favorable terms, if at all.
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<PAGE>
PROPERTY AND FACILITIES
The Company's primary manufacturing and office facility is located
in Danbury, Connecticut in four separate steel and cinder block
buildings, three of which are on the same parcel of land. These
facilities are considered adequate for its current needs, but may not be
suitable for Sonics' anticipated requirements. In management's opinion,
appropriate space for its long-term needs is available in the Danbury
area on terms comparable to those of its existing facility. In the
future, Sonics may lease or purchase larger facilities for its
headquarters.
As of December 31, 1996, the following table lists the Company's
offices by location, all of which are leased, and certain other
information:
<TABLE>
<CAPTION>
Approximate Total
Approximate
Area Leased in Expiration Date Current
Annual
Square Footage of Lease Annual Rent
(1)
----------------- ---------------------
- ----------------
<S> <C> <C> <C>
Kenosia Ave.,
Danbury,
Connecticut 23,000 October 31, 1997 (2)
$159,000
Shelter Rock Road,
Danbury,
Connecticut 10,000 February 14, 1998 (2)
45,000
Aston, Pennsylvania 4,900 September 30, 1997
39,200
Naperville, Illinois 2,000 December 31, 1997
12,500
Gland, Switzerland 3,000 January 31, 1997 (2)
14,400
</TABLE>
____________________
(1) Includes proportionate cost of utilities, repairs, cleaning, snow
removal, taxes and insurance.
(2) Contains renewal option as listed below:
Kenosia Ave., Danbury, CT................6 months
Shelter Rock Rd., Danbury, CT............6 months
Gland Switzerland........................1 year
The Company believes that it has adequate insurance coverage for all
of its leased properties. The Company also leases certain automobiles
and equipment.
LEGAL PROCEEDINGS
On October 3, 1995, the Company commenced an action in the United
States District Court in Connecticut for declaratory judgments against
Sonique and Mentor on issues involving alleged infringement of their
patent rights and alleged violations of certain confidentiality
arrangements. Subsequently, Sonics moved to amend its complaint in this
action in order to add another cause of action against the defendants,
for breach of a confidentiality contract. On or about November 14, 1995,
Sonique and Mentor answered Sonics' complaint denying certain of its
allegations and admitting others and counterclaiming against it for
patent infringement and breach of confidential information obligations in
such suit. In their counterclaims, defendants sought unspecified
damages, injunctions, attorneys' fees and other costs. In May of 1996,
the Company, Sonique and Mentor reached an agreement settling all
outstanding claims and counterclaims among the three companies.
There is no other pending or threatened material litigation or
proceeding against the Company.
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<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
NAME AGE TITLE
<S> <C> <C>
Robert S. Soloff (1)(2).......... 56 Chairman, Chief Executive
Officer,
President, Treasurer and
Director
Richard H. Berger................ 52 Vice President of Sales and
Marketing
Daniel Grise..................... 39 Vice President of Operations
Lauren H. Soloff................. 31 Secretary, Vice President of
Legal
Affairs and Investor Relations
and
Director
Alan Broadwin (1)................ 60 Director
Stephen J. Drescher.............. 33 Director
Carole Soloff.................... 54 Director
Jack T. Tyransky (1)(2).......... 50 Director
</TABLE>
____________________
(1) Member of Audit Committee
(2) Member of Stock Option Committee
All directors hold office until the next annual meeting of
stockholders or until their successors are elected and qualify.
Executive officers hold office until their successors are chosen and
qualify, subject to earlier removal by the Board of Directors.
ROBERT S. SOLOFF
Robert S. Soloff founded the Company in 1969 and has served as its
Chairman, President and a Director since then. From 1960 to 1961, he was
employed as an Assistant Project Engineer by Kearfott-Singer, Inc.
designing ultrasonic oil burners and investigating the use of ultrasonic
energy for various industrial applications. From 1962 until 1969, Mr.
Soloff held a variety of positions with Branson Sonic Power Company, a
major manufacturer of ultrasonic devices. These positions included
laboratory manager for new products and applications, New York Metro
district sales manager and manager of new product development. Mr.
Soloff is currently serving as a director of the Ultrasonic Industry
Association. He is a 1960 graduate of Cooper Union where he earned a
bachelor of science degree in mechanical engineering. Mr. Soloff has
served as a director of the Company since 1969.
RICHARD H. BERGER
Richard H. Berger joined the Company in 1983 as Product Manager and
in 1984 became Vice President of Sales and Marketing and has continued in
that capacity since that date. From 1972 to 1983, he was employed by
Branson Sonic Power Company in a variety of positions, including Product
Specialist, Product Manager and Marketing Director for Fabric and Film
Sealing, and Marketing Director for Packaging and Textile Equipment. Mr.
Berger holds bachelor of arts and masters degrees in business
administration from the University of New Haven.
DANIEL GRISE
Daniel Grise joined the Company in 1977 as an electronics
technician. During his tenure with the Company, Mr. Grise has held a
variety of positions, including production supervisor, research and
development engineer, quality control manager, and director of
operations. In 1989, Mr. Grise was promoted to, and continues to serve
as, Vice President of Operations. In this position, Mr. Grise is
responsible for overseeing the manufacturing department, quality control,
manufacturing engineering, materials handling, building maintenance, the
machine shop, purchasing, drafting, customer specials and converter
design. He is also the management representative for the Company's ISO
9001 quality standards program. Mr. Grise received his associates degree
in electrical engineering from the Bridgeport Engineering Institute in
1988.
LAUREN H. SOLOFF
Lauren H. Soloff, the daughter of Robert and Carole Soloff, joined
the Company in early 1995 as Corporate Counsel, Secretary and a Director.
In May of 1996, Ms. Soloff was promoted to Vice President of Legal
Affairs and Investor Relations. From 1993 to 1994, she was employed by
the Connecticut law firm of Siegel, O'Connor, Schiff and Zangari as an
associate specializing in litigation for labor and employment matters.
From 1991 to 1993, she served as a staff attorney for the Office of
Solicitor of the U.S. Department of Labor where she was responsible for
all aspects of appellate litigation as well as other litigation and
counseling duties. Ms. Soloff is a member of the New York and
Connecticut bars. She has a bachelor of arts degree from Tufts
University and a juris doctorate from the Washington College of Law,
American University.
23
<PAGE>
ALAN BROADWIN
Alan Broadwin, who has served as a director of the Company since
1995, has acted as an independent consultant in the medical device field
from 1993 to date. He also currently serves the Company as a consultant
on medical products, focusing on its ultrasonic surgical instruments. In
1988, he joined Valleylab, Inc. and continued in its employ until 1993
holding various positions, including director of ultrasonic technology
and director of engineering. Mr. Broadwin holds both bachelor of arts
and bachelor of science (mechanical engineering) degrees from Columbia
University and a masters degree in science (industrial engineering)
degree from the Stevens Institute of Technology.
STEPHEN J. DRESCHER
Stephen J. Drescher, who has served as a director of the Company
since 1996, is presently the Director of Corporate Finance for Monroe
Parker Securities. From 1993 to 1996, he was the President and Chief
Executive Officer of Judicate, Inc. (a diversified company). Since 1994,
he has been on the Board of Directors of DualStar Technologies
Corporation (a mechanical and electronics contractor). He holds a
bachelor of arts degree and his juris doctorate from the University of
Miami.
CAROLE SOLOFF
Carole Soloff, the wife of Robert Soloff, has been a director of the
Company since its founding in 1969. Mrs. Soloff is currently the owner
and founder of Musings, a company that makes and markets ceramics, which
she started in 1993. She has taught French in several junior and senior
high schools in New York and Connecticut. Mrs. Soloff has been engaged
as a counselor in various mental health programs at the Bronx Psychiatric
Center, Hudson River Counseling Service and Danbury Hospital. She has
also been a research assistant at Sloan-Kettering Cancer Research
Foundation. She holds a bachelor of arts degree from Brooklyn College of
the City University of New York and a masters degree in education from
the University of Bridgeport. Mrs. Soloff has served as director of the
Company since 1969.
JACK T. TYRANSKY
Jack T. Tyransky, who has served as a director of the Company since
1995, has been a partner in Allen & Tyransky, a Connecticut certified
public accounting firm, since 1975. This firm served as the Companys'
certified public accountants from 1988 to 1994. He holds a bachelor of
science degree in accounting from the University of Maryland and a
masters degree in science (taxation) from the University of Hartford.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended June 30,
1996, 1995 and 1994, the annual and long-term compensation for the
Company's chief executive officer and its vice president of marketing
(the "named executives"). These were the only employees whose annual
compensation exceeded $100,000 for the fiscal year ended June 30, 1996.
24
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION
AWARDS
- -----------------------------------------------------------
- -------------------
SECURITIES
BASE
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
COMPENSATION (1) OPTIONS / SARS COMPENSATION
<S> <C> <C> <C> <C>
<C> <C>
ROBERT S. SOLOFF........... 1996 $180,000 $ 0
$15,111 $ 0 $ 0
Chairman of the Board,
President 1995 150,000 35,000
20,200 0 160,000 (2)
and Chief Executive
Officer 1994 131,900 40,000
20,500 0 357,000 (2)
RICHARD H. BERGER.......... 1996 87,000 58,766
5,878 10,000 0
Vice President, Marketing 1995 83,600 36,900
6,000 0 150,000 (3)
1994 81,300 34,400
8,300 0 0
</TABLE>
____________________
(1) Represents compensation for excess life insurance premium and
personaluse of company autos. Includes executive insurance
benefits for Mr.Soloff and profit sharing awards for Mr. Berger.
(2) Represents amounts paid to stockholder for taxes due on S
corporation income. This practice is now discontinued based on
the Company's status as a C corporation.
(3) Represents amounts paid by the Company to repurchase non-qualified
stock options for 50,000 shares of the Company's Common Stock.
The Company's non-employee directors are paid a fee of $300 for
attendance at each of its Board of Directors meetings plus related
expenses. In addition, directors Alan Broadwin and Jack Tyransky were
granted in fiscal 1996 qualified stock options under the Company's Stock
Option Plan, as hereinafter defined, for 1,000 shares of Common Stock.
Mr. Broadwin also received compensation from the Company in fiscal 1996
for his work as an independent consultant in the medical device field.
Monroe Parker assigned to Mr. Drescher 10,000 Selling Securityholder
Options to purchase 10,000 shares of the Company's Common Stock and
10,000 Warrants. See "Certain Relationships and Related Transactions"
and "Concurrent Offering--Selling Securityholders."
OPTION AND STOCK APPRECIATION RIGHTS
OPTION/SAR GRANTS IN FISCAL 1996(1)
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE
NAME GRANTED (#) FISCAL 1996 ($/SH) (2) EXPIRATION
DATE
- ---- ------------ ------------ -----------
- ---------------
<S> <C> <C> <C> <C>
Robert S. Soloff 0 -- -- --
Richard H. Berger 10,000 14.4 % $5.00
02/23/01
</TABLE>
==================
(1) Under the Company's Incentive Stock Option Plan (the "Stock Option
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 Stock Option Plan is
administered by the Board of Directors and a Committee presently
consisting of two members of the Board that determines which
persons are to receive options, the number of options granted and
their exercise prices. In the event an optionee voluntarily
terminates employment with the Company, the optionee has the right
to exercise accrued options within 30 days of such termination.
However, the Company may redeem any accrued option by paying the
optionee the difference between the option exercise price and the
then fair market value of the Common Stock.
(2) The options were granted under the Company's Stock Option Plan on
February 23, 1996. The exercise price is the fair market value of
the underlying stock on the date the options were granted. The
options vest 1/3 per year for each of the three years following
the date of grant.
25
<PAGE>
EMPLOYMENT CONTRACT
Effective July 1, 1995, the Company entered into an employment
agreement with Robert S. Soloff, who is serving as the Companys'
President, for an initial term expiring June 30, 1998 at an 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 through (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. Such bonuses will be determined by the
non-employee members of the Board of Directors who will take into account
the performance of Mr. Soloff and the Company in making such
determination. Such bonuses may not exceed 10% of Mr. Soloff's annual
compensation for three years. Mr. Soloff is subject to a two-year
covenant not to compete with the Company that begins July 19, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the Company's bank line of credit, Robert S. Soloff, the
Chairman, President, and a director of the Company, and Carole Soloff, a
director of the Company, had personally guaranteed all amounts
outstanding under such line of credit. Upon the successful completion of
the Company's Initial Offering in February 1996, such personal guarantees
were terminated. The amount outstanding at the time of termination was
$770,000.
In May 1989, the Company granted a non-qualified stock option for
10,976 shares of its Common Stock to Daniel Grise, the Vice President of
Operations of the Company, at an exercise price of $.31 per share. In
January 1994, the Company granted to Lauren H. Soloff, an officer and
director of the Company, non-qualified stock options for 274,390 shares
of its Common Stock at an exercise price of $1.03 per share. These
options and their exercise prices have been adjusted for the two stock
splits which took place prior to the Company's Initial Offering.
On June 29, 1995, Sonics made a distribution of $500,000 to Mr.
Soloff, representing a portion of retained earnings accumulated by the
Company while an S corporation. Such $500,000 was used by Mr. Soloff to
purchase a certificate of deposit from the Company's bank. The
certificate of deposit was pledged by Mr. Soloff to the bank as
additional security for the Company's $500,000 demand note. Upon
completion of the Company's Initial Offering, such certificate no longer
served as security for the Company's borrowings. Upon completion of the
Initial Offering, the remainder of the S corporation retained earnings,
approximately $2,509,000, was reclassified as paid-in capital as if the
earnings had been distributed to Mr. Soloff and then contributed to the
Company.
During the period from July 1, 1995 through the termination of the S
corporation status, the Company made distributions to Mr. Soloff of
approximately $496,000, including an adjustable note payable to Mr.
Soloff of $450,000, to cover estimated personal income taxes on the
Company's S corporation income.
Stephen J. Drescher, a director of the Company, is a Director of
Corporate Finance for Monroe Parker, which served as the underwriter for
the Company's Initial Offering in February 1996. In February 1996,
Monroe Parker assigned to Mr. Drescher its right to receive Selling
Securityholder Options to purchase 10,000 shares of the Company's Common
Stock, and 10,000 Warrants to purchase Common Stock.
In connection with the Initial Offering, Monroe Parker received (i)
an underwriting discount of $.50 per share and $.015 per Warrant, or
$525,925, (ii) Selling Securityholder Options to purchase 100,000 shares
of Common Stock and 100,000 Warrants to purchase Common Stock exercisable
over a period of four years commencing February 26, 1997, at exercise
prices of $8.25 per share of Common Stock and $.25 per Warrant, which it
subsequently assigned to the Selling Securityholders (see "Concurrent
Offering--Selling Securityholders"); and (iii) a 3% non-accountable
expense allowance of $157,778. In addition, as part of the underwriting
arrangements, the Company entered into an agreement retaining Monroe
Parker as a financial consultant to the Company for a two year period
commencing February 26, 1996 at a fee of $50,000 per year. The full
compensation of $100,000 was paid at the closing of the Initial Offering.
The Company also agreed to pay Monroe Parker a finder's fee, ranging from
5% of the first $2,000,000 down to 1% of the excess over $5,000,000 of
the consideration involved in any transaction (including mergers and
acquisitions) consummated by the Company in which Monroe Parker
introduced the other party to Sonics during the five year period ending
February 26, 2001. In connection with the Initial Offering, the Company
also granted to Monroe Parker the right to appoint one person to serve on
its Board of Directors or to function as an observer at meetings of the
Board, subject to the Company's approval. Mr. Drescher was recommended
by Monroe Parker for election to the Board. In addition, the Company and
Monroe Parker agreed to indemnify each other against certain liabilities
under the Securities Act of 1933.
26
<PAGE>
Upon the exercise of the Warrants (except for Warrants exercised by
Monroe Parker), the Company will pay Monroe Parker a fee of 4% of the
aggregate exercise price if certain conditions are met. See "Warrant
Solicitation Fee."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
Company's Common Stock owned as of February ___, 1997 by (i) each person
who is known by the Company to own beneficially more than 5% of its
outstanding Common Stock, (ii) each director and nominee for director,
(iii) each named executive officer, and (iv) all executive officers and
directors as a group.
<TABLE>
<CAPTION>
WARRANTS TO
PURCHASE
COMMON STOCK COMMON STOCK
-----------------------------
- --------------------------
AMOUNT AND AMOUNT AND
NAME AND ADDRESS NATURE OF NATURE OF
OF BENEFICAL BENEFICIAL PERCENT OF BENEFICIAL
PERCENT OF OWNER (1) OWNERSHIP CLASS OWNERSHIP
CLASS OWNED
- ---------------- ----------------- --------- --------------
- ------------
<S> <C> <C> <C> <C>
Robert S. Soloff 2,500,000 71.4% 0 *
Richard H. Berger 10,000 (2) * 0 *
Lauren H. Soloff 274,515 (3) 7.3% 0 *
Carole Soloff 0 * 0 *
Jack T. Tyransky 1,000 (2) * 0 *
Alan Broadwin 1,100 (2) * 0 *
Stephen J. Drescher 10,000 (4) * 10,000 (4) *
All executive
officers and
directors as a
group (8 persons) 2,817,466 (2)(5) 73.6% 10,000 *
</TABLE>
____________________
* Indicates less than one percent.
(1) The address of each such person is c/o Sonics & Materials, Inc., W.
Kenosia Avenue, Danbury CT 06810 and except as otherwise set forth
in the footnotes below, all shares are beneficially owned and the
sole voting and investment power is held by the persons named.
(2) Represents or includes qualified stock options granted under the
Companys' Stock Option Plan.
(3) Represents 274,390 shares of Common Stock issuable upon exercise of
currently exercisable non-qualified stock options granted to Ms.
Soloff and 125 shares held by Ms. Soloff in a custodial account.
(4) Represents Mr. Drescher's holdings of 10,000 Selling Securityholder
Options. Such Options are exercisable for 10,000 shares of Common
Stock and 10,000 Warrants to purchase 10,000 shares of Common
Stock. If Mr. Drescher were to exercise the Selling Securityholder
Options and Warrants in full, he would own 20,000 shares of Common
Stock. See "Certain Relationships and Related Transactions."
(5) Includes 274,390 shares and 10,976 shares which are issuable upon
exercise of currently exercisable non-qualified stock options
granted to Lauren H. Soloff and Daniel Grise, respectively, under
the Company's Stock Option Plan and 125 shares that are held by Ms.
Soloff in a custodial account.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock, par value $.03 per share, and 2,000,000 shares of
Preferred Stock, par value $.01 per share. As of the date hereof,
3,500,100 shares of Common Stock are outstanding and 2,460,366 shares are
reserved for issuance pursuant to the Warrants, the Company's Stock
Option Plan, non-qualified options and the Selling Securityholder
Options. No shares of Preferred Stock have been issued or are
outstanding. The following statements are summaries of certain
provisions of the Company's Certificate of Incorporation, as amended,
By-laws, as amended, and the General Corporation Law of the State of
Delaware. These summaries do not purport to be complete and are
qualified in their
27
<PAGE>
entirety by reference to the full Certificate of Incorporation and
By-laws which have been filed as exhibits to the Company's Registration
Statement of which this Prospectus is a part.
28
<PAGE>
COMMON STOCK
Holders of Common Stock possess exclusive voting power for the
election of directors and for all other purposes and are entitled to one
vote for each share of Common Stock held of record. The Common Stock
does not have cumulative voting rights. Holders of Common Stock are
entitled to share ratably in all the assets of the Company available for
distribution to holders of Common Stock upon liquidation, dissolution or
winding up of its affairs. The holders of the Common Stock have no
preemptive rights with respect to offerings of such shares.
The outstanding shares of Common Stock are validly issued, fully
paid and non-assessable, and the shares of Common Stock offered hereby,
when issued in accordance with the terms of the Warrants, will be validly
issued, fully paid and non-assessable.
Dividends may be paid on Common Stock out of funds legally available
for such purposes and when declared by the Board of Directors. Except
for certain payments to Mr. Soloff, its former sole stockholder, for tax
and other purposes, the Company has not paid any dividends on its Common
Stock. 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 dividends in the foreseeable
future. See "Risk Factors--Lack of Dividends; Dilution." The payment of
dividends, if any rests within the discretion of the Board of Directors
and will depend upon, among other things, the Company's earnings, its
capital requirements and its overall financial condition.
PREFERRED STOCK
Sonics is authorized to issue up to 2,000,000 shares of Preferred
Stock, par value $.01 per share. The Company has no plans to issue or
sell shares of Preferred Stock in the foreseeable future. Until February
26, 1997, issuance of such shares of Preferred Stock is subject to the
prior consent of Monroe Parker which may not be unreasonably withheld.
When and if such shares of Preferred Stock are issued, the holders of
such stock will have certain preferences over the holders of Common
Stock, including the satisfaction of dividends on any outstanding
Preferred Stock. The Board of Directors has the authority to determine
the dividend rights, dividend rates, conversion rights, voting rights,
rights and terms of redemption and liquidation preferences, and sinking
fund terms of any series of Preferred Stock, the number of shares
constituting any such series and the designation thereof.
Such Preferred Stock could also be used to delay, defer or prevent a
change in control of the Company or be used to resist takeover offers
opposed by Management of the Company. Under certain circumstances, the
Board of Directors could create impediments to, or frustrate persons
seeking to effect, a takeover or otherwise gain control of the Company by
causing shares of Preferred Stock with voting or conversion rights to be
issued to a holder or holders who might side with the Board of Directors
in opposing a takeover bid that the Board of Directors determines not to
be in the best interest of Sonics and its shareholders. In addition, the
Company's ability to issue such shares of Preferred Stock with voting or
conversion rights could dilute the stock ownership of such person or
entity.
WARRANTS
The Company has authorized the issuance of Warrants ("Warrants") to
purchase an aggregate of 1,725,000 shares of Common Stock (exclusive of
100,000 Warrants pursuant to the Selling Securityholder Options) and has
reserved an equivalent number of shares for issuance upon exercise of
such Warrants. Each Warrant represents the right to purchase one share
of Common Stock, commencing February 26, 1997 and expiring February 26,
2001, at an exercise price of $6.00 subject to adjustment. After the
expiration date, the Warrants will be void and of no value. The Warrants
underlying the Selling Securityholder Options have the same terms and
conditions as the Warrants sold in the Company's Initial Offering.
Until the close of business on February 26, 2001, the Warrants are
subject to earlier redemption as follows: If the average of the closing
bid prices of the Common Stock (if the Common Stock is then traded in the
over-the-counter market) or the average of the closing prices of the
Common Stock (if the Common Stock is then traded on a national securities
exchange or the NASDAQ National Market or Small Cap System) exceeds $8.00
for any consecutive 20 trading days, then upon at least 10 days prior
written notice, the Company will be able to call all (but not less than
all) of the Warrants for redemption at a price of $.05 per Warrant.
The Warrants were issued pursuant to a Warrant Agreement (the
"Warrant Agreement") between the Company and American Stock Transfer &
Trust Company, as warrant agent (the "Warrant Agent"), and are evidenced
by warrant certificates in registered form. The Warrants contain
provisions that protect the holders thereof against dilution by
adjustment of the exercise price and number of shares issuable upon
exercise on the occurrence of certain events, such as stock dividends or
certain other changes in the number of outstanding shares except for
shares issued pursuant to any Company stock option plans for the benefit
of its employees, directors and agents, the Warrants issued in the
Company's Initial Offering, the Selling Securityholder Options, and any
29
<PAGE>
equity securities for which adequate consideration is received. The
Company is not required to issue fractional shares. In lieu of the
issuance of such fractional shares, the Company will pay cash to such
holders of the Warrants. In computing the cash payable to such holders,
a share of Common Stock will be valued at its price immediately prior to
the close of business on the expiration date. The holder of a Warrant
will not possess any rights as a stockholder of the Company unless he
exercises his Warrant.
The exercise prices of the Warrants were determined by negotiation
between the Company and Monroe Parker and should not be construed to
predict or imply that any price increases will occur in the Company's
securities.
The Warrants may be exercised upon surrender of the Warrant
certificate on or prior to the expiration date (or earlier redemption
date) of such Warrants at the offices of the Warrant Agent with the
Subscription Form on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by payment of the full
exercise price (by official bank or certified check payable to Sonics &
Materials, Inc.) for the number of Warrants being exercised.
The description above is subject to the provisions of the Warrant
Agreement, which has been filed as an exhibit to the Registration
Statement, a copy of which this Prospectus forms a part, and reference is
made to such exhibit for a detailed description thereof.
LISTING ON NASDAQ NATIONAL MARKET SYSTEM
The Common Stock and Warrants are quoted on the National Association
of Securities Dealers, Inc. (Nasdaq), National Market System under the
symbols "SIMA" and "SIMAW," respectively.
No assurance can be given that the Company will continue to meet
certain minimum standards for continued listing. In that event, such
securities will consequently be delisted, and their price will no longer
be quoted in such system. Such result may make it extremely difficult to
sell or trade the Company's securities. See "Risk Factors--Qualification
and Maintenance Requirements for Nasdaq National Market Listings; Market
Volatility" and "Market for Company's Common Equity and Related
Stockholder Matters."
TRANSFER/WARRANT AGENT AND REGISTRAR
American Stock Transfer & Trust Company is the transfer and warrant
agent and registrar for the securities of the Company.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation eliminates the liability
of its directors and officers for monetary damages for breach of duty in
such capacities, subject to certain exceptions. In addition, the
Certificate of Incorporation provides for Sonics to indemnify, under
certain conditions, directors, officers, employees and agents of the
Company against all expenses, liabilities and losses reasonably incurred
by such persons in this connection. The foregoing provisions may reduce
the likelihood of derivative litigation against directors and officers
and may discourage or deter stockholders or management from suing
directors for breaches of their duty of care, even though such actions
might benefit the Company and its stockholders.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
CERTAIN ANTI-TAKEOVER DEVICES
Section 203 of the Delaware General Corporation Law (the "Delaware
Takeover Statute") applies to Delaware corporations with a class of
voting stock listed on a national securities exchange, authorized for
quotation on an inter-dealer quotation system or held of record by 2,000
or more persons and which do not elect not to have Section 203 apply. In
general, Section 203 prevents an "interested stockholder" (defined
generally as any person owning, or who is an affiliate or associate of
the corporation and has owned in the preceding three years, 15% or more
of a corporation's outstanding voting stock and affiliates and associates
of such person) from engaging in a "business combination" (as defined)
with a Delaware corporation for three years following the date such
person became an interested stockholder unless (1) before such person
became an interested stockholder, the Board of Directors of the
corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder; (2)
upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding stock held by directors who are also
officers of the corporation and by employee stock plans that do not
provide employees
30
<PAGE>
with the rights to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer); or (3) on or
subsequent to the date such person became an interested stockholder, the
business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting
stock of the corporation not owned by the interested stockholder. Under
Section 203, the restrictions described above also do not apply to
certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had
not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors.
The Delaware Takeover Statute could have the effect of delaying,
deferring or preventing a change of control of the Company.
The Commission has indicated that the use of authorized unissued
shares of voting stock could have an anti-takeover effect. In such
cases, various specific disclosures to the stockholders are required. It
has not been Management's intent to install an anti-takeover device nor
is it expected that the Company's authorized but unissued shares of
Common Stock would be used for that purpose. In addition, it is not
Sonics' intent to rely on any provisions of the Delaware General
Corporation Law, including Section 203, for their anti-takeover effects.
Any business combination, as that term is used in Section 203, would be
reviewed by the Company's Board of Directors solely for its impact on
Sonics.
CERTAIN TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated tax
consequences of an investment in or, as applicable, the exercise of, the
Warrants, the Selling Securityholder Options, the Selling Securityholder
Warrants, and the Common Stock under United States Federal income tax
law. The discussion does not deal with all possible tax consequences of
any such investment or exercise. In particular, the discussion does not
address applicable state and local tax laws, the laws of any country
other than the United States, or the rules applicable to foreign
nationals. Accordingly, each investor should consult his or her tax
advisor regarding an investment in or the exercise of the Warrants, the
Selling Securityholder Options, the Selling Securityholder Warrants, or
the Common Stock. The discussion is based upon laws and relevant
interpretations thereof in effect as of the date of this Prospectus, all
of which are subject to change.
TAXATION OF PURCHASERS OF WARRANTS, SELLING SECURITYHOLDER OPTIONS, AND
SELLING SECURITYHOLDER WARRANTS
Upon a sale or exchange of a Warrant, Selling Securityholder Option
or Selling Securityholder Warrant (collectively "the Exercisable
Securities" and individually an "Exercisable Security,") a holder who is
not a securities dealer will recognize capital gain or loss equal to the
difference between the amount realized upon the sale or exchange and the
amount paid by the holder for such Exercisable Security. Such gain or
loss will be long-term if, at the time of the sale or exchange, the
Exercisable Security was held for more than one year. Long-term capital
gains of non-corporate taxpayers are generally taxed at more favorable
rates than ordinary income or short-term capital gains. Adjustments to
the exercise price or conversion ratio, or the failure to make
adjustments, may result in the receipt of a constructive dividend by the
holder.
Upon the exercise of an Exercisable Security, a holder's tax basis
in the interest acquired will be equal to his tax basis in the
Exercisable Security plus the exercise price of the Exercisable Security.
For an investor who purchased a Warrant directly from the underwriters in
the Company's Initial Offering and who exercises such Warrant, the tax
basis in each share of Common Stock will equal $1, the price paid for the
Warrant, plus $6, the exercise price thereof, or a total of $7. In the
case of the exercise of a Selling Securityholder Option, such basis must
be allocated between the Common Stock and the Selling Securityholder
Warrant received in proportion to their relative fair market values on
the date of exercise. The holding period with respect to the securities
received upon exercise of Exercisable Securities will commence on the day
after the date of exercise. If an Exercisable Security expires without
being exercised, the holder will have a capital loss equal to his tax
basis in the Exercisable Security as if the Exercisable Security had been
sold on such date for no consideration.
TAXATION OF PURCHASERS OF COMMON STOCK
An investor receiving a distribution on the Common Stock generally
will be required to include such distribution in gross income as a
taxable dividend to the extent such distribution is paid from the current
or accumulated earnings and profits of the Company (determined under
United States Federal income tax principles). Distributions in excess of
the earnings and profits of the Company generally will first be treated
as a nontaxable return of capital to the extent of the investor's tax
basis in the Common Stock
31
<PAGE>
and any excess as capital gain. Dividends received on the Common Stock
by United States corporate shareholders will be eligible for the
corporate dividends received deduction.
With certain exceptions, gain or loss on the sale or exchange of the
Common Stock will be treated as capital gain or loss. Such capital gain
or loss will be long-term capital gain or loss if the investor has held
the Common Stock for more than one year at the time of the sale or
exchange.
The foregoing discussion of certain United States Federal tax
consequences is not tax advice. Each person considering the purchase or
exercise of the Exercisable Securities or the Common Stock should consult
his or her own tax advisor with respect to the tax consequences to him or
her of the purchase, exercise, ownership and disposition of the foregoing
Securities, including the applicability and effect of State and local tax
laws, the laws of any country other than the United States, or the effect
of any of the foregoing on a foreign national, and of changes in
applicable tax laws.
WARRANT SOLICITATION FEE
In connection with the Initial Offering, the Company agreed to pay
Monroe Parker a warrant solicitation fee of 4% of the exercise price of
any of the Warrants exercised beginning February 26, 1997 (not including
Warrants exercised by Monroe Parker) if (i) the market price of the
Common Stock on the date the Warrant is exercised is greater than the
exercise price of the Warrant, (ii) the exercise of the Warrant was
solicited by Monroe Parker and the holder of the Warrant designates
Monroe Parker in writing as having solicited such Warrant, (iii) the
Warrant is not held in a discretionary account, (iv) disclosure of the
compensation arrangement is made upon the sale and exercise of the
Warrants, (v) soliciting the exercise is not in violation of Rule 10b-6
under the Exchange Act, and (vi) solicitation of the exercise is in
compliance with the rules of the National Association of Securities
Dealers, Inc.
Rule 10b-6 under the Exchange Act may prohibit Monroe Parker from
engaging in any market making activities with regard to the Company's
securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation by
Monroe Parker of the exercise of Warrants until the later of the
termination of such solicitation activity or the termination (by waiver
or otherwise) of any right that Monroe Parker may have to receive a fee
for the exercise of Warrants following such solicitation. As a result,
Monroe Parker may be unable to provide a market for the Company's
securities during certain periods while the Warrants are exercisable.
See "Risk Factors" and "Concurrent Offering--Selling Securityholders'
Plan of Distribution."
CONCURRENT OFFERING
SELLING SECURITYHOLDER OPTIONS
In connection with the Company's Initial Offering, the Company
agreed to sell the Selling Securityholder Options to Monroe Parker at a
price of $.001 per Warrant for each share of Common Stock covered by the
Selling Securityholder Options. On February 26, 1996, in connection with
the Initial Offering, Monroe Parker assigned its rights to purchase the
Selling Securityholder Options to the Selling Securityholders, each of
whom is an affiliate of Monroe Parker. The Selling Securityholder
Options entitle the Selling Securityholders to purchase 100,000 shares of
Common Stock and 100,000 Warrants. The shares of Common Stock and
Warrants subject to the Selling Securityholder Options are in all
respects identical to the shares of Common Stock and Warrants sold in the
Initial Offering as more fully described under "Description of
Securities." The Selling Securityholder Options are exercisable for a
four-year period commencing February 26, 1997, at a per share exercise
price equal to $8.25 per share of Common Stock and $.25 per Warrant. The
Selling Securityholder Options may not be sold, assigned, transferred,
pledged or hypothecated until February 26, 1997 except to Monroe Parker
or its officers.
In connection with the Company's Initial Offering, the Company
agreed to file, at its expense, during the period beginning February 26,
1997 and ending February 26, 2001, on no more than one occasion at the
request of the holders of a majority of the Selling Securityholder
Options and the underlying shares of Common Stock and Warrants, and to
use its best efforts to cause to become effective, a post-effective
amendment to the Registration Statement or a new registration statement
under the Securities Act, as required to permit the public sale of the
shares of the Common Stock issued or issuable upon exercise of the
Selling Securityholder Options. In addition, the Company agreed to give
advance notice to holders of the Selling Securityholder Options of its
intention to file certain registration statements commencing February 26,
1997 and ending February 26, 2001, and in such cases, holders of such
Selling Securityholder Options or underlying shares of Common Stock and
Warrants shall have the right to require the Company to include all or
part of such shares and Warrants underlying such Selling Securityholder
Options in such registration statement at the Company's expense. The
Selling Securityholders exercised their right to have included in the
Post-Effective Amendment of which this Prospectus forms a part the
Selling Securityholder Securities to permit their public sale.
Consequently, this Prospectus is also being used by the Selling
Securityholders to offer and sell the Selling Securityholder Securities.
32
<PAGE>
For the life of the Selling Securityholder Options, the holders
thereof are given the opportunity to profit from a rise in the market
price of the shares of Common Stock and Warrants, which may result in a
dilution of the interests of other stockholders. As a result, the
Company may find it more difficult to raise additional equity capital if
it should be needed for the business of the Company while the Selling
Securityholder Options are outstanding. The holders of the Selling
Securityholder Options might be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain additional equity
capital on terms more favorable to the Company than those provided by the
Selling Securityholder Options. Any profit realized on the sale of the
shares of the Common Stock issuable upon the exercise of the Selling
Securityholder Options may be deemed additional underwriting
compensation.
SELLING SECURITYHOLDERS
The Selling Securityholders may offer for resale, from time to time,
100,000 Selling Securityholder Options, 100,000 shares of Common Stock
underlying the exercise of the Selling Securityholder Options, 100,000
Selling Securityholder Warrants and 100,000 shares of Common Stock
underlying the exercise of the Selling Securityholder Warrants.
The following table sets forth certain information with respect to
each Selling Securityholder for whom the Company is registering the
Selling Securityholder Securities for exercise and/or resale to the
public. The Company will not receive any of the proceeds from the sale
of such securities. Each of the Selling Securityholders is an affiliate
of Monroe Parker, the underwriter for the Company's securities in the
Initial Offering, and received the Selling Securityholder Securities on
February 26, 1996 in connection with the Company's Initial Offering.
Stephen J. Drescher is a director of the Company. None of the Selling
Securityholders beneficially own more than 1% of the Company's
outstanding Common Stock. See "Management," "Certain Relationships and
Related Transactions," "Warrant Solicitation Fee" and "Concurrent
Offering--Selling Securityholder Options."
NUMBER OF SELLING SECURITYHOLDER
SECURITYHOLDERS OPTIONS BENEFICIALLY OWNED (1)
------------------- --------------------------------
Bryan Herman 40,000
Alan Lipsky 40,000
John Clancy 10,000
Stephen J. Drescher 10,000
Total: 100,000
__________________
(1) Each Selling Securityholder Option entitles the holder thereof to
purchase one share of Common Stock and one Warrant to purchase one
share of Common Stock. Upon exercise of the Selling Securityholder
Options, such shares and Warrants (and shares of Common Stock
underlying exercise of the Warrants) are separately tradeable.
SELLING SECURITYHOLDERS' PLAN OF DISTRIBUTION
The sale of the Selling Securityholder Securities by the Selling
Securityholders may be effected from time to time in transactions (which
may include block transactions by or for the amount of the Selling
Securityholders) in the over-the-counter market or in negotiated
transactions, through the writing of options on the securities, a
combination of such methods of sale or otherwise. Sales may be made at
fixed prices which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices.
The Selling Securityholders may effect such transactions by selling
their securities directly to purchasers, through broker-dealers acting as
agents for the Selling Securityholders or to broker-dealers who may
purchase shares as principals and thereafter sell the securities from
time to time in the over-the-counter market, in negotiated transactions
or otherwise. Such broker-dealers, if any, may receive compensation in
the form of discounts, concessions or commissions from the Selling
Securityholders or the purchasers for whom such broker-dealers may act as
agents or to whom they may sell as principals or otherwise (which
compensation as to a particular broker-dealer may exceed customary
commissions).
Each Selling Securityholder has agreed not to exercise the Selling
Securityholder Options for a period of one year ending February 26, 1997.
Purchasers of the Selling Securityholder Options will not be subject to
such restrictions.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Selling Securityholder Options
may not simultaneously engage in market making activities with respect to
any securities of the Company for
33
<PAGE>
a period of at least two (and possibly nine) business days prior to the
commencement of such distribution. Accordingly, in the event that Monroe
Parker, the underwriter of the Company's Initial Offering, is engaged in
a distribution of the Selling Securityholder Options such firm will not
be able to make a market in the Company's securities during the
applicable restrictive period. However, Monroe Parker has not agreed to
nor is it obliged to act as broker/dealer in the sale of the Selling
Securityholder Options and the Selling Securityholders may be required,
and in the event Monroe Parker is a market maker, will likely be
required, to sell such securities through another broker/dealer. In
addition, each Selling Securityholder desiring to sell Selling
Securityholder Securities will be subject to the applicable provisions of
the Exchange Act and the rules and regulations thereunder, including
without limitation, Rules 10b-6 and 10b-7, which provisions may limit the
timing of the purchases and sales of shares of the Company's securities
by such Selling Securityholders. See "Risk Factors."
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act and any commission
received by them and any profit on the resale of the securities might be
deemed to be underwriting discounts and commissions under the Securities
Act.
LEGAL MATTERS
The validity of Common Stock offered hereby has been passed upon for
the Company by Tyler Cooper & Alcorn, New Haven, Connecticut.
EXPERTS
The financial statements of the Company at June 30, 1994, 1995 and
1996 appearing in this Prospectus and Registration Statement, as amended,
of which this Prospectus is a part, to the extent indicated in their
report have been included herein and in the Registration Statement, as
amended, in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, and upon the authority of said firm as
experts in accounting and auditing.
REPORTS TO STOCKHOLDERS
The Company is subject to the information requirements of the
Exchange Act, and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission at 450 Fifth
Avenue, N.W., Washington, D.C. 20549. Copies of such material can be
obtained from the public reference section of the Commission, at that
address and at prescribed rates. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers that file
electronically with the Commission. The Company furnishes its
stockholders with annual reports containing financial statements audited
by independent auditors and distributes quarterly reports for its first
three quarters of each year containing unaudited interim financial
information. The Company's Common Stock and Warrants are traded on the
Nasdaq National Market System. Information concerning the Company can
also be inspected at the offices of the National Association of
Securities Dealers, Inc., at 1735 K Street, N.W., Washington, D.C.
20006.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement, as amended, on Form SB-2
under the Securities Act relating to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement. For further
information with respect to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement, including the
exhibits and schedules thereto. The Registration Statement, as amended,
including exhibits and schedules thereto may be inspected without charge
at the Commission's principal office at 450 Fifth Avenue, Washington,
D.C. 20549 or at certain of the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon
payment of the fees prescribed by the Commission.
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
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
F-1
<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.
New York, New York
August 20, 1996
F-2
<PAGE>
Sonics & Materials, Inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
December
31,
June 30,
(unaudited)
---------------------------------
- ------------
ASSETS 1995 1996 1996
<S> <C> <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>
Sonics & Materials, Inc.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended June 30, Six months ended December
31,
--------------------------
- --------------------------
(unaudited)
1995 1996 1995 1996
------------ ------------ ------------
- ------------
<S> <C> <C> <C> <C>
Net sales $8,574,845 $9,376,170 $4,392,157
Cost of sales 4,228,024 5,091,789 2,193,824
------------ ------------ ------------
- ------------
Gross profit 4,346,821 4,284,381 2,198,333
Operating expenses
Selling 2,450,438 2,832,251 1,429,415
General and
administrative 676,239 588,923 297,571
Research and
development 349,360 372,087 191,727
Compensation
expense - stock
options 106,000
------------ ------------ ------------
- ------------
Total
operating
expenses 3,582,037 3,793,261 1,918,713
Other income
(expense)
Interest expense (12,817) (100,011) (46,518)
Other 27,751 45,201 10,048
------------ ------------ ------------
- ------------
14,934 (54,810) (36,470)
Income before
income taxes 779,718 436,310 243,150
Provision for
income taxes
(Note L) 45,000 (8,000) 21,668
------------ ------------ ------------
- ------------
NET INCOME $ 734,718 $ 444,310 $ 221,482
============ ============ ============
============
Pro forma data
(Note P)
Historical income
before taxes $ 779,718 $ 436,310 $ 243,150
Subchapter S
stockholders'
tax
distribution
recorded as
salary 160,000 - -
------------ ------------ ------------
- ------------
Income before
provision for
income taxes 939,718 436,310 243,150
Provision for
income taxes 375,887 174,524 97,260
------------ ------------ ------------
- ------------
NET INCOME $ 563,831 $ 261,786 $ 145,890
============ ============ ============
============
Primary income
per share
Net income
per share $.22 $.09 $.05
============ ============ ============
============
Weighted average
common shares
outstanding 2,624,000 3,409,303 2,696,000
============ ============ ============
============
Fully diluted
income per share
Net income
per share $.22 $.08 $.05
============ ============ ============
============
Weighted average
common shares
outstanding 2,624,000 3,440,770 2,696,000
============ ============ ============
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Sonics & Materials, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock
-------------------
Additional
Par paid-in Retained
Stockholders'
Shares value capital earnings equity
--------- -------- ---------- ----------
- ----------
<C> <C> <C> <C> <C>
Balance -
June 30, 1994 455,555 $ 45,556 $ 210,181 $2,524,312
$2,780,049
Purchase of
options
transactions (76,000)
(76,000)
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
========= ======== ========== ==========
==========
(Unaudited)
December 31, 1996
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
Sonics & Materials, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended December
31,
Year ended June 30, (unaudited)
--------------------------
- ---------------------------
1995 1996 1995 1996
------------ ------------ -------------
- ------------
<S> <C> <C> <C> <C>
Cash flows from
operating
activities
Net income $ 734,718 $ 444,310 $ 221,482
Adjustments to
reconcile net
income to net
cash provided
by (used in)
operating
activities
Depreciation
of equipment
and leasehold
improvements 203,425 236,105 79,307
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) 356,602
Inventory (165,867) (1,190,475) (460,695)
Prepaid
income
taxes (30,465)
Other assets (169,351) (43,901) (7,165)
Accounts
payable and
accrued
liabilities 62,721 244,354 7,953
------------ ------------ -------------
- ------------
Net cash
provided by
(used in)
operating
activities 56,059 (426,555) 197,484
------------ ------------ -------------
- ------------
Cash flows from
investing
activities
Capital
expenditures
on equipment
and leasehold
improvements (148,595) (149,512) (71,150)
Proceeds from
sale of
equipment 2,500
Short-term
investments (3,028,032)
------------ ------------ -------------
- ------------
Net cash used
in investing
activities (148,595) (3,175,044) (71,150)
------------ ------------ -------------
- ------------
Cash flows from
financing
activities
Distribution to
stockholder (555,000) (495,730) (21,950)
Cash paid for
stock options (182,000)
Proceeds from
note payable,
net 525,000 150,000 (150,000)
Proceeds from
demand note
payable 500,000
Deferred
registration
costs (70,000) (141,874)
Proceeds from
issuance of
common stock 3,832,968
------------ ------------ -------------
- ------------
Net cash
provided by
financing
activities 218,000 3,487,238 (313,824)
------------ ------------ -------------
- ------------
NET INCREASE
(DECREASE)
IN CASH AND
CASH
EQUIVALENTS 125,464 (114,361) (187,490)
Cash and cash
equivalents at
beginning of
year 62,026 187,490 187,490
------------ ------------ -------------
- ------------
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 $ 45,424
============ ============ =============
============
Income taxes $ 32,000 $ 150,000
============ ============ =============
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
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>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
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 and December 31, 1996, the major
components of other assets were:
<TABLE>
<CAPTION>
June 30, June 30, December
31,
1995 1996 1996
--------- ---------
- ------------
<S> <C> <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 and December 31, 1996, the major
components of other accrued expenses and sundry liabilities
were:
<TABLE>
<CAPTION>
June 30, June 30, December
31,
1995 1996 1996
--------- ---------
- ------------
<S> <C> <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>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
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.
12. Unaudited Financial Information
The information as of and for the six months ended December
31, 1995 and 1996 is unaudited, but includes all adjustments,
consisting of only normal recurring accruals, considered
necessary for a fair presentation of financial positions and
results of operations.
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
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
NOTE D - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, June 30, December
31,
1995 1996 1996
----------- -----------
- ------------
<S> <C> <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, December
31,
1995 1996 1996
----------- -----------
- ------------
<S> <C> <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
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
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 non
-interest -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:
Year ending June 30,
1997 $232,000
1998 84,000
========
$316,000
Rental expense for operating leases totaled approximately
$236,000 and $229,000, $121,000 and $*** for the years ended
June 30, 1995 and 1996, and the six months ended December
1995, and 1996 respectively.
F-11
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
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 $8.25
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
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
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, options to purchase 69,500 shares of common
stock were granted to 26 officers, directors and key
employees of the Company. The options will expire on
February 11, 2006.
F-13
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
NOTE I (CONTINUED)
b. Non-qualified Stock Options
The Company has also granted a non-qualified 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 non-qualified 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 Non-qualified
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 , $64,000 for the years
ended June 30, 1995 and, 1996, and $41,000 and $*** for the six months
ended December 31, 1995 and 1996 respectively, which have been allocated
to cost of sales, selling, general and administrative, and research and
development expenses.
F-14
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
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, Six months ended December
31,
_______________________
____________________________
1995 1996 1995
1996
__________ ___________ ______________
___________
<S> <C> <C> <C> <C>
United States $5,699,000 $6,320,000 $ 2,840,000
Europe 1,279,000 1,376,000 881,000
Asia/Pacific Rim 1,159,000 967,000 467,000
Canada and Mexico 269,000 396,000 144,000
Other 169,000 317,000 60,000
__________ ___________ _____________
___________
$8,575,000 $9,376,000 $ 4,392,000
========== =========== =============
=========== </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>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
NOTE L (CONTINUED)
The components of the provision for taxes on income are as follows:
<TABLE>
<CAPTION>
Year ended June 30, Six months ended December
31,
___________________________
______________________________
1995 1996 1995
1996
__________ ____________ ______________
____________
<S> <C> <C> <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 $21,668
Deferred tax
benefit (12,000)
__________ ____________ ______________
____________
45,000 10,000
__________ ____________ ______________
____________
Total income
tax provision
(benefit) $45,000 $ (8,000)
=========== ============== ===============
============
</TABLE>
<TABLE>
<CAPTION>
The tax effect of temporary differences which give rise to deferred
tax assets and liabilities at June 30, 1996 are as follows:
<S> <C>
Accrued expenses $22,000
Allowance for doubtful accounts 17,000
Inventory 41,000
Net deferred tax asset $80,000
</TABLE>
F-16
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
NOTE L (CONTINUED)
<TABLE>
<CAPTION>
The following is a reconciliation of the statutory Federal income
tax rate to the effective rate reported in the financial statements:
Year ended June 30, Six months ended
December 31,
__________________________________
_______________________________
1995 1996 1995
1996
__________________________________
_______________________________
Percent Percent Percent
Percent
of of of
of
Amount Income Amount Income Amount Income
Amount Income
_______ _______ ________ _______ _______ _______
______ _______
<S> <C> <C> <C> <C> <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 $21,668 8.9%
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)% $21,668 8.9%
======= ======= ======== ======= ======= =======
====== =======
</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 - 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>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
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 and for the six months
ended December 31, 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>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996
December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(continued)
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, Six months ended
December 31,
__________________________
______________________________
1995 1996 1995
1996
___________ ___________ _____________
______________
<S> <C> <C> <C> <C>
Federal $291,312 $135,256 $75,376
State and local 84,575 39,268 21,884
___________ __________ _____________
______________
$375,887 $174,524 $97,260
=========== ========== =============
==============
</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>
No dealer, salesperson, or any other person has been authorized to give
any information or to make any representations or projections of future
performance other than those contained in this Prospectus, any such other
information, projections or representations, if given or made, must not
be relied upon as having been so authorized. The delivery of this
prospectus or any sale hereunder at any time does not imply that the
information herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of
any offer to buy any of the common stock offered herein in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation.
________________________
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
Prospectus Summary..................................2
Summary Financial Information.......................4
Risk Factors........................................5
Cautionary Statement Regarding
Forward-Looking Information.......................8
Dilution............................................9
Market for Company's Common Equity
and Related Stockholder Matters..................10
Use of Proceeds....................................10
Dividend Policy....................................10
Capitalization.....................................11
Selected Financial Data............................12
Management's Discussion and Analysis of
Financial Condition and Results of Operations....13
Business...........................................15
Management.........................................23
Certain Relationships and Related Transactions.....26
Security Ownership of Certain Beneficial Owners....27
Description of Securities..........................27
Certain Tax Considerations.........................31
Warrant Solicitation Fee...........................32
Concurrent Offering................................32
Legal Matters......................................34
Experts............................................34
Reports to Stockholders............................34
Additional Information.............................34
Index to Financial Statements.....................F-1
</TABLE>
<PAGE>
1,725,000 Shares
of
Common Stock
(Underlying the Exercise of Outstanding Warrants)
100,000 Options to Purchase Shares of Common
Stock and Warrants
100,000 Shares of Common Stock
(Underlying the Exercise of the Options)
100,000 Warrants to Purchase Common Stock
(Underlying the Exercise of the Options)
100,000 Shares of Common Stock
(Underlying the Exercise of the Warrants)
SONICS & MATERIALS, INC.
________________________
PROSPECTUS
________________________
February ____, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Registrant's Board of Directors has authorized it to provide a
general indemnification to its officers, directors, employees and agents
regarding any claims or liabilities incurred in the course of their
employment. In addition, its certificate of incorporation and by-laws
provide for such indemnification.
The Delaware General Corporation Law ("DGCL") provides that each
officer, director, employee and agent of the Company shall be indemnified
by the Registrant against certain costs, expenses and liabilities which
he or she may incur in his or her capacity as such.
Section 145 of DGCL - "Indemnification of Officers, Directors,
Employees and Agents; Insurance" provides:
"(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and , with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, create of presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement
of such action or suit if he acted in good faith in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation only
as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct
set forth on subsections (a) and (b) of this section. Such determination
shall be made (1) by a majority vote of the directors who are not parties
to such action, suit or proceeding even though less than a quorum, or
(2)if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (c) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or
II-1
<PAGE>
proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation
as authorized in this section. Such expenses (including attorneys' fees)
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent or another
corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this action.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation of merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position
under this section with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services
by, such director, officer, employee or agent with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a corporation's
obligation to advance expenses (including attorneys' fees)."
II-2
<PAGE>
<TABLE>
<CAPTION>
Item 25. Other Expenses of Issuance and Distribution(1)(2)
<S> <C>
Registration fee............................$ 0
NASD filing fee............................. 0
Blue sky fees and expenses.................. 3,000
Legal fees and expenses..................... 20,000
Accounting fees and expenses................ 3,000
Warrant Agent Fees.......................... 1,000
Printing and engraving...................... 3,000
Miscellaneous............................... 2,000
Total.................................. 40,000
===========
</TABLE>
_____________________
(1) Expenses incurred in connection with the proposed offering
hereunder.
(2) All expenses will be paid by the Company and are estimated.
Item 26. Recent Sale of Unregistered Securities
None.
Item 27. Exhibits
The following is a list of exhibits filed as part of this
Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Method of Filing
<S> <C> <C>
1.1 Underwriting Agreement (3)
1.2 Selected Dealer Agreement (3)
1.3 Financial Consulting Agreement (3)
1.5 Form of Underwriter's Options to purchase Shares (3)
and Warrants
3.1 Certificate of Incorporation of the Registrant, (3)
as amended
3.2 Amended By-laws of the Registrant (2)
4.1 Specimen Common Stock Certificate of Registrant (2)
4.2 Specimen Warrant Certificate of Registrant (3)
4.3 Form of Warrant Agreement between Registrant (3)
and Warrant Agent
5.1 Opinion re: legality To be
filed by
amendment
10.1 Forms of Employment Agreement between the (1)
Registrant and Robert S. Soloff
10.3 Incentive Stock Option Plan and form of Stock (1)
Option Agreement
10.4 Original Office Lease and Amendments between (1)
the Registrant and Nicholas R. Dinapoli, Jr. DBA
Dinapoli Holding Co. (Danbury, CT)
10.5 Lease between Registrant and Aston Investment (1)
Associates (Aston, PA)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Method of Filing
<S> <C> <C>
10.6 Amended Lease between Registrant and Robert Lenert (5)
(Naperville, IL)
10.7 Lease between Registrant and Janine Berger (Gland, (1)
Switzerland)
10.8 Form of Sales Representative Agreement (1)
10.9 Form of Sales Distribution Agreement (1)
10.10 Consulting Agreement dated October 17, 1995 (3)
between the Registrant and Alan Broadwin
16.1 Change of Accountants' Letter (1)
23.1 Consent of Independent Certified Public To be
Accountants filed by
amendment
23.2 Consent of Independent Public Accountants (1)
23.3 Consent of Company Counsel (to be included To be
in its opinion to be filed as Exhibit 5.1) filed by
amendment
24.1 Power of Attorney Filed
herewith
27.1 Financial Data Schedule Filed
herewith
</TABLE>
____________________
(1) Previously filed with Registration Statement No. 33-96414.
(2) Previously filed with Amendment No. 1 to Registration Statement No.
33-96414.
(3) Previously filed with Amendment No. 2 to Registration Statement No.
33-96414.
(4) Previously filed with Amendment No. 3 to Registration Statement No.
33-96414.
(5) Previously filed with Amendment No. 4 to Registration Statement No.
33-96414.
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendments to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information, set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-4
<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy
as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
as amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form SB-2 and
has authorized this Post-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, in the City of
Danbury, State of Connecticut on January 8, 1997.
SONICS & MATERIALS, INC.
By: /s/ Robert S. Soloff
___________________________________
Robert S. Soloff
Chairman and President
II-6
<PAGE>
In accordance with the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 1 to the Registration Statement was
signed by the following persons in the capacities and on the dates
stated:
Signature Title Date
_________ _____ ____
* Chairman, President, Treasurer, January 8,
1997
________________________ Chief Executive Officer and
(Robert S. Soloff) Chief Financial Officer
/s/ Lauren H. Soloff Secretary and Director January 8,
1997
________________________
(Lauren H. Soloff)
* Director January 8,
1997
________________________
(Carole Soloff)
* Director January 8,
1997
________________________
(Jack T. Tyransky)
* Director January 8,
1997
_______________________
(Alan Broadwin)
* Accounting Manager; Principal January 8,
1997
_______________________ Accounting Officer;
(Christopher S. Andrade Principal Accounting Officer
* Director January 8,
1997
_______________________
(Stephen J. Drescher)
*/s/ Lauren H. Soloff January 8,
1997
_______________________
By Lauren H. Soloff
as attorney-in-fact
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
Exhibit
Number Description of Document Method of
Filing
________ _______________________
________________
1.1 Underwriting Agreement (3)
1.2 Selected Dealer Agreement (3)
1.3 Financial Consulting Agreement (3)
1.5 Form of Underwriter's Options to purchase Shares (3)
and Warrants
3.1 Certificate of Incorporation of the Registrant, (3)
as amended
3.2 Amended By-laws of the Registrant (2)
4.1 Specimen Common Stock Certificate of Registrant (2)
4.2 Specimen Warrant Certificate of Registrant (3)
4.3 Form of Warrant Agreement between Registrant (3)
and Warrant Agent
5.1 Opinion re: legality To be filed
by
amendments
10.1 Forms of Employment Agreement between the (1)
Registrant and Robert S. Soloff
10.3 Incentive Stock Option Plan and form of Stock (1)
Option Agreement
10.4 Original Office Lease and Amendments between the (1)
Registrant and Nicholas R. Dinapoli, Jr. DBA
Dinapoli Holding Co. (Danbury, CT)
10.5 Lease between Registrant and Aston Investment (1)
Associates (Aston, PA)
10.6 Amended Lease between Registrant and Robert (5)
Lenert (Naperville, IL)
10.7 Lease between Registrant and Janine Berger (1)
(Gland, Switzerland)
10.8 Form of Sales Representative Agreement (1)
10.9 Form of Sales Distribution Agreement (1)
10.10 Consulting Agreement dated October 17, 1995 (3)
between the Registrant and Alan Broadwin
16.1 Change of Accountants' Letter
23.1 Consent of Independent Certified Public To be filed
by
Accountants amendment
23.2 Consent of Independent Public Accountants (1)
23.3 Consent of Company Counsel (to be included in To be filed
by
its opinion to be filed as Exhibit 5.1) amendment
24.1 Power of Attorney Filed
herewith
27.1 Financial Data Scheduled Filed
herewith
____________________
</TABLE>
(1) Previously filed with Registration Statement No. 33-96414.
(2) Previously filed with Amendment No. 1 to Registration Statement No.
33-96414.
(3) Previously filed with Amendment No. 2 to Registration Statement No.
33-96414.
(4) Previously filed with Amendment No. 3 to Registration Statement No.
33-96414.
(5) Previously filed with Amendment No. 4 to Registration Statement No.
33-96414.
II-8
POWER OF ATTORNEY
Each director and/or officer of Sonics & Materials, Inc. whose
signature appears below hereby appoints Lauren H. Soloff as his or her
attorney-in-fact with like authority to sign in his or her name and
behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, any and all amendments to
registration statement no. 33-96414 and other documents and to take such
other action as such attorney-in-fact may deem necessary or appropriate
in connection with such registration statement, including filings with
state securities commissions.
In witness whereof, the undersigned has duly executed this power
of attorney on the 8th day of January, 1997.
/s/ Robert S. Soloff Chairman, President,
--------------------------- Treasurer, Chief
Robert S. Soloff Executive Officer, and
Chief Financial Officer
/s/ Carole Soloff Director
---------------------------
Carole Soloff
/s/ Jack T. Tyransky Director
---------------------------
Jack T. Tyransky
/s/ Alan Broadwin Director
---------------------------
Alan Broadwin
/s/ Stephen J. Drescher Director
---------------------------
Stephen J. Drescher
/s/ Christopher S. Andrade Accounting Manager,
--------------------------- Principal Accounting
Christopher S. Andrade Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 73,129
<SECURITIES> 3,028,032
<RECEIVABLES> 1,953,941
<ALLOWANCES> 0
<INVENTORY> 3,248,782
<CURRENT-ASSETS> 8,525,676
<PP&E> 301,706
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,180,506
<CURRENT-LIABILITIES> 2,515,191
<BONDS> 0
0
0
<COMMON> 105,003
<OTHER-SE> 6,560,312
<TOTAL-LIABILITY-AND-EQUITY> 9,180,506
<SALES> 9,376,170
<TOTAL-REVENUES> 9,376,170
<CGS> 5,091,789
<TOTAL-COSTS> 3,793,261
<OTHER-EXPENSES> (45,201)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,011
<INCOME-PRETAX> 436,310
<INCOME-TAX> (8,000)
<INCOME-CONTINUING> 444,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 444,310
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
