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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported):
JULY 25, 1997
SONICS & MATERIALS, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-20753 06-0854713
(Commission File Number) (IRS Employer Identification No.)
4 WEST KENOSIA AVENUE
DANBURY, CONNECTICUT 06810
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code
(203) 744-4400
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This Amendment No. 1 to the Registrant's Current Report on Form 8-K,
dated July 25, 1997, is made in order to file, as required in Items 7(a) and
7(b), respectively, of Form 8-K, the audited financial statements of Tooltex,
Inc. ("Tooltex") and pro-forma financial information in connection with the
Registrant's acquisition of all of Tooltex's common stock.
Items 7(a) and 7(b) of the Registrant's Current Report on Form 8-K,
dated July 25, 1997 are amended to read as follows:
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
(a) Financial Statements of Business Acquired:
Balance sheet of Tooltex, Inc. as of June 30, 1997 and the
related Statements of Operations and Accumulated Deficit and Cash Flows for
the years ended June 30, 1997 and 1996, together with the report thereon by
Grant Thornton LLP, independent accountants, are set forth as follows.
(b) Pro Forma Information
Sonics & Materials, Inc. and Tooltex, Inc. Unaudited Pro Forma
Consolidated Condensed Balance Sheet as of June 30, 1997, together with
unaudited Sonics & Materials, Inc. and Tooltex, Inc. Pro Forma Consolidated
Condensed Statement of Operations for the year ended June 30. 1997.
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ITEM 7(a)
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TOOLTEX, INC.
June 30, 1997 and 1996
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C O N T E N T S
Page
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Report of Independent Certified Public Accountants 3
Financial Statements
Balance Sheet 4
Statements of Operations and Accumulated Deficit 5
Statements of Cash Flows 6
Notes to Financial Statements 7 - 11
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REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Stockholders
TOOLTEX, INC.
We have audited the accompanying balance sheet of Tooltex, Inc. as of June 30,
1997, and the related statements of operations and accumulated deficit, and cash
flows for the years ended June 30, 1997 and 1996. 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 Tooltex, Inc. as of June 30,
1997, and the results of its operations and its cash flows for the years ended
June 30, 1997 and 1996 in conformity with generally accepted accounting
principles.
Grant Thornton LLP
New York, New York
October 5, 1997
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Tooltex, Inc.
BALANCE SHEET
June 30, 1997
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,170
Accounts receivable - trade (net of allowance for
doubtful accounts of $52,000) 131,451
Other receivables 75,252
Inventory 338,204
Refundable income taxes 14,485
-----------
Total current assets 561,562
FURNITURE AND EQUIPMENT - AT COST
Machinery and equipment $ 141,382
Computer and office equipment 100,768
Furniture and fixtures 18,584
Leasehold improvements 34,135
---------
294,869
Less accumulated depreciation (143,890) 150,979
---------
OTHER ASSETS 252
-----------
$ 712,793
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - bank $ 461,000
Accounts payable 711,265
Accrued expenses 106,224
Customer advances 83,374
-----------
Total current liabilities 1,361,863
STOCKHOLDERS' DEFICIT
Common stock - no par value; 750 shares authorized;
187 issued and 181 outstanding $ 2,125
Accumulated deficit (649,359)
--------
(647,234)
Less 6 shares of common stock held in treasury, at cost (1,836) (649,070)
---------- -----------
$ 712,793
===========
</TABLE>
The accompanying notes are an integral part of this statement.
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Tooltex, Inc.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Year ended June 30,
<TABLE>
<CAPTION>
1997 1996
----------- -------
<S> <C> <C>
Net sales $1,944,170 $2,036,478
Cost of goods sold 1,732,327 1,578,732
--------- ---------
Gross profit 211,843 457,746
Selling, general and administrative 508,300 411,712
---------- ----------
Operating (loss) income (296,457) 46,034
Other income (expense)
Interest expense (63,047) (44,076)
Interest income 1,802
Loss on disposal of furniture and equipment (11,114)
Other 33,813 (7,302)
----------- ------------
(38,546) (51,378)
----------- -----------
Loss before income taxes (335,003) (5,344)
Income tax benefit (expense) 14,485 (10,378)
----------- -----------
NET LOSS (320,518) (15,722)
Accumulated deficit at beginning of year (328,841) (313,119)
---------- ----------
Accumulated deficit at end of year $ (649,359) $ (328,841)
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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Tooltex, Inc.
STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
1997 1996
----------- -------
<S> <C> <C>
Cash flows from operating activities
Net loss $(320,518) $ (15,722)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities
Depreciation 43,741 17,476
Loss on disposal of furniture and equipment 11,114
Increase (decrease) in cash due to changes in
assets and liabilities
Accounts and other receivables 204,256 76,690
Inventory 59,692 (370,759)
Refundable income taxes and other assets (17,956)
Accounts payable 90,982 251,730
Accrued expenses 57,078 (30,533)
Customer advances (103,941) 37,745
----------- ---------
Net cash provided by (used in) operating activities 24,448 (33,373)
----------- ---------
Cash flows from investing activities
Purchase of furniture and equipment (82,853) (67,024)
Proceeds from sale of furniture and equipment 4,050 2,300
----------- ---------
Net cash used in investing activities (78,803) (64,724)
----------- ---------
Cash flows from financing activities
Net proceeds from notes payable - bank 38,910 115,712
----------- ---------
NET (DECREASE) INCREASE IN CASH (15,445) 17,615
Cash at beginning of year 17,615
----------- ---------
Cash at end of year $ 2,170 $ 17,615
=========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 37,143 $ 44,076
=========== =========
Income taxes $ 7,484 $ 10,375
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
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Tooltex, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
Tooltex, Inc. (the "Company"), located in Grove City, Ohio, is a
manufacturer of various types of specialized systems primarily used in
plastics assembly. The Company supplies its machines to various commercial
customers located throughout the U.S. A summary of significant accounting
policies applied in the preparation of the accompanying financial
statements follows:
1. Inventory Valuation
Inventory is stated at the lower of cost or market; cost is determined
using the first-in, first-out method.
2. Depreciation and Amortization
Depreciation and amortization are provided in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives, principally using accelerated methods.
3. Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures 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.
4. Revenue Recognition
The Company recognizes revenue when goods are shipped to the customer.
Prepayments on significant machine sales are recorded as a liability
until the goods are shipped and are reflected as customer advances in
the accompanying balance sheet.
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Tooltex, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997 and 1996
NOTE B - INVENTORY
The components of inventories at June 30, 1997 are as follows:
Finished goods $ 31,746
Work in process 278,626
Raw materials 121,532
Valuation reserve (93,700)
--------
$338,204
========
NOTE C - DEBT
In April 1997, all existing debt was refinanced into one 60-day note in the
principal amount of $461,000, with a maturity date of June 30, 1997. The
note accrues interest at 10% and was extended orally by the bank to July 31,
1997. At July 31, 1997, the debt was renegotiated into a four-year term note
with the bank by the acquiring company (Note G). The renegotiated agreement
provides for interest at the prime rate plus three quarters of one percent.
The acquiring company has guaranteed the loan.
The original debt agreement contained financial covenants specifying minimum
net worth and a total debt to net worth ratio. The Company was in violation
of these covenants at June 30, 1997. The debt was collateralized by
substantially all of the assets of the Company. The original debt was
personally guaranteed by the two stockholders.
NOTE D - 401(k) PLAN
The Company sponsors a 401(k) plan covering all eligible employees. Under
provisions of the plan, eligible employees are those who have been with the
Company for at least ninety days and are at least 18 years old. The plan
provides for matching Company contributions up to 25% of the
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Tooltex, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997 and 1996
NOTE D (CONTINUED)
employee contribution to a maximum of 4% of total employee compensation. The
employees are 100% vested in their contributions. Contributions made to the
plan by the Company are vested according to the following schedule:
Vested
Years of service percentage
---------------- ----------
2 20%
3 40
4 60
5 80
6 100
The Company contributed a matching amount of $4,000 and $6,000 for the years
ended June 30, 1997 and 1996, respectively.
NOTE E - INCOME TAXES
At June 30, 1997, the Company had a gross deferred tax asset of
approximately $188,000. This asset arises from the use of reserves for
accounts receivable and inventory, and a net operating loss carryforward.
Because of the uncertainty of the realization of this asset, a full.
valuation allowance has been recorded against the tax benefit. Therefore,
no deferred tax asset has been recognized in the accompanying financial.
statements.
The Company has a net operating loss carryforward of $408,000 at June 30,
1997. The Internal Revenue Code, however, places a limitation on the
utilization of the carryforwards when an ownership change, as defined in
the tax law, occurs. As a result of the acquisition of the Company (Note G),
the utilization of the carryforward will be limited.
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Tooltex, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997 and 1996
NOTE F - RELATED PARTY MATTERS
Building Lease
During the years ended June 30, 1996 and 1995, the Company had advanced a
total of $54,000 to its current landlord (a company owned by two of the
Company's stockholders) for the purpose of constructing a new building. The
Company occupied the building in October, 1996 and leases these premises
from the landlord in accordance with a five-year noncancellable operating
lease that commenced on July 25, 1997 and that expires on July 24, 2002. The
original lease for this building with the landlord had commenced in October,
1996 and was subsequently revised to reflect the terms above and provided
for future minimum rental payments at June 30, 1997 as follows:
Fiscal year ending Amount
------------------ ------
1998 $ 78,654
1999 84,320
2000 84,320
2001 84,320
2002 84,320
Thereafter 5,734
--------
$421,668
========
Rent expense was $62,000 and $21,000 in 1997 and 1996, respectively.
Approximately $57,000 of the 1997 rent expense was paid to the landlord.
At June 30, 1997, $25,000 of the funds advanced to the landlord were
outstanding and included in other receivables in the accompanying balance
sheet. Included in accounts payable at June 30, 1997 was rent payable to the
landlord of $12,700.
Trade Purchases
During the years ended June 30, 1996 and 1997, the Company had purchases of
approximately $292,600 and $83,000, respectively, from a vendor that
subsequently purchased all of the outstanding stock of the Company on July
25, 1997 (Note G).
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Tooltex, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997 and 1996
NOTE G - SUBSEQUENT EVENTS
On July 25, 1997, the stock of the Company was purchased by a vendor which
is publicly held. The Company has a receivable from this vendor of $35,000
at June 30, 1997, and payables to the vendor of $254,000 and $245,000 at
June 30, 1997 and 1996, respectively.
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ITEM 7(b) PRO-FORMA FINANCIAL STATEMENTS OF SONICS & MATERIALS, INC. TO
REFLECT THE ACQUISITION OF TOOLTEX.
Sonics & Materials, Inc.
and Tooltex, Inc.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed balance sheet has been
prepared by taking the June 30, 1997 balance sheets of Sonics & Materials, Inc.
(the "Company") and Tooltex, Inc. ("Tooltex") and giving effect to the
acquisition of the stock of Tooltex by the Company as if it occurred as of June
30, 1997. The pro forma combined condensed balance sheet has been prepared for
information purposes only and does not purport to be indicative of the financial
condition that necessarily would have resulted had this transaction taken place
at June 30, 1997.
The following unaudited pro forma consolidated condensed statement of operations
has been prepared by taking the statements of operations for the year ended June
30, 1997 of the Company and Tooltex and giving effect to the acquisition of the
stock of Tooltex as if it occurred as of the beginning of the year. The revenues
and results of operations included in the unaudited pro forma consolidated
condensed statement of operations for the year ended June 30, 1997 are not
considered necessarily to be indicative of anticipated results of operations for
periods subsequent to the transaction, nor are they considered necessarily to be
indicative of the results of operations for the periods specified had the
transaction actually been completed at the beginning of the year.
These financial statements should be read in conjunction with the notes to the
unaudited pro forma consolidated condensed financial statements, the financial
statements of the Company and related notes thereto (as previously filed on Form
10-KSB), and the financial statements of Tooltex and related notes thereto,
included herein.
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Sonics & Materials, Inc.
and Tooltex, Inc.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
As of June 30, 1997
<TABLE>
<CAPTION>
Sonics
Sonics Tooltex Pro forma pro
ASSETS historical historical adjustments forma
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 271,593 $ 2,170 $ (70,000)(a) $ 203,763
Short-term investments 1,665,470 1,665,470
Accounts receivable, net of
allowance for doubtful accounts 1,854,118 131,451 1,985,569
Other receeivables 75,252 (25,002)(b) 50,250
Inventories 3,718,250 338,204 4,056,454
Prepaid income taxes 150,061 14,485 164,546
Deferred income taxes 80,000 80,000
Other current assets 137,562 137,562
---------- -------- ---------- -----------
Total current assets 7,877,054 561,562 (95,002) 8,343,614
PROPERTY AND EQUIPMENT, NET 364,354 150,979 515,333
GOODWILL 1,302,655 (c) 1,302,655
OTHER ASSETS, NET 917,709 252 (229,183)(d) 688,778
---------- -------- ---------- -----------
$9,159,117 $712,793 $ 978,470 $10,850,380
========== ======== ========== ===========
</TABLE>
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Sonics & Materials, Inc.
and Tooltex, Inc.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
As of June 30, 1997
<TABLE>
<CAPTION>
Sonics
LIABILITIES AND Sonics Tooltex Pro forma pro
STOCKHOLDERS' EQUITY historical historical adjustments forma
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 116,600 $ 116,600
Notes payable 500,000 $ 461,000 961,000
Accounts payable 804,653 711,265 $100,000 (e) 1,615,918
Commissions payable 235,203 235,203
Customer advance 83,374 83,374
Other accrued expenses and sundry
liabilities 278,310 106,224 384,534
---------- ---------- -------- -----------
Total current liabilities 1,934,766 1,361,863 100,000 3,396,629
LONG-TERM DEBT 406,911 406,911
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock 105,603 2,125 (25)(f) 107,703
Additional paid-in capital 6,539,597 227,300 (f) 6,766,897
Retained earnings (deficit) 172,240 (649,359) 649,359 (f) 172,240
Treasury stock (1,836) 1,836 (f)
---------- ---------- -------- -----------
6,817,440 (649,070) 878,470 7,046,840
---------- ---------- -------- -----------
$9,159,117 $ 712,793 $978,470 $10,850,380
========== ========== ======== ===========
</TABLE>
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Sonics & Materials, Inc.
and Tooltex, Inc.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
<TABLE>
<CAPTION>
Sonics
Sonics Tooltex Pro forma pro
historical historical adjustments forma
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Net sales $10,827,525 $1,944,170 $ (83,172) (g) $12,688,523
Cost of sales 6,410,584 1,732,327 (83,172) (g) 8,059,739
----------- --------- --------- -----------
Gross profit 4,416,941 211,843 - 4,628,784
----------- ---------- -------------- -----------
Operating expenses
Selling, general and administrative 3,980,960 508,300 68,126 (h) 4,557,386
Research and development 418,465 418,465
------------ ---------- --------- -----------
4,399,425 508,300 68,126 4,975,851
------------ ---------- --------- -----------
Other income (expense)
Interest expense (79,565) (63,047) (142,612)
Other 110,471 24,501 134,972
------------ ---------- --------- -----------
30,906 (38,546) (7,640)
------------ ---------- --------- -----------
Income (loss) before income
taxes 48,422 (335,003) (68,126) (354,707)
Provision (benefit) for income taxes 19,368 (14,485) (116,946) (i) (112,063)
------------ ---------- --------- -----------
NET INCOME (LOSS) $ 29,054 $ (320,518) $ 48,820 $ (242,644)
============ ========== ========= ============
Net income (loss) per share $.01 $(.07)
=== ====
Weighted average shares outstanding,
including dilutive securities 4,247,104 3,575,383
========= =========
</TABLE>
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Sonics & Materials, Inc.
and Tooltex, Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The accompanying pro forma unaudited consolidated condensed balance sheet and
statement of operations present the financial position and results of operations
of Sonics & Materials, Inc. (the "Company") giving effect to the acquisition on
July 25, 1997 of 100% of the outstanding common stock of Tooltex, Inc.
("Tooltex")
At closing, the Company paid the Tooltex shareholders $70,000 in cash. The
balance of the purchase price consisted of: (i) 70,000 shares of the Company's
common stock, par value $.03 (valued at $205,800) and (ii) options to purchase
10,000 shares of the Company's common stock (valued at $23,600). The pro forma
financial statements reflect these amounts tendered at the closing.
The 70,000 shares of common stock are held in escrow as indemnification of the
Company against any and all losses, costs, damages and expenses which the
Company may sustain resulting from, arising out of, relating to or caused by:
(a) noncompliance by either shareholder with any of his obligations hereunder or
nonperformance by either shareholder of any covenant contained in the merger
agreement, (b) any inaccuracy in or breach of any representation or warranty
made by the shareholders in the merger agreement or transaction, or (c) any
personal injury claims relating to any product sold by Tooltex prior to July 25,
1997 (the "Closing Date").
The adjustments below were prepared based on data currently available and in
some cases are based on estimates or approximations. It is possible that the
actual amounts to be recorded may have an impact on the results of operations
and the balance sheet different from that reflected in the accompanying pro
forma unaudited consolidated condensed financial statements. It is therefore
possible that the entries presented below will not be the amounts actually
recorded at the closing date.
Balance sheet at June 30, 1997:
(a) Cash and cash equivalents
Consideration paid for Tooltex common stock $ (70,000)
(b) Accounts receivable
Conversion of balance due from BPT, a related
party to Tooltex, to note receivable (25,002)
(c) Goodwill
Additional cost in excess of net assets acquired 1,302,655
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Sonics & Materials, Inc.
and Tooltex, Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
Balance sheet at June 30, 1997 (continued):
(d) Other assets
Forgiveness of other accounts receivable, as
consideration paid $(254,185)
Promissory note from BPT, a related party to Tooltex 25,002
---------
$(229,183)
=========
(e) Accounts payable
Acquisition-related fees $ 100,000
=========
(f) Stockholders' equity
To eliminate common stock, deficit and treasury
stock of Tooltex $ 649,070
To record issuance of options in connection with the
acquisition 23,600
To record issuance of common stock in connection with
the acquisition 205,800
---------
$ 878,470
=========
Statement of operations for the year ended June 30, 1997:
(g) Net sales and cost of sales
To eliminate intercompany sales and purchases $ (83,172)
=========
(h) General and administrative expenses
To record compensation of Tooltex shareholders based
on employment agreement in excess of amount
currently being paid $ 24,704
To amortize goodwill based on a thirty-year life 43,422
---------
$ 68,126
=========
(i) Provision (benefit) for income taxes
To adjust tax provision (benefit) on a consolidated basis $(116,946)
=========
</TABLE>
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned hereto
duly authorized.
SONICS & MATERIALS, INC.
Date: October 8, 1997 By: /s/ ROBERT S. SOLOFF
--------------------------------
Robert S. Soloff, Chairman and
Chief Executive Officer
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