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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------------------
FORM 10-QSB
---------------------------
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-20753
SONICS & MATERIALS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 06-0854713
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 WEST KENOSIA AVENUE
DANBURY, CT 06810
(Address of principal executive offices)
TELEPHONE NUMBER (203) 744-4400
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
As of May 8, 1996, there were 3,520,100 shares of the Registrant's
Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements *
Condensed Balance Sheets -
March 31, 1997 and June 30, 1996.....................3
Condensed Statements of Income -
For the Three and Nine Months Ended
March 31, 1997 and 1996..............................4
Condensed Statements of Cash Flows -
For the Nine Months Ended
March 31, 1997 and 1996..............................5
Notes to Financial Statements...........................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................10
SIGNATURES............................................................11
INDEX TO EXHIBITS.....................................................12
EXHIBIT 27 - FINANCIAL DATA SCHEDULE..................................13
* The Balance Sheet at June 30, 1996 has been taken from the audited financial
statements at that date. All other financial statements are unaudited.
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Sonics & Materials, Inc.
CONDENSED BALANCE SHEETS
As of
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---- ----
(unaudited) *
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 159,294 $ 73,129
Short-term investments 1,846,558 3,028,032
Accounts receivable, net of allowance
for doubtful accounts of $45,000 1,698,732 1,953,941
Inventories 3,989,777 3,248,782
Prepaid income taxes 31,075 30,465
Deferred taxes 80,000 80,000
Other current assets 210,306 111,327
---------- ----------
Total current assets 8,015,742 8,525,676
PROPERTY PLANT & EQUIPMENT - NET 279,518 301,706
OTHER ASSETS 396,773 353,124
---------- ----------
$8,692,033 $9,180,506
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 200,000 $ 832,813
Demand note payable -- 500,000
Current maturities of long-term debt 100,000 --
Accounts payable 488,844 767,620
Commissions payable 191,757 160,081
Other accrued expenses and sundry liabilities 310,326 254,677
---------- ----------
Total current liabilities 1,290,927 2,515,191
LONG TERM DEBT, NET OF CURRENT PORTION 375,000 --
CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock - 2,000,000 shares authorized,
no shares outstanding at March 31, 1996
or June 30, 1996 -- --
Common stock - 10,000,000 shares authorized,
3,520,100 shares issued and outstanding
at March 31, 1996 and 3,500,100 shares
issued and outstanding at June 30, 1996 105,603 105,003
Additional paid in capital 6,561,526 6,417,126
Retained earnings 358,977 143,186
---------- ----------
Total stockholders' equity 7,026,106 6,665,315
---------- ----------
$8,692,033 $9,180,506
========== ==========
* Taken from the audited financial statements at June 30, 1996.
The accompanying notes are an integral part of these statements.
3
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Sonics & Materials, Inc.
CONDENSED STATEMENTS OF INCOME
(unaudited)
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
March 31, March 31,
------------------------------ -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 2,483,067 $ 2,579,909 $ 7,764,822 $ 6,972,066
Cost of sales 1,285,710 1,376,013 4,015,449 3,569,941
----------- ----------- ----------- -----------
Gross profit 1,197,357 1,203,896 3,749,373 3,402,125
Operating expenses
Selling expense 790,256 750,455 2,350,366 2,179,761
General and 205,926 152,973 717,697 450,502
administrative
Research and development 131,444 123,391 381,181 315,166
----------- ----------- ----------- -----------
Total operating expenses 1,127,626 1,026,819 3,449,244 2,945,429
Other income (expense)
Interest, net 34,394 (21,923) 58,542 (68,441)
Other 2,169 26,420 981 36,469
----------- ----------- ----------- -----------
36,563 4,497 59,523 (31,972)
Income before provision 106,294 181,574 359,652 424,724
for income taxes
Provision for income taxes 42,518 (41,000) 143,861 (19,331)
----------- ----------- ----------- -----------
Net Income $ 63,776 $ 222,574 $ 215,791 $ 444,055
=========== =========== =========== ===========
PRO FORMA DATA
Income before taxes 106,294 181,574 359,652 424,724
Provision for income taxes 42,518 72,630 143,861 169,890
----------- ----------- ----------- -----------
Net Income 63,775 108,944 215,791 254,834
PRIMARY INCOME PER SHARE
Net income per share .02 .03 .05 .09
=========== =========== =========== ===========
Weighted average number
of common and common
equivalent shares
outstanding 3,829,839 3,239,000 4,455,342 2,899,000
=========== =========== =========== ===========
FULLY DILUTED INCOME PER SHARE
Net income per share .02 .03 .05 .09
=========== =========== =========== ===========
Weighted average number
of common and common
equivalent shares
outstanding 3,886,923 3,422,000 4,455,342 2,977,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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Sonics & Materials, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended March 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net cash (used in) provided by operations ($532,272) $349,609
Net cash used in investing activities (83,037) (116,353)
Net cash provided by financing activities 701,474 3,123,924
-------- ----------
Net increase in cash for the period 86,165 3,123,924
Cash and cash equivalents - at beginning of period 73,129 187,490
-------- ----------
Cash and cash equivalents - at end of period $159,294 $3,544,670
======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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Sonics & Materials, Inc.
Notes to Financial Statements
March 31, 1996
NOTE 1: Basis of Presentation
The accompanying financial statements for the interim periods are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. These
financial statements should be read in conjunction with the financial statements
and notes thereto, together with the management's discussion and analysis,
contained on Form 10-KSB for the year ended June 30, 1996. The results of
operations for the nine months ended March 31, 1997 are not necessarily
indicative of the results for the entire fiscal year ending June 30, 1997.
NOTE 2: 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 treasury stock method for fiscal 1997 and the modified
treasury stock method for fiscal 1996.
The weighted average number of shares outstanding for the periods presented is
as follows:
<TABLE>
<CAPTION>
Primary Weighted Shares Outstanding
----------------------------------------------------------
Nine months ended March 31, Three months ended March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 3,500,472 2,628,000 3,501,233 2,884,000
Dilution (warrants and options) 954,869 271,000 328,606 355,000
--------- --------- --------- ---------
Weighted average number of
common and common equivalent
shares 4,455,342 2,899,000 3,829,839 3,239,000
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Fully Diluted Weighted Shares Outstanding
----------------------------------------------------------
Nine months ended March 31, Three months ended March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 3,500,472 2,628,000 3,501,233 2,885,000
Dilution (warrants and
options) 954,869 349,000 385,690 537,000
--------- --------- --------- ---------
Weighted average number of
common and common
equivalent shares 4,455,342 2,977,000 3,886,923 3,422,000
========= ========= ========= =========
</TABLE>
NOTE 3: Contingencies.
In March 1997, the Company received notice that the California State Board of
Equalization for Sales and Use has determined, upon audit, that the Company was
in error in collection of sales tax in California from 1986 to 1995. The Company
is disputing the assessment of $118,900, including $60,190 of interest. The
outcome of this dispute cannot be determined at this time.
NOTE 4: Subsequent Events
a) On April 25, 1997, the Company announced that it had signed a letter of
intent to acquire 100% of the stock of Tooltex, Inc., a privately held
manufacturer of automated systems used in the plastics industry. The Company
expects to consumate the transaction in the first quarter of fiscal year
1998.
6
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b) On April 28, 1997, Sonics & Materials submitted a 510K application to the
Food and Drug Administration for approval of its VibraSurge'tm' system,
model VS2120 ultrasonic surgical instrument to aid in the removal of soft
tissue in general, plastic, and reconstructive surgery.
NOTE 5: New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE, which
is effective for financial statements for both interim and annual periods ending
after December 1997. Early adoption of the new standard is not permitted. The
new standard eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. The pro forma effect of
adopting the new standard would be basic earnings per share of $.02 and $.04,
and diluted earnings per share of $.02 and $.03 for the quarters ended March 31,
1997 and 1996, respectively.
7
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
The following information should be read in conjunction with the
unaudited financial statements included herein, see Item 1, and the financial
information contained in the Company's latest annual report on Form 10-KSB for
the year ended June 30, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales. Net sales for the quarter ended March 31, 1997 decreased
$97,000 or 3.8% over the same period in fiscal 1996. This is primarily due to a
slight decrease in sales volume.
Cost of Sales. Cost of sales decreased from 53.3% of sales for the three
months ended March 31, 1996 to 51.8% of sales for the three months ended March
31, 1997. This slight decrease is primarily attributable to a variation in the
sales product mix.
Selling Expenses. Selling expenses for the third quarter of fiscal 1997
increased $40,000 or 5.3% over the same period in fiscal 1996. As a percentage
of net sales these expenses increased from 29.1% to 31.8% over the same period.
This increase primarily relates to expenses incurred in connection with design
and implementation of new product literature, an updated seminar package, and
development of the Company's web sites, as well as normal increases in salaries.
General and Administrative Expenses. General and administrative expenses
for the third quarter of fiscal 1997 increased $53,000 or 34.6% over the third
quarter of fiscal 1996. As a percentage of net sales, these expenses increased
to 8.3% from 5.9.% over the same period in fiscal 1996. This increase is
primarily attributable to increased costs associated with the Company's
obligations as a new public company, including professional fees, and directors'
and officers' insurance, as well as normal annual increases in salaries.
Research and Development Expenses. Research and development expenses
increased $8,000 or 6.5% over the same period in fiscal 1996. This is primarily
the result of the addition of one research and development engineer. The
addition was part of the planned expansion of the Research and Development
department.
Interest Income, net. Total interest income net of interest expense
increased by $56,000 or 256.9% for the three months ended March 31, 1997. This
is primarily due to the investment of the net proceeds from the Company's
initial public offering, which was partially used to paydown existing debt.
Income Taxes. Income taxes increased by $84,000 or 203.7%. This is
primarily the result of the change in the Company's filing status in regards to
federal income taxes. Prior to the Company's initial public offering, Sonics was
a Subchapter-S Corporation and as such was not subject to federal income tax.
Concurrent with the stock offering, the Company revoked it's S-Corp election. In
addition to being subject to federal income tax for the entire fiscal year 1997,
as opposed to only a portion of fiscal 1996, the Company also recognized a
deferred tax asset at the time of the S-Corp revocation.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31,1996.
Net sales. Net sales for the nine months ended March 31, 1997 increased
$793,000 or 11.4% over the same period in fiscal 1996. This increase is a result
of the Company's increased penetration into the Asian and Pacific Rim markets
due to the expansion of the Company's sales efforts in that region, as well as
initial sales of the Company's new vibration and spin welder products.
8
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Cost of Sales. Cost of sales remained relatively constant at 51.7% of
sales for the nine months ended March 31, 1997, compared to 51.2% of sales for
the nine months ended March 31, 1996.
Selling Expenses. Selling expenses for the first nine months of fiscal
1997 increased $171,000 or 7.8% over the same period in fiscal 1996. As a
percentage of net sales these expenses decreased to 30.3% from 31.3% over the
same period in fiscal 1996. This decrease in selling expenses as a percentage of
net sales is a result of the Company maintaining fixed costs while increasing
sales.
General and Administrative Expenses. General and administrative expenses
for the first nine months of fiscal 1997 increased $267,000 or 59.3% over the
same period in fiscal 1996. As a percentage of net sales, these expenses
increased to 9.2% from 6.5% over the same period in fiscal 1996. This increase
is primarily attributable to increased costs associated with the Company's
obligations as a new public company, including professional fees and directors'
and officers' insurance, as well as normal annual increases in salaries and
bonuses.
Research and Development Expenses. Research and development expenses
increased $66,000 or 21.0% over the same period in fiscal 1996. The largest
factor contributing to this increase was the planned expansion of the Research
and Development department's technical staff.
Interest Income, net. Total interest income net of interest expense
increased by $127,000 or 185.5% for the nine months ended March 31, 1997. This
is primarily due to the investment of the net proceeds from the Company's
initial public offering, which was partially used to paydown existing debt.
Income Taxes. Income taxes increased by $163,000 or 844.2%. This is
primarily the result of the change in the Company's filing status in regards to
federal income taxes. Prior to the Company's initial public offering, Sonics was
a Subchapter-S Corporation and as such was not subject to federal income tax.
Concurrent with the stock offering, the Company revoked it's S-Corp election. In
addition to being subject to federal income tax for the entire fiscal year 1997,
as opposed to only a portion of fiscal 1996, the Company also recognized a
deferred tax asset at the time of the S-Corp revocation.
LIQUIDITY AND CAPITAL RESOURCES
Operations of the Company used cash of approximately $532,000 during the nine
months ended March 31, 1997 as a result of increasing inventory while paying
down accounts payable balances. During the first three quarters of fiscal 1997,
the Company invested approximately $83,000 in new capital equipment and
leasehold improvements. As of June 30, 1996, the Company's working capital was
$6,010,000. As of March 31, 1997, the Company's working capital had increased to
$6,725,000 representing an increase of approximately 11.9%. During the third
quarter of fiscal 1997, the Company increased its borrowings under its line of
credit by $200,000.
The Company's principal credit line is a $1,000,000 bank credit facility bearing
interest at one-half of one percent above the prime rate. This credit
arrangement matures on February 28, 1998. During the third quarter of fiscal
1997, the Company converted a $500,000 short term demand note payable to a five
year term note maturing on December 3, 2001 with an interest rate of one-half
point above prime.
9
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<S> <C>
3(i) Certificate of Incorporation of the Registrant, as amended . (Previously
filed as Exhibit 3.1 of Amendment No. 3 to Registration Statement No. 33-96414)
3(ii) Amended By-laws of the Registrant . (Previously filed as Exhibit 3.2 of
Registration Statement No. 33-96414)
10(i) Form of Employment Agreement between the Registrant and Robert S. Soloff.
(Previously filed as Exhibit 10.1 of Registration Statement No. 33-96414)
10(ii) 1995 Incentive Stock Option Plan and form of Stock Option Agreement.
(Previously filed as Exhibit 10.3 of Registration Statement No. 33-96414)
10(iii) Original Office Lease and Amendments between the Registrant and Nicholas
R. DiNapoli, Jr. DBA DiNapoli Holding Co. (Danbury, CT). (Previously
filed as Exhibit 10.4 of Registration Statement No. 33-96414)
10(iv) Lease between Registrant and Aston Investment Associates (Aston, PA).
(Previously filed as Exhibit 10.5 of Registration Statement No. 33-96414)
10(v) Amended lease between Registrant and Robert Lenert (Naperville, IL).
(Previously filed as Exhibit 10.6 of Amendment No. 4 to Registration
Statement No. 33-96414)
10(vi) Lease between Registrant and Janine Berger (Gland, Switzerland).
(Previously filed as Exhibit 10.7 of Registration Statement No. 33-96414)
10(vii) Form of Sales Representation Agreement. (Previously filed as Exhibit 10.8
of Registration Statement No. 33-96414)
10(viii) Form of Sales Distribution Agreement. (Previously filed as Exhibit 10.9
of Registration Statement No. 33-96414)
10(ix) Consulting Agreement dated October 17, 1995 between the Registrant and
Alan Broadwin. (Previously filed as Exhibit 10.10 of Amendment No. 3 of
Registration Statement No. 33-96414)
27 Financial Data Schedule. (Filed Herewith)
(b) none
</TABLE>
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SONICS & MATERIALS, INC.
Date: May 15, 1997 By /s/ ROBERT S. SOLOFF
------------------------------ -------------------------------
Robert S. Soloff
President, Chief Executive Officer,
Chief Financial Officer
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT LOCATION OF EXHIBIT IN
NO. DESCRIPTION SEQUENTIAL NUMBERING SYSTEM
<C> <C>
3(i) Certificate of Incorporation of the Registrant, Previously filed as Exhibit 3.1 of
as amended. Amendment No. 3 to Registration
Statement No. 33-96414
3(ii) Amended By-laws of the Registrant. Previously filed as Exhibit 3.2 of
Registration Statement No. 33-96414
10(i) Form of Employment Agreement between the Previously filed as Exhibit 10.1 of
Registrant and Robert S. Soloff. Registration Statement No. 33-96414
10(ii) 1995 Incentive Stock Option Plan and form of Stock Previously filed as Exhibit 10.3 of
Option Agreement. Registration Statement No. 33-96414
10(iii) Original Office Lease and Amendments between the Previously filed as Exhibit 10.4 of
Registrant and Nicholas R. DiNapoli, Jr. DBA Registration Statement No. 33-96414
(Dapoli Holding Co. (Danbury, CT).
10(iv) (Lease between Registrant and Aston Investment Previously filed as Exhibit 10.5 of
Associates (Aston, PA). Registration Statement No. 33-96414
10(v) Amended lease between Registrant and Robert Previously filed as Exhibit 10.6 of
Lenert (Naperville, IL). Amendment No. 4 to Registration
Statement No. 33-96414
10(vi) Lease between Registrant and Janine Berger (Gland, Previously filed as Exhibit 10.7 of
Switzerland). Registration Statement No. 33-96414
10(vii) Form of Sales Representation Agreement. Previously filed as Exhibit 10.8 of
Registration Statement No. 33-96414
10(viii)Form of Sales Distribution Agreement. Previously filed as Exhibit 10.9 of
Registration Statement No. 33-96414
10(ix) Consulting Agreement dated October 17, 1995 Previously filed as Exhibit 10.10 of
between the Registrant and Alan Broadwin. Amendment No. 3 of Registration
Statement No. 33-96414
27 Financial Data Schedule. Filed Herewith
12
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as................ 'tm'
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 159,294
<SECURITIES> 1,846,558
<RECEIVABLES> 1,698,732
<ALLOWANCES> 45,000
<INVENTORY> 3,989,777
<CURRENT-ASSETS> 8,015,742
<PP&E> 279,518
<DEPRECIATION> 0
<TOTAL-ASSETS> 396,773
<CURRENT-LIABILITIES> 1,290,927
<BONDS> 0
0
0
<COMMON> 105,603
<OTHER-SE> 6,920,503
<TOTAL-LIABILITY-AND-EQUITY> 8,692,033
<SALES> 7,764,822
<TOTAL-REVENUES> 7,764,822
<CGS> 4,015,449
<TOTAL-COSTS> 4,015,449
<OTHER-EXPENSES> (981)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (58,542)
<INCOME-PRETAX> 359,652
<INCOME-TAX> 143,861
<INCOME-CONTINUING> 215,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 215,791
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
