Registration No. 33-96414
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
Registration Statement
Under The
Securities Act of 1933
(Post-Effective Amendment No. 2)
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SONICS & MATERIALS, INC.
(Name of Small Business Issuer in Its Charter)
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Delaware 3662-723 06-0854713
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation 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)
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Please address a copy of all correspondence to:
Jon T. Hirschoff
Kathleen A. Maher
Tyler Cooper & Alcorn
205 Church Street
New Haven, CT 06510
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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.
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SONICS & MATERIALS, INC.
Cross Reference Sheet
Form SB-2 Post Effective Amendment Item Number Caption in Prospectus
& Caption
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............................... *
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* Not Applicable
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EXPLANATORY NOTE
This Post-Effective Amendment No. Two 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
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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.
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 THIS PROSPECTUS FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
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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.
----------------------
Underwriting
Price to 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 Securityholder Options and Selling
Securityholder Warrants.
----------------------
The date of this Prospectus is February 14, 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 referred 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
$9,896,000. 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,
reduction of debt, 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
Warrants - 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."
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SUMMARY FINANCIAL INFORMATION
Six months ended
Year Ended June 30, December 31,
-------------------------------- ---------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
STATEMENT OF INCOME DATA
Net Sales............... $7,537,000 $8,575,000 $9,376,000 $4,392,000 $5,282,000
Gross profit............ 3,795,000 4,347,000 4,284,000 2,198,000 2,552,000
Operating income........ 429,000 765,000 491,000 280,000 230,000
Income before income
taxes................. 425,000 780,000 436,000 243,000 253,000
Income taxes (benefit).. 35,000 45,000 (8,000) 22,000 101,000
---------- ---------- ---------- ---------- ----------
Net income.............. $ 390,000 $ 735,000 $ 444,000 $ 221,000 $ 152,000
========== ========== ========== ========== ==========
PRO FORMA STATEMENT OF
INCOME DATA (1):
Income before income
taxes................. $ 782,000 $ 940,000 $ 436,000 $ 243,000 $ 253,000
Provision for income
taxes................. 313,000 376,000 175,000 97,000 101,000
---------- ---------- ---------- ---------- ----------
Net income.............. $ 469,000 $ 564,000 $ 262,000 $ 146,000 $ 152,000
========== ========== ========== ========== ==========
Primary net income
per share............. $ .17 $ .22 $ .09 $ .05 $ .03
========== ========== ========== ========== ==========
Weighted average number
of shares outstanding. 2,746,000 2,624,000 3,409,000 2,696,000 4,573,000
========== ========== ========== ========== ==========
Fully diluted net income
per share............. $ .17 $ .22 $ .08 $ .05 $ .03
========== ========== ========== ========== ==========
Weighted average number
of shares outstanding. 2,746,000 2,624,000 3,441,000 2,696,000 4,573,000
========== ========== ========== ========== ==========
As
Adjusted
June 30, Dec. 31, Dec. 31,
-------------------------------- ---------------------
1994 1995 1996 1996 1996 (2)
---------- ---------- ---------- ---------- ----------
Balance Sheet Data:
Working capital......... $2,267,000 $2,184,000 $6,010,000 $6,504,000 $16,000,000
Total assets............ 3,794,000 4,985,000 9,181,000 8,265,000 17,661,000
Total liabilities....... 1,014,000 2,101,000 2,515,000 1,448,000 948,000
Stockholders' equity.... 2,780,000 2,884,000 6,665,000 6,817,000 16,713,000
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(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."
(2)As adjusted to give effect to the sale of 1,725,000 shares of common stock
underlying the warrants, at a price of $6.00 per share, and payment of
outstanding note payable of $500,000 at December 31, 1996.
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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 35% 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."
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RELIANCE ON SUB-CONTRACTORS AND SUPPLIERS
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 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 to 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 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. On January 29, 1997,
Sonics also submitted a patent application with the U.S. Patent and Trademark
Office for its ultrasonic surgical device. 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
6
<PAGE>
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."
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, to 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."
7
<PAGE>
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 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
8
<PAGE>
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 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 $6,817,331 or $1.95 per share. Net
tangible book value per share is determined by dividing the tangible net worth
of the Company, consisting of tangible assets 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 $16,713,331 or $3.20 per share, representing an
immediate increase in net book value of $1.25 per share to present shareholders
and an immediate dilution of $2.80 per share or 47% 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.
Warrant exercise price per share............................ $6.00
Net tangible book value per share before Offering........ $1.95
Increase per share attributable to New Investors......... $1.25
Pro Forma net tangible book value per share after Offering.. $3.20
-----
Dilution to New Investors................................... $2.80
=====
9
<PAGE>
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:
Average
Stock Purchased Total Consideration Consideration
Number Percent Amount Percent Per Share
---------- ---------- ---------- ---------- ----------
Existing
Stockholders............ 3,500,100 67.0% 7,718,299 42.7% $2.21
New Investors(1)........ 1,725,000 33.0% 10,350,000 57.3% $6.00
---------- ---------- ---------- ----------
Total (2)......... 5,225,100 100.0% 18,068,829 100.0% $3.46
========== ========== ========== ==========
- ----------------
(1)At an exercise price of $6.00 per share.
(2)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."
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.
High Bid Low Bid
------------- ------------
Common Stock
- ------------
Quarter ended March 31, 1996
(commencing February 26, 1996)... 10 1/2 6 3/4
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 13, 1997)...... 6 3/8 4
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 13, 1997)..... 1 3/16 11/16
On February 13, 1997, the Company had 18 stockholders of record and 6
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 $9,896,000. Inasmuch as the
Company
10
<PAGE>
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, reduction of existing debt, 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 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.
DECEMBER 31, 1996
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
(UNAUDITED)
Indebtedness (1):
Short-term debt, including current
portion of long-term debt......... 100,000 -0-
Long-term debt, net of current 400,000 -0-
portion...........................
Stockholders' equity (2):
Common stock, par value $.03 per 105,003
share; 10,000,000 shares
authorized; 3,500,100 shares 156,753
issued and outstanding; 5,225,100
shares issued and outstanding as
adjusted..........................
Additional paid-in capital.......... 6,417,126 16,261,376
Retained earnings................... 295,202 295,202
------------- -------------
Total stockholders' equity........ 6,817,331 16,713,331
============= =============
- ----------------------
(1) Represents current portion of a $500,000 term note.
(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. 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.
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------------- ---------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
STATEMENT OF INCOME DATA
Net Sales............... $7,536,614 $8,574,845 $9,376,170 $4,392,157 $5,281,755
Cost of sales........... 3,741,849 4,228,024 5,091,789 2,193,824 2,729,739
---------- ---------- ---------- ---------- ----------
Gross profit............ 3,794,765 4,346,821 4,284,381 2,198,333 2,552,016
Operating expenses...... 3,365,395 3,582,037 3,793,261 1,918,713 2,321,618
---------- ---------- ---------- ---------- ----------
Income from operations.. 429,370 764,784 491,120 280,520 230,398
Other income (expense)..
Other income
(expense)........... 4,764 27,751 45,201 10,048 (1,187)
Interest, net......... (9,346) (12,817) (100,011) (46,518) 24,148
---------- ---------- ---------- ---------- ----------
Income before income
taxes................. 424,788 779,718 436,310 243,150 253,359
Income taxes (benefit).. 35,000 45,000 (8,000) 21,668 101,343
---------- ---------- ---------- ---------- ----------
Net income.............. $ 389,788 $ 734,718 $ 444,310 $ 221,482 $ 152,016
========== ========== ========== ========== ==========
PRO FORMA STATEMENT OF
INCOME DATA(1)
Income before income
taxes................. $ 782,000 $ 940,000 $ 436,000 $ 243,000 $ 253,000
Provision for income
taxes................. 313,000 376,000 174,000 97,000 101,000
---------- ---------- ---------- ---------- ----------
Net income.............. $ 469,000 $ 564,000 $ 262,000 $ 146,000 $ 152,000
========== ========== ========== ========== ==========
Net income per share.... $ .17 $ .22 $ .09 $ .05 $ .03
========== ========== ========== ========== ==========
Weighted average number
of shares outstanding. 2,746,000 2,624,000 3,409,000 2,696,000 4,573,000
========== ========== ========== ========== ==========
Fully diluted net income
per share............. $ .17 $ .22 $ .08 $ .05 $ .03
========== ========== ========== ========== ==========
Weighted average number
of shares outstanding... 2,746,000 2,624,000 3,441,000 2,696,000 4,573,000
========== ========== ========== ========== ==========
BALANCE SHEET DATA
Cash and cash
equivalents........... $ 62,026 $ 187,490 $ 73,129 $ - $ 52,825
Working capital......... 2,267,119 2,183,858 6,010,485 2,229,126 6,503,915
Total assets............ 3,793,966 4,985,405 9,180,506 5,061,597 8,264,883
Long-term obligations,
less current portion.. - - - 13,755 400,000
Stockholders' equity.... 2,780,049 2,883,767 6,665,315 3,083,299 6,817,331
- ----------------------
(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 $0 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
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------------- ---------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
(unaudited)
STATEMENT OF INCOME DATA
Net Sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 49.7 49.3 54.3 49.9 51.7
---------- ---------- ---------- ---------- ----------
Gross profit............ 50.3 50.7 45.7 50.1 48.3
Operating expenses......
Selling............... 29.5 28.5 30.2 32.5 29.5
General and
administrative...... 10.7 7.9 6.3 6.8 9.7
Research and
development......... 4.5 4.1 4.0 4.4 4.7
Compensation expense
- stock options..... - 1.2 - - -
---------- ---------- ---------- ---------- ----------
Total operating
expense............. 44.7 41.7 40.5 43.7 43.9
---------- ---------- ---------- ---------- ----------
Other income (expense)..
Interest, net......... (.1) (.2) (1.1) (1.1) .4
Other income (expense) .1 .3 .5 .2 -
---------- ---------- ---------- ---------- ----------
Total other income
(expense)....... - .1 (.6) (.9) .4
---------- ---------- ---------- ---------- ----------
Income before income
taxes................. 5.6 9.1 4.6 5.5 4.8
Income taxes (benefit).. .5 .5 (.1) .5 1.9
---------- ---------- ---------- ---------- ----------
Net income.............. 5.1% 8.6% 4.7% 5.0% 2.9%
========== ========== ========== ========== ==========
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995.
Net sales. Net sales for the six months ended December 31, 1996 increased
$890,000 or 20.3% 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.
Cost of Sales. Cost of sales increased from 49.9% of sales for the six
months ended December 31, 1995 to 51.7% of sales for the six months ended
December 31, 1996. Initial costs associated with the vibration welder line
caused the cost of sales of these
13
<PAGE>
products, as a percentage of their net sales
during the period, to be higher than the Company has experienced with other
product lines. The Company is not able to pass these initial costs on to the
customer.
Selling Expenses. Selling expenses for the first six months of fiscal 1997
increased $131,000 or 9.1% over the same period in fiscal 1996. As a percentage
of net sales these expenses decreased to 29.5% from 32.5% 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 six months of fiscal 1997 increased $214,000 or 72.0% over the
same period in fiscal 1996. As a percentage of net sales, these expenses
increased to 9.7% from 6.8% 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 $58,000 or 30.3% 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 $71,000 or 151.9% for the six months ended December 31, 1996.
This is due to the receipt and investment of the net proceeds from the Company's
Initial Offereing. In addition, the Company utilized a portion of the net
proceeds to reduce its borrowings under its bank line of credit.
Income Taxes. Income taxes increased by $80,000 or 367.7%. During the six
months ended December 31, 1995, the Company was an S corporation, and as such
had no federal tax liability. Concurrent with the Initial Offering, the Company
became a C corporation for federal tax purposes. This resulted in the Company
incurring federal income taxes that it had not in the past.
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 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."
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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 cancelation 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.
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
Operations of the Company used cash of approximately $334,000 during the
six months ended December 31, 1996 as a result of increasing inventory while
paying down accounts payable balances. During the first six months of fiscal
1997, the Company invested approximately $111,000 in new capital equipment and
leasehold improvements. As of June 30, 1996, the Company's working capital was
$6,010,000. As of December 31, 1996, the Company's working capital had increased
to $6,504,000,
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representing an increase of approximately 8.2%. During the second
quarter of fiscal 1997, the Company reduced its borrowings under its line of
credit by $1,000,000. In addition, the Company converted a $500,000 six month
demand note payable to a five year term note at 8.75% interest.
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, 1997. As of December 31, 1996, the Company
had no borrowings on such credit facility.
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. 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
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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 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 has filed 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
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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, $31,000 and $31,000, respectively. Sonics
performs repair services on all of its products sold domestically either at its
Connecticut or Pennsylvania 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 $204,000,
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.
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.
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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 that 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.
INTERNATIONAL OPERATIONS
The Company's international activities are an important portion of its
business. Approximately 34%, 33% , 35% and 35%, 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.
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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 $973,333
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 cancelation.
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 $250,000 for the
six months ended December 31, 1995 and 1996, respectively.
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. On January 29,
1997, the Company filed 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 often takes a number of years and involves
the expenditure of substantial resources.
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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 is 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.
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.
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As of December 31, 1996, the following table lists the Company's offices
by location, all of which are leased, and certain other information:
Approximate
Total Area
Leased in Approximate
Square Expiration Current Annual
Footage Date of Lease Rent (1)
----------- ------------------ -------------
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, 1998(2) 14,400
- ----------------------
(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.
MANAGEMENT
Name Age Title
---- --- -----
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
- --------------------
(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.
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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.
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.
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<PAGE>
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 Company's 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.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------------------
OTHER SECURITIES
NAME AND PRINCIPAL BASE ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS/SARS COMPENSATION
---- -------- ----- --------------- ------------ ------------
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
- ----------------------
(1) Represents compensation for excess life insurance premium and personal use
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 $300 for
attendance at
each of its Board of Directors meetings plus related expenses. In addition,
directors Alan Broadwin and Jack Tyransky were granted in fiscal 1996 qualified
stock options under the Company's Stock Option Plan, as hereinafter defined, for
1,000 shares of Common Stock. Mr. Broadwin also received compensation from the
Company in fiscal 1996 for his work as an independent consultant in the medical
device field. Monroe Parker assigned to Mr. Drescher 10,000 Selling
Securityholder Options to purchase 10,000 shares of the Company's Common Stock
and 10,000 Warrants. See "Certain Relationships and Related Transactions" and
"Concurrent Offering--Selling Securityholders."
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<PAGE>
OPTION AND STOCK APPRECIATION RIGHTS
OPTION/SAR GRANTS IN FISCAL 1996(1)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES BASE PRICE
NAME GRANTED IN FISCAL 1996 ($/Sh)(2) EXPIRATION DATE
- ---- ------------ -------------- ------------ ---------------
Robert S. Soloff..... 0 -- -- --
Richard H. Berger.... 10,000 14.4 % $5.00 02/23/01
- ----------------------
(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.
EMPLOYMENT CONTRACT
Effective July 1, 1995, the Company entered into an employment agreement
with Robert S. Soloff, who is serving as the Company's 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
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 the Company's bank 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
25
<PAGE>
$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.
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."
26
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the Company's
Common Stock owned as of February 3, 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.
Warrants to Purchase
Common Stock Common Stock
-------------------------- -------------------------
Amount and Amount and
Nature of Nature of Percent
Name and Address of Beneficial Percent Beneficial Of
Beneficial Owner (1) Ownership of Class Ownership Class Owned
-------------------- ------------- -------- ---------- -----------
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...... 2,000 (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)......... 2,818,466 (2)(5) 73.6% 10,000 *
- ----------------------
* 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 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.
27
<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
28
<PAGE>
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 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. If those standards are not met, the
Company's listed securities will consequently be delisted, and their price will
no longer be quoted in the National Market 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 ("Section 203")
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
29
<PAGE>
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 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.
Section 203 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 $.15, the price paid for the Warrant, plus $6, the exercise
price thereof, or a total of $6.15. 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
30
<PAGE>
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 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, or a total purchase price of $100. 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 in whole or in part an
aggregate of 100,000 shares of Common Stock and an aggregate of 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
31
<PAGE>
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.
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 owns 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
Selling 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 tradable.
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).
32
<PAGE>
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 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 the Common Stock and the Selling Securityholder Warrants
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, 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.
33
<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 Stockholders
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.
/S/GRANT THORNTON LLP
- --------------------------
GRANT THORNTON LLP
New York, New York
August 20, 1996
F-2
<PAGE>
Sonics & Materials, Inc.
BALANCE SHEETS
June 30, December 31,
----------------------- ------------
ASSETS 1995 1996 1996
---- ---- ----
(unaudited)
CURRENT ASSETS
Cash and cash equivalents
(Note B-4) $ 187,490 $ 73,129 $ 52,825
Short-term investments (Note C) 3,028,032 1,803,491
Accounts receivable, net of
allowance for doubtful
accounts of $45,000 at June
30, 1995 and 1996, and at
December 31, 1996 (Note K) 1,949,958 1,953,941 1,834,005
Inventories (Notes B-1 and D) 2,058,307 3,248,782 3,657,922
Prepaid income taxes - 30,465 15,419
Deferred income taxes (Note L) - 80,000 80,000
Other current assets 89,741 111,327 107,805
---------- ---------- ----------
Total current assets 4,285,496 8,525,676 7,551,467
PROPERTY AND EQUIPMENT - NET
(Notes B-2 and E) 277,807 301,706 341,131
OTHER ASSETS - NET (Note B-6) 422,102 353,124 372,285
---------- ---------- ----------
$4,985,405 $9,180,506 $8,264,883
========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Notes payable (Note F) $ 650,000 $ 832,813 $ 32,813
Demand note payable (Note G) 500,000 500,000 -
Current portion of long term
debt - - 100,000
Accounts payable 537,625 767,620 479,809
Commissions payable 152,812 160,081 244,788
Other accrued expenses and
sundry liabilities (Note B-7) 261,201 254,677 190,142
---------- ---------- ----------
Total current liabilities 2,101,638 2,515,191 1,047,552
LONG TERM DEBT, net of current
portion - - 400,000
COMMITMENTS AND CONTINGENCIES
(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, and
December 31, 1996 40,500 105,003 105,003
Additional paid-in capital 139,237 6,417,126 6,417,126
Retained earnings 2,704,030 143,186 295,202
---------- ---------- ----------
2,883,767 6,665,315 6,817,331
---------- ---------- ----------
$4,985,405 $9,180,506 $8,264,883
========== ========== ==========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Sonics & Materials, Inc.
STATEMENTS OF INCOME
Six months ended
Year ended June 30, December 31,
----------------------- -----------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
(unaudited)
Net sales $8,574,845 $9,376,170 $4,392,157 $5,281,755
Cost of sales 4,228,024 5,091,789 2,193,824 2,729,739
----------- ----------- ----------- -----------
Gross profit 4,346,821 4,284,381 2,198,333 2,552,016
Operating expenses
Selling 2,450,438 2,832,251 1,429,415 1,560,110
General and
administrative 676,239 588,923 297,571 511,771
Research and development 349,360 372,087 191,727 249,737
Compensation expense -
stock options 106,000 0 0 0
----------- ----------- ----------- -----------
Total operating
expenses 3,582,037 3,793,261 1,918,713 2,321,618
Other income (expense)
Interest, net (12,817) (100,011) (46,518) 24,148
Other 27,751 45,201 10,048 (1,187)
----------- ----------- ----------- -----------
14,934 (54,810) (36,470) 22,961
Income before income
taxes 779,718 436,310 243,150 253,359
Provision (benefit) for
income taxes (Note L) 45,000 (8,000) 21,668 101,343
----------- ----------- ----------- -----------
NET INCOME $ 734,718 $ 444,310 $ 221,482 $ 152,016
=========== =========== =========== ===========
Pro forma data (Note P)
Historical income before
taxes $ 779,718 $ 436,310 $ 243,150 $ 253,359
Subchapter S
stockholder's tax
distribution recorded as
salary 160,000 - - -
----------- ----------- ----------- -----------
Income before provision
for income taxes 939,718 436,310 243,150 253,359
Provision for income taxes 375,887 174,524 97,260 101,343
----------- ----------- ----------- -----------
NET INCOME $ 563,831 $ 261,786 $ 145,890 $ 152,016
=========== =========== =========== ===========
Primary income per share
Net income per share $.22 $.09 $.05 $.03
=========== =========== =========== ===========
Weighted average common
shares outstanding 2,624,000 3,409,303 2,696,000 4,573,211
=========== =========== =========== ===========
Fully diluted income per
share
Net income per share $.22 $.08 $.05 $.03
=========== =========== =========== ===========
Weighted average common
shares outstanding 2,624,000 3,440,770 2,696,000 4,573,211
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Sonics & Materials, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
Common stock Additional
----------------- paid-in Retained Stockholders'
Shares Par value capital earnings equity
--------- --------- ---------- ---------- ------------
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)
Net income 152,016 152,016
--------- --------- ---------- ---------- ------------
December 31, 1996 3,500,100 $105,003 $6,417,126 $ 295,202 $6,817,331
========= ========= ========== ========== ============
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Sonics & Materials, Inc.
STATEMENTS OF CASH FLOWS
Six months ended
Year ended June 30, December 31,
--------------------- -----------------------
1995 1996 1995 1996
--------- ----------- ----------- -----------
(unaudited)
Cash flows from operating
activities
Net income $ 734,718 $ 444,310 $ 221,482 $ 152,016
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 71,562
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) 356,602 119,936
Inventory (165,867) (1,190,475) (460,695) (409,139)
Prepaid income taxes (30,465) 15,046
Other assets (169,351) (43,901) (7,165) (15,639)
Accounts payable and
accrued liabilities 62,721 244,354 7,953 (267,639)
---------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities 56,059 (426,555) 197,484 (333,857)
---------- ----------- ----------- -----------
Cash flows from investing
activities
Capital expenditures on
equipment
and leasehold
improvements (148,595) (149,512) (71,150) (110,988)
Proceeds from sale of
equipment 2,500
Short-term investments (3,028,032) 1,224,541
---------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities (148,595) (3,175,044) (71,150) 1,113,553
---------- ----------- ----------- -----------
Cash flows from financing
activities
Distribution to stockholder (555,000) (495,730) (21,950)
Cash paid for stock options (182,000)
Proceeds from (payments of)
note payable, net 525,000 150,000 (150,000) (800,000)
Proceeds from (payments of)
demand note payable 500,000 (500,000)
Proceeds from long-term debt 500,000
Deferred registration costs (70,000) (141,874)
Proceeds from issuance of
common stock 3,832,968
---------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities 218,000 3,487,238 (313,824) (800,000)
---------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 125,464 (114,361) (187,490) (20,304)
Cash and cash equivalents
at beginning of year 62,026 187,490 187,490 73,129
---------- ----------- ----------- -----------
Cash and cash equivalents
at end of year $ 187,490 73,129 $ -- $ 52,825
========== ========== =========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during
the year for
Interest $ 9,400 $ 94,000 $ 45,424 $ 54,383
========== ========== =========== ==========
Income taxes $ 32,000 $ 150,000 $ 1,205 $ 88,250
========== ========== =========== ==========
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 and 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 and 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:
June 30, June 30, December 31,
1995 1996 1996
-------- -------- ------------
Demonstration equipment -
net of accumulated
depreciation of $150,557
and $196,973 at
June 30, 1995 and 1996,
and $235,181 for December $247,960 $270,863 $294,024
31, 1996, respectively
Deferred registration costs 70,000
Other 104,142 82,261 78,261
------- -------- ---------
$422,102 $353,124 $372,285
======= ======= ========
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:
June 30, June 30, December 31,
1995 1996 1996
------- ------- ------
Accrued payroll $ 81,100 $ 76,120 $120,428
Accrued vacation pay 54,808 59,477 20,000
Other 125,293 119,080 49,714
------- ------- ------
$261,201 $254,677 $190,142
======== ======== ========
F-8
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996 and 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, and for the six months ended
December 31, 1995 and 1996. (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, and $76,000 and $130,000 for the six months
ended December 31, 1996 and 1995, respectively.
12. Unaudited Condensed 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.
The unrealized gain is not significant.
F-9
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996 and December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(Continued)
NOTE D - INVENTORIES
Inventories consist of the following:
June 30, June 30, December 31,
1995 1996 1996
---------- ---------- -----------
Raw materials $ 615,462 $ 975,332 $ 1,097,377
Work-in-process 1,086,773 1,501,716 1,682,644
Finished goods 356,072 771,734 877,901
---------- ---------- -----------
$2,058,307 $3,248,782 $3,657,922
========== ========== ==========
NOTE E - PROPERTY AND EQUIPMENT
A summary of equipment and leasehold improvements follows:
June 30, June 30, December 31,
1995 1996 1996
--------- --------- ---------
Trade show booth $ 50,494 $ 50,494 $ 50,494
Machinery and 518,029 586,063 646,723
equipment
Tooling 103,173 103,762 104,503
Office furniture and 133,498 143,235 151,143
equipment
Leasehold improvements 159,688 174,081 186,101
Automobiles 32,408 32,408 32,408
Data processing 301,280 365,240 394,899
--------- --------- ---------
equipment
1,298,570 1,455,283 1,566,271
Less accumulated 1,020,763 1,153,577 1,225,140
--------- --------- ---------
depreciation
$ 277,807 $ 301,706 $ 341,131
=========== =========== ==========
NOTE F - NOTES PAYABLE
1. 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 and December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(Continued)
NOTE F (continued)
2. 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 and
December 31,1996, 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 AND CONTINGENCIES
1. 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 $133,000 for the years ended June 30, 1995 and
1996, and the six months ended December 1995, and 1996 respectively.
2. State of California Sales Tax Audit
The Company is currently under audit by the California State Board of
Equalization for Sales and Use Tax. The Company cannot presently estimate the
amount of tax that may be assessed.
F-11
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996 and 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 for $.25 per
warrant at an exercise price of $8.25 per share, 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 and 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 and 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 exercise 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 exercise 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:
Incentive options Non-qualified options
----------------- ---------------------
Number Option Number Option
of shares prices of shares prices
--------- ------ --------- -----------
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 and
December 31,1996 69,500 $5.00 285,366 $0.31-$1.03
======== =========
NOTE J - 401(k) PLAN AND PROFIT SHARING 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 $2,000 and $21,000 for the years ended June 30, 1995 and 1996
respectively, and $9,000 and $15,000 for the six months ended December 31,
1995 and 1996, respectively.
The Company also has a non-qualified profit sharing plan. Under the plan the
Company distributes 10% of pre-tax profits, based on a three month moving
average. Expenses under the plan totaled approximately $90,000 and $64,000
for the years ended June 30, 1995 and 1996, respectively, and $41,000 and
$29,000 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 and 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:
Year ended June 30, Six months ended December
31,
---------------------------- ----------------------------
1995 1996 1995 1996
------------- ------------- ------------- -------------
United States $5,699,000 $6,320,000 $2,840,000 $3,430,000
Europe 1,279,000 1,376,000 881,000 592,000
Asia/Pacific 1,159,000 967,000 467,000 915,000
Rim
Canada and 269,000 396,000 144,000 267,000
Mexico
Other 169,000 317,000 60,000 78,000
------------- ------------- ------------- -------------
$8,575,000 $9,376,000 $4,392,000 $5,282,000
============= ============= ============= =============
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 and 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:
Year ended June 30, Six months ended
December 31,
---------------------- -------------------------
1995 1996 1995 1996
---------- --------- ---------- -------------
U.S. Federal
Current tax
provision $ 50,000 $78,541
Deferred tax benefit (68,000) -
---------- ---------- ----------- ------------
(18,000) 78,541
---------- ------------
State
Current tax provision $45,000 22,000 $21,668 22,802
Deferred tax benefit (12,000)
---------- ---------- ----------- ------------
45,000 10,000 21,668 22,802
---------- ---------- ----------- ------------
Total income tax
provision (benefit) $45,000 $(8,000) $21,668 $101,343
========== ========== =========== ============
The tax effect of temporary differences which give rise to deferred tax
assets and liabilities at June 30, 1996 and December 31, 1996 are as follows:
Accrued expenses $22,000
Allowance for doubtful accounts 17,000
Inventory 41,000
------
Net deferred tax asset $80,000
======
F-16
<PAGE>
Sonics & Materials, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1996 and December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(Continued)
NOTE L (continued)
The following is a reconciliation of the statutory Federal income tax rate to
the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
Year ended June 30, 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% $86,142 34.0%
State and local
taxes, net of
Federal income tax
benefit $45,000 5.8% 15,000 3.4 $21,668 8.9% 15,201 6.0%
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% 101,343 40.0%
======== ======= ========= ====== ======= ======= ======== ========
</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 and 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 be 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
1. 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 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 and December 31, 1995 and 1996
(Information pertaining to December 31, 1995 and 1996 is unaudited)
(Continued)
NOTE P (continued)
2. 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 and for the
six months ended December 31, 1995.
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:
Six months
Year ended June 30, ended
December
31,
---------------------- ------------
1995 1996 1995
---------- ---------- ------------
Federal $291,312 $135,256 $75,376
State and
local 84,575 39,268 21,884
---------- ---------- ------------
$375,887 $174,524 $97,260
========== ========== ============
3. Pro Forma Net Income
Represents the historical amounts after the pro forma adjustments
discussed above.
4. 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 securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation.
------------------------
TABLE OF CONTENTS
Page
Prospectus Summary............ 2
Summary Financial Information. 4
Risk Factors.................. 5
Cautionary Statement Regarding
Forward-Looking Information. 9
Dilution...................... 9
Market for Company's Common
Equity 10
and Related Stockholder
Matters.......................
Use of Proceeds............... 10
Dividend Policy............... 11
Capitalization................ 11
Selected Financial Data....... 12
Management's Discussion and
Analysis of 13
Financial Condition and
Results of Operations.........
Business...................... 16
Management.................... 22
Certain Relationships and 25
Related Transactions..........
Security Ownership of Certain 27
Beneficial Owners.............
Description of Securities..... 27
Certain Tax Considerations.... 30
Warrant Solicitation Fee...... 31
Concurrent Offering........... 31
Legal Matters................. 33
Experts....................... 33
Reports to Stockholders....... 33
Additional Information........ 33
Index to Financial Statements. F-1
==============================================================================
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 14, 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>
Item 25. Other Expenses of Issuance and Distribution(1)(2)
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
======
- ----------------------
(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:
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 Filed herewith
10.1 Forms of Employment Agreement between the
Registrant and Robert S. Soloff (1)
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)
II-3
<PAGE>
Exhibit
Number Description of Document Method of Filing
- ------ ----------------------- ----------------
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 (1)
23.1 Consent of Independent Certified Public
Accountants Filed herewith
23.2 Consent of Independent Public Accountants (1)
23.3 Consent of Company Counsel (to be included in Filed herewith
its opinion to be filed as Exhibit 5.1)
24.1 Power of Attorney (6)
27.1 Financial Data Schedule (6)
- ----------------------
(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.
(6) Previously filed with Post-Effective Amendment No. 1 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, 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. 2 to the Registration Statement to be signed on its
behalf by the undersigned, in the City of Danbury, State of Connecticut on
February 14, 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. 2 to the Registration Statement was signed by the
following persons in the capacities and on the dates stated:
Signature Title Date
* Chairman, President, February 14, 1997
Treasurer, Chief
......................
(Robert S. Soloff) Executive Officer and
Chief Financial
Officer
/s/Lauren H. Soloff Secretary and Director February 14, 1997
......................
(Lauren H. Soloff)
* Director February 14, 1997
......................
(Carole Soloff)
* Director February 14, 1997
......................
(Jack T. Tyransky)
* Director February 14, 1997
......................
(Alan Broadwin)
* Accounting Manager; February 14, 1997
Principal
......................
(Christopher S. Accounting Officer;
Andrade) Principal Accounting
Officer
* Director February 14, 1997
......................
(Stephen J. Drescher)
*/s/LAUREN H. SOLOFF February 14, 1997
......................
By Lauren H. Soloff
as attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
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 Filed herewith
10.1 Forms of Employment Agreement between the Registrant (1)
and Robert S. Soloff
10.3 Incentive Stock Option Plan and form of Stock Option (1)
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 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)
10.1 Consulting Agreement dated October 17, 1995 between (3)
the Registrant and Alan Broadwin
16.1 Change of Accountants' Letter
23.1 Consent of Independent Certified Public Accountants Filed herewith
23.2 Consent of Independent Public Accountants (1)
23.3 Consent of Company Counsel (to be included in its Filed herewith
opinion to be filed as Exhibit 5.1)
24.1 Power of Attorney (6)
27.1 Financial Data Schedule Filed herewith
- ----------------------
(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.
(6) Previously filed with Post-Effective Amendment No. 1 Registration
Statement No. 33-96414.
II-8
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated August 20, 1996, accompanying the financial
statements of Sonics & Materials, Inc. for the years ended June 30, 1995 and
1996 contained in the Registration Statement and Prospectus. We consent to
the use of the aforementioned report in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts."
/s/ Grant Thornton LLP
- ----------------------
GRANT THORNTON LLP
New York, New York
February 11,1997
Tyler Cooper & Alcorn
205 Church Street
P.O. Box 1936
New Haven, CT 06509-1910
February 14, 1997
Board of Directors
Sonics & Materials, Inc.
West Kenosia Avenue
Danbury, Connecticut 06810
RE: Sonics & Materials, Inc.
Registration Statement No. 33-96414, as amended
Dear Sirs and Madams:
We have acted as counsel for Sonics & Materials, Inc. (the
"Company") in connection with the Company's proposed public
offering of up to 1,725,000 shares of Common Stock (underlying
the exercise of outstanding Class A Redeemable Common Stock
Purchase Warrants (the "Warrants")), and the proposed public
offering by certain selling securityholders of up to 100,000
Options (the "Selling Securityholder Options") to purchase shares
of Common Stock and Warrants (the "Selling Securityholder
Warrants"), 100,000 shares of Common Stock (underlying the
exercise of the Selling Securityholder Options), 100,000 Warrants
to purchase shares of Common Stock (underlying the exercise of
the Selling Securityholder Options), and 100,000 shares of Common
Stock (underlying the exercise of the Selling Securityholder
Warrants) (collectively, the "Securities").
We have examined and are familiar with the originals or
copies, certified or otherwise identified to our satisfaction, of
pertinent documents, corporate records and other instruments
relating to the issuance of the Securities and other actions and
proceedings relating thereto. In rendering this opinion, we have
assumed that there will be no change in applicable law between
the date of this opinion and the date of issuance of the
Securities proposed to be issued and sold by the Company as
described in Registration Statement No. 33-96414, as amended, on
Form SB-2 filed with the Securities and Exchange Commission
(the "Registration Statement").
Based upon the foregoing, we are of the opinion that (i) the
shares of Common Stock proposed to be issued and sold by the
Company upon exercise of the Warrants, the Selling Securityholder
Options and the Selling Securityholder Warrants, when issued and
sold as described in the Registration Statement, will be legally
issued, fully paid and nonassessable, and (ii) the Selling
Securityholder Warrants proposed to be issued and sold by the
Company upon exercise of the Selling Securityholder Options, when
issued and sold as described in the Registration Statement, will
be binding obligations of the Company as set forth therein.
The opinions expressed herein are only as to matters
governed by the corporate laws of the State of Delaware and
United States federal law.
The opinions expressed herein are qualified to the extent
that the enforceability of the Selling Securityholder Warrants
may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer or other laws affecting creditors' rights
generally, by general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or law)
and the requirement that persons act reasonably and in good faith
and deal fairly.
We hereby consent to the use of this opinion as an exhibit
to the Registration Statement and to the reference to us under
the caption "Legal Matters" in the Prospectus which forms a part
of the Registration Statement.
Very truly yours,
TYLER COOPER & ALCORN
By: /s/ Jon T. Hirschoff
-------------------------
Jon T. Hirschoff, A Partner
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 52,825
<SECURITIES> 1,803,491
<RECEIVABLES> 1,834,005
<ALLOWANCES> 45,000
<INVENTORY> 3,657,922
<CURRENT-ASSETS> 7,551,467
<PP&E> 341,131
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,264,883
<CURRENT-LIABILITIES> 1,047,552
<BONDS> 0
0
0
<COMMON> 105,003
<OTHER-SE> 6,712,328
<TOTAL-LIABILITY-AND-EQUITY> 8,264,883
<SALES> 5,281,755
<TOTAL-REVENUES> 5,281,755
<CGS> 2,729,739
<TOTAL-COSTS> 2,321,618
<OTHER-EXPENSES> 1,187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (24,148)
<INCOME-PRETAX> 253,359
<INCOME-TAX> 101,343
<INCOME-CONTINUING> 152,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,016
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
