UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-20753
SONICS & MATERIALS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-0854713
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
53 Church Hill Road
Newton, CT 06470
(Address of principal executive offices)
Telephone Number (203) 270-4600
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days:
Yes [X] No [ ]
As of May 13, 1997, there were 3,590,100 shares of the Registrant's
Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements *
Consolidated Condensed Balance Sheets -
March 31, 1998 and June 30, 1997 3
Consolidated Condensed Statements of Operations -
For the Three and Nine Months Ended
March 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows -
For the Nine Months Ended
March 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 2 (d) Changes in Securities and Use of Proceeds11
Item 4. Submission of Matters to a Vote of Security Holders11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 13
Index to Exhibits 14
Exhibit 27 - Financial Data Schedule 15
* The Balance Sheet at June 30, 1997 has been taken from the audited
financial statements at that date. All other financial statements are
unaudited.
<PAGE>
Sonics & Materials, Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
As of
March 31, June 30,
1998 1997
(unaudited) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 74,508 $ 271,593
Short-term investments 1,576,922 1,665,470
Accounts receivable, net of allowance
for doubtful accounts of $97,000
at March 31,1998 and $45,000
at June 30, 1997 2,276,399 1,854,118
Inventories 4,421,426 3,718,250
Prepaid income taxes 175,387 150,061
Deferred taxes 80,000 80,000
Other current assets 5,066 137,562
____________ ____________
Total current assets 8,609,708 7,877,054
PROPERTY PLANT & EQUIPMENT - NET 3,111,498 364,354
GOODWILL - NET 1,017,590 -
OTHER ASSETS 748,002 917,709
RESTRICTED CASH FROM INDUSTRIAL REVENUE BOND 1,296,944 -
____________ ____________
$ 14,783,742 $ 9,159,117
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,465,101 $ 500,000
Current maturities of long-term debt 342,259 116,600
Accounts payable 1,081,329 804,653
Commissions payable 143,907 235,203
Other accrued expenses and sundry
liabilities 422,811 278,310
____________ ____________
Total current liabilities 3,455,407 1,934,766
LONG TERM DEBT, NET OF CURRENT PORTION 4,285,936 406,911
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common stock - par value $.03 per share;
authorized 10,000,000 shares; issued
and outstanding, 3,590,100 shares at
March 31, 1998, and 3,520,100 shares
at June 30, 1997 107,703 105,603
Additional paid in capital 6,766,897 6,539,597
Retained earnings 167,799 172,240
____________ ____________
Total stockholders' equity 7,042,399 6,817,440
____________ ____________
$ 14,783,742 $ 9,159,117
============ ============
* Taken from the audited financial statements at June 30, 1997.
The accompanying notes are an integral part of these statements.
3
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Sonics & Materials, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended For the Nine Months Ended
March 31, March 31,
_____________________________ ___________________________
1998 1997 1998 1997
_______________ ____________ ____________ ______________
Net sales $2,990,272 $2,483,067 $8,922,039 $7,764,822
Cost of sales 1,784,302 1,285,710 5,139,179 4,015,449
_______________ ____________ ____________ ______________
Gross profit 1,205,970 1,197,357 3,782,860 3,749,373
Operating expenses
Selling expense 806,612 790,256 2,421,431 2,350,366
General and
administrative 382,346 205,926 1,009,583 717,697
Research and
development 141,347 131,444 440,600 381,181
_______________ ____________ ____________ ______________
Total operating
expenses 1,330,305 1,127,626 3,871,614 3,449,244
Other income
(expense)
Interest income 70,959 43,227 124,089 118,691
Interest expense (23,872) (9,335) (138,609) (60,646)
Other (971) 2,671 72,506 1,478
_______________ ____________ ____________ ______________
46,116 36,563 57,986 59,523
Income (loss)
before provision
for income taxes (78,219) 106,294 (30,768) 359,652
Provision (benefit)
for income taxes (3,918) 42,518 0 143,861
_______________ ____________ ____________ ______________
Net Income (loss) $ (74,301) $ 63,776 $ (30,768) $ 215,791
=============== ============ ============ ==============
INCOME (LOSS) PER
SHARE - BASIC
Net income per
share $ (.02) $ .02 $ (.01) $ .06
=============== ============ ============ ==============
Weighted average
number of shares
outstanding 3,590,100 3,501,233 3,583,759 3,500,472
=============== ============ ============ ==============
INCOME (LOSS) PER
SHARE - DILUTED
Net income per share $ (.02) $ .02 $ (.01) $ .05
=============== ============ ============ ==============
Weighted average
number of shares
outstanding 3,590,100 3,829,839 3,583,759 4,455,342
=============== ============ ============ ==============
The accompanying notes are an integral part of these statements.
4
<PAGE>
Sonics & Materials, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended March 31,
1998 1997
_________________ _________________
Net cash used in operations $ (801,894) $ (532,272)
Net cash provided by (used in)
investing activities (2,707,033) 1,098,437
Net cash provided by (used in)
financing activities 3,311,842 (480,000)
_________________ _________________
Net increase (decrease) in cash and
cash equivalents for the period 197,085 86,165
Cash and cash equivalents - at beginning
of period 271,593 73,129
_________________ _________________
Cash and cash equivalents - at end of
period $ 74,508 $ 159,294
================= =================
Cash paid during period for:
Interest $ 134,527 $ 65,903
================= =================
Income taxes $ - $ -
================= =================
Supplemental schedule of noncash
financing activities:
Net proceeds from Industrial
Revenue Bond $ 3,810,000
Repayment of Bridge Loan (1,343,538)
Purchase and preparation of
new facility (1,169,518)
______________
Restricted cash from Industrial
Revenue Bond $ 1,296,944
==============
The accompanying notes are an integral part of these statements.
5
<PAGE>
Sonics & Materials, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited)
NOTE 1: Basis of Presentation
The accompanying financial statements of Sonics & Materials, Inc. (the
"Company") for the interim periods are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. These financial statements should be
read in conjunction with the financial statements and notes thereto, together
with management's discussion and analysis, contained on Form 10-KSB for the year
ended June 30, 1997. The results of operations for the three and nine months
ended March 31, 1998 are not necessarily indicative of the results for the
entire fiscal year ending June 30, 1998.
NOTE 2: Consolidation
The accompanying financial statements for the three and nine months ended March
31, 1998 reflect the consolidated operations of Sonics & Materials, Inc., and
its wholly-owned subsidiary, Tooltex, Inc. ("Tooltex). All significant
intercompany accounts and transactions have been eliminated in consolidation.
NOTE 3: Net Income Per Share
Basic income per share is based on the weighted average number of common shares
outstanding during the period. Diluted income per share is based on the
assumption that all dilutive securities were converted at the beginning of the
period or at the issue date, if later.
The weighted average number of shares outstanding for the periods presented is
as follows:
Three months ended March 31, Nine months ended March 31,
____________________________ _____________________________
1998 1997 1998 1997
_____________ _____________ _____________ ______________
Basic shares 3,590,100 3,501,233 3,583,759 3,500,472
Dilution (warrants
and options) - 328,606 - 954,869
_____________ _____________ _____________ ______________
Diluted shares 3,950,100 3,829,839 3,583,759 4,455,342
============= ============= ============= ==============
NOTE 4: Acquisition of Tooltex, Inc.
On July 25, 1997, the Company acquired, through a newly formed wholly-owned
subsidiary, 100% of the stock of Tooltex. Tooltex is a manufacturer of automated
systems used in the plastics industry. The shareholders received, in exchange
for 100% of the stock of Tooltex, (i) an aggregate of 70,000 shares of the
Company's common stock, par value $.03 per share, (ii) $70,000 and (iii) options
to purchase 10,000 shares of the Company's common stock. The purchase price was
allocated to the assets acquired based on their estimated fair value. The excess
total acquisition costs over the fair value of the net assets acquired of
approximately $1,057,000 is to be amortized on a straight line basis over 20
years. The Company had sales to Tooltex of approximately $38,000 and $67,000 for
the three and nine months ended March 31, 1997, respectively. At the time of the
acquisition, the Company had a receivable of approximately $254,000 from
Tooltex. The sales and results of operations of Tooltex for the period from July
1, 1997, to July 25, 1997 were not material.
The following unaudited pro forma consolidation for the three and nine months
ended March 31, 1997, shows the results of operations, assuming that the
purchase had occurred on July 1, 1996. The unaudited pro forma results are not
necessarily indicative of what actually would have occurred if the acquisition
had been in effect for the entire period. In addition, they are not intended to
be a projection of future results.
Three Months Ended Nine Months Ended
March 31, 1997 March 31, 1997
__________________ _________________
Revenues $2,812,773 $9,219,975
Net loss (11,145) (98,647)
Net loss per share ($-) ($.03)
6
<PAGE>
Sonics & Materials, Inc.
Notes to Consolidated Financial Statements (Continued)
March 31, 1998
(unaudited)
NOTE 5: Financing
On September 19, 1997, the Company entered into three credit facilities with a
bank (the "Bank"), each of which is secured by a first mortgage lien on property
the Company acquired in Newtown, CT: (i) a Bridge Loan in the original principal
amount of $1,600,000; (ii) a Line of Credit of up to $1,500,000; and (iii) a
Term Loan in the original principal amount of $427,000.
The Bridge Loan which bore interest at the Bank's base lending rate plus
one-half percent (9.0% at March 31, 1998), was repaid in full in December 1997.
The Line of Credit is used by the Company for working capital. The Line of
Credit bears interest, at the Company's option, at either the Bank's base
lending rate (8.5% at March 31, 1998) or LIBOR plus 2.5% (8.19% at March 31,
1998). Advances under the Line of Credit are at the Bank's sole discretion. The
entire principal balance of the Line of Credit, which at March 31, 1998 was
$1,465,101, will mature and be due and payable upon the demand of the Bank. The
borrowings under the Line of Credit may be prepaid in whole or in part, without
premium or penalty, at any time. In the event of the prepayment of any portion
of the Line of Credit during any period in which the Line of Credit bears
interest at a LIBOR rate, Sonics will be obligated to pay the Bank a breakage
fee relating to the LIBOR interest component. The Line of Credit is also secured
by all of the Company's assets.
The proceeds of the Term Loan were used to pay in full a term loan with
another bank with interest and principal totaling $427,000. The term loan with
the other bank bore interest at such bank's loan pricing rate of interest plus
one-half percent. The outstanding principal amount of the Term Loan at May 15,
1998 is $345,972, which bears interest, at Sonics' option, at either the Bank's
base lending rate (8.5% at March 31, 1998) or LIBOR plus 2.5% (8.19% at March
31, 1998). The principal of the Term Loan must be paid in 36 equal monthly
installments of $11,861, which commenced on November 1, 1997 and the entire
remaining principal balance will mature and be due and payable on October 1,
2000. The terms and conditions under which Sonics may prepay all or any portion
of the Term Loan are the same as for the Line of Credit discussed above. The
Term Loan is also secured by all of the Company's assets.
In December 1997, the Company issued Industrial Revenue Bonds through the
Connecticut Development Authority in the amount of $3,810,000. The proceeds were
used in part to pay in full the outstanding interest and principal due on the
Bridge Loan discussed above. The remaining proceeds are to be used exclusively
for the purchase and preparaion of the Company's new facilities, and to purchase
new machinery and equipment. The Company has used a total of $1,369,518 of the
proceeds for these purposes through March 31, 1998. Unapplied funds have been
invested in short-term securities. The Bonds, held by the Bank, mature in
November 2017, and bear interest at 75% of the Bank's base lending rate (6.4 %
at March 31, 1998). The Company is to begin to redeem the principal in 228 equal
monthly installments of $16,700 beginning December 1998.
NOTE 6: Recently Issued Accounting Pronouncements
In June 1997, SAFS 130, "Reporting Comprehensive Income", and SFAS 131,
"Disclosures About Segmens of an Enterprise and Related Information" were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components, and SFAS 131 requires disclosure of reportable
operating segments. In February 1998, SFAS 132, "Employers' Disclosure About
Pensions and Other Post-retirement Plans" was issued. SFAS 132 standardizes
pension disclosures. These statements are effective in 1998. The Company will be
reviewing these pronouncements to determine their applicability to the Company,
if any.
7
<PAGE>
Any statements in this filing that are not statements of historical fact are
forward-looking statements that are subject to a number of uncertainties that
could cause actual results to differ materially. Specifically, any forward
looking statements in this filing 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 products, pricing,
market acceptance of existing and new products, a 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. The Company's objectives of future growth, profitability and financial
returns are also subject to the uncertainty of Vibra-Surge Corporation being
able to successfully market its ultrasonic surgical device. It is also uncertain
whether a patent will be granted for the Company's ultrasonic surgical device,
or whether any related patent litigation may hinder the Company's ability to
market the device. In addition, the Company's objectives of future growth,
profitability, and financial returns are also subject to the uncertainty of the
growth and profitability of its wholly owned subsidiary, Tooltex. The Company
undertakes no obligation to release data hereof or for this statement to reflect
the occurrence of unanticipated events.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the unaudited
financial statements included herein, see Item 1, and the financial information
contained in the Company's annual report on Form 10-KSB for the year ended June
30, 1997.
RESULTS OF OPERATIONS
Three months ended March 31, 1998 compared to three months ended March 31,
1997.
Net sales. Net sales for the quarter ended March 31, 1998 increased
$507,000 or 20.4%. This increase is the result of the acquisition and
consolidation of Tooltex.
Cost of Sales. Cost of sales increased from 51.8% of sales for the three
months ended March 31, 1997 to 59.7% of sales for the three months ended March
31, 1998. A portion of this increase is attributable to increased coast of sales
associated with the acquisition and consolidation of Tooltex. In addition, the
Company has experienced increased costs associated with the manufacture of the
vibration welder in connection with the continuing redesign of the product for
better cost effectiveness. These factors, combined with a change in the sales
product mix, account for this increase in cost of sales as a percent of sales.
Selling Expenses. Selling expenses for the third quarter of fiscal 1998
increased $16,000 or 2.1% over the same period in fiscal 1997. As a percentage
of net sales, these expenses remained relatively constant, decreasing to 27.0%
for the three months ended March 31, 1998 from 31.8% for the three months ended
March 31, 1997. This increase is primarily a result of the acquisition and
consolidation of Tooltex.
General and Administrative Expenses. General and administrative expenses
for the third quarter of fiscal 1998 increased $176,000 or 85.7% over the third
quarter of fiscal 1997. As a percentage of net sales, these expenses increased
to 12.8% from 8.3% over the same period in fiscal 1997. This increase is a
result of increased professional fees as well as the acquisition and
consolidation of Tooltex. The Company began consolidating the financial results
of Tooltex as of July 1, 1997. As such, the March 1998 quarter reflects
consolidated results, whereas the comparable 1997 quarter does not.
Research and Development Expenses. Research and development expenses
remained relatively constant over the two periods, increasing $9,900 or 7.5%.
This increase is primarily attributable to testing of the Company's Vibra-Surge
ultrasonic aspirator to certify the product of sale in European markets.
Interest Income. Interest income for the third quarter of fiscal 1998
increased by $28,000 over the same period in fiscal 1997. This is the result of
the investment of the proceeds from the Industrial Revenue Bond issue discussed
further under Liquidity and Capital Resources.
8
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Interest Expense. Total interest expense increased by $14,000 or 155.7%.
This is due to increased debt carried by the Company in connection with the
purchase of real property in Newtown, Connecticut. A more detailed explanation
of the new credit facilities can be found in Liquidity and Capital Resources.
The Company also had higher average borrowings on it's line of credit than in
the third quarter of fiscal 1997.
Income Taxes. Total income tax expense for the three months ended March 31,
1998 decreased $46,000 or 109.2% compared to the three months ended March 31,
1997. The lower provision is the result of lower income before taxes, offset by
an increase in non-deductible expenses, namely, amortization of goodwill arising
from the acquisition of Tooltex.
Nine months ended March 31, 1998 compared to nine months ended March 31, 1997.
Net sales. Net sales for the nine months ended March 31, 1998 increased
$1,157,000 or 14.9% over the same period in fiscal 1997. This increase is
primarily the result of the acquisition and consolidation of Tooltex, offset by
decreased sales volume generated by the Company's Aston, PA division.
Cost of Sales. Cost of sales increased $1,124,000, from 51.7% of sales for
the nine months ended March 31, 1997 to 57.6% of sales for the nine months ended
March 31, 1998. This increase is partially attributable to the acquisition and
consolidation of Tooltex. In addition, cost of sales for the nine months ended
March 31, 1998 was 55.5% of sales, excluding the effect of the consolidation of
Tooltex, compared to 51.7% for the same period last year. The Company has
experienced increased costs associated with the manufacture of the vibration
welder in an effort to redesign the product for better cost effectiveness. These
factors, combined with a change in the product mix, account for this increase in
cost of sales as a percent of sales.
Selling Expenses. Selling expenses for the first nine months of fiscal 1998
increased $71,000 or 3.0% over the same period in fiscal 1997. As a percentage
of net sales these expenses decreased to 27.1% from 30.3% over the same period
in fiscal 1997. 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 1998 increased $292,000 or 40.7% over the
same period in fiscal 1997. As a percentage of net sales, these expenses
increased to 11.3% from 9.2% over the same period in fiscal 1997. This increase
is a result of increased professional fees as well as the acquisition and
consolidation of Tooltex. The Company began consolidating the financial results
of Tooltex as of July 1, 1997. As such, the first nine months of fiscal 1998
reflects consolidated results, whereas the comparable 1997 period does not.
Research and Development Expenses. Research and development expenses
increased $59,000 or 15.6% over the same period in fiscal 1997. The increase was
primarily due to increased use of outside consulting services for several
development projects in the first quarter.
Interest Income. Interest income remained relatively constant, increasing
approximately $4,000 or 3.7% over the same period in fiscal 1997.
Interest Expense. Total interest expense increased by $78,000 or 128.6%.
This is due to increased debt carried by the Company in connection with the
purchase of real property in Newtown, Connecticut. A more detailed explanation
of the new credit facilities can be found under Liquidity and Capital Resources.
The Company also had higher average borrowings on its line of credit than in the
second quarter of fiscal 1997.
Other Income. Other income for the nine months ended March 31, 1998
increased by $71,000, or 4,738% over the same period in fiscal 1997. This is the
result of the acquisition and consolidation of Tooltex. Tooltex recognized
approximately $62,000 resulting from the forgiveness of debts by its vendors.
9
<PAGE>
Income Taxes. Total income tax expense for the nine months ended March 31,
1998 decreased $143,000 or 100.0% compared to the nine months ended March 31,
1997. The lower provision is the result of lower income before taxes, offset by
an increase in non-deductible expenses, namely, amortization of goodwill arising
from the acquisition of Tooltex.
LIQUIDITY AND CAPITAL RESOURCES
Operations of the Company used approximately $802,000 during the nine months
ended March 31, 1998 as a result of increased inventory and accounts receivable
and a reduction in accounts payable balances. During the first nine months of
fiscal 1998, the Company invested approximately $543,000 in new capital
equipment and leasehold improvements and $2,175,000 in land and a building that
will be used to consolidate the Company's manufacturing and office facilities.
As of June 30, 1997, the Company's working capital was $5,942,000. As of March
31, 1998, the Company's working capital had decreased to 5,514,000 representing
a decrease of approximately 13.3% over June 30, 1997 levels. This decrease is
the result of increased current debt carried by the Company.
The Company's principal credit line is a $1,500,000 bank credit facility as
described below.
On September 19, 1997, the Company entered into three credit facilities with a
bank (the "Bank"), each of which is secured by a first mortgage lien on property
the Company acquired in Newtown, CT: (i) a Bridge Loan in the original principal
amount of $1,600,000; (ii) a Line of Credit of up to $1,500,000; and (iii) a
Term Loan in the original principal amount of $427,000.
The Bridge Loan which bore interest at the Bank's base lending rate plus
one-half percent (9.0% at March 31, 1998), was repaid in full in December 1997.
The Line of Credit is used by the Company for working capital. The Line of
Credit bears interest, at the Company's option, at either the Bank's base
lending rate (8.5% at March 31, 1998) or LIBOR plus 2.5% (8.19% at March 31,
1998). Advances under the Line of Credit are at the Bank's sole discretion. The
entire principal balance of the Line of Credit, which at March 31, 1998 was
$1,465,101, will mature and be due and payable upon the demand of the Bank. The
borrowings under the Line of Credit may be prepaid in whole or in part, without
premium or penalty, at any time. In the event of the prepayment of any portion
of the Line of Credit during any period in which the Line of Credit bears
interest at a LIBOR rate, Sonics will be obligated to pay the Bank a breakage
fee relating to the LIBOR interest component. The Line of Credit is also secured
by all of the Company's assets.
The proceeds of the Term Loan were used to pay in full a term loan with another
bank with interest and principal totaling $427,000. The term loan with the other
bank bore interest at such bank's loan pricing rate of interest plus one-half
percent. The outstanding principal amount of the Term Loan at May 15, 1998 is
$345,972, which bears interest, at Sonics' option, at either the Bank's base
lending rate (8.5% at March 31, 1998) or LIBOR plus 2.5% (8.19% at March 31,
1998). The principal of the Term Loan must be paid in 36 equal monthly
installments of $11,861, which commenced on November 1, 1997 and the entire
remaining principal balance will mature and be due and payable on October 1,
2000. The terms and conditions under which Sonics may prepay all or any portion
of the Term Loan are the same as for the Line of Credit discussed above. The
Term Loan is also secured by all of the Company's assets.
In December 1997, the Company issued Industrial Revenue Bonds through the
Connecticut Development Authority in the amount of $3,810,000. The proceeds were
used in part to pay in full the outstanding interest and principal due on the
Bridge Loan discussed above. The remaining proceeds are to be used exclusively
for the purchase and preparaion of the Company's new facilities, and to purchase
new machinery and equipment. The Company has used a total of $1,369,518 of the
proceeds for these purposes through March 31, 1998. Unapplied funds have been
invested in short-term securities. The Bonds, held by the Bank, mature in
November 2017, and bear interest at 75% of the Bank's base lending rate (6.4 %
at March 31, 1998). The Company is to begin to redeem the principal in 228 equal
monthly installments of $16,700 beginning December 1998.
Management has initiated a company-wide program to prepare the Company's
computer system and applications for the year 2000, as well as identify critical
third parties which the Company relies upon to
10
<PAGE>
operate its business to assess their readiness for the year 2000. Management
cannot presently estimate the cost of this program; however such costs are not
currently expected to be material to the Company's operations or financial
condition. There can be no assurance that the systems of other companies which
the Company's systems rely upon will be timely converted, or that such failure
to convert by another company would not have a material adverse effect on the
Company's systems and results of operations.
11
<PAGE>
PART II - OTHER INFORMATION
Item 2. Change in Securities.
(d) The Company completed its initial public offering of securities pursuant to
a registration statement (No. 33-96414) that was declared effective on
February 26, 1996. As of May 15, 1998, the Company has applied proceeds
from the offering in the following approximate amounts to the following
categories.
Amount of Payments
Repayment of Indebtedness $1,670,000
Acquisition of other business 92,598
Working capital and general corporate use 1,268,916
__________________
Total $3,031,514
==================
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3(i) Certificate of Incorporation of the Registrant, as amended.
(Previously filed as Exhibit 3.1 of Amendment No. 3 to Registration
Statement No. 33-96414)
3(ii) Amended By-laws of the Registrant. (Previously filed as Exhibit 3.2
of Registration Statement No. 33-96414)
10(i) Form of Employment Agreement between the Registrant and Robert S.
Soloff. (Previously filed as Exhibit 10.1 of Registration
Statement No. 33-96414)
10(ii) 1995 Incentive Stock Option Plan and form of Stock Option
Agreement. (Previously filed as Exhibit 10.3 of Registration
Statement No. 33-96414)
10(iii) Original Office Lease and Amendments between the Registrant and
Nicholas R. DiNapoli, Jr. DBA DiNapoli Holding Co. (Danbury, CT).
(Previously filed as Exhibit 10.4 of Registration Statement No.
33-96414)
10(iv) Lease between Registrant and Aston Investment Associates (Aston,
PA). (Previously filed as Exhibit 10.5 of Registration Statement
No. 33-96414)
10(v) Amended lease between Registrant and Robert Lenert (Naperville,
IL). (Previously filed as Exhibit 10.6 of Amendment No. 4 to
Registration Statement No. 33-96414)
10(vi) Lease between Registrant and Janine Berger (Gland, Switzerland).
(Previously filed as Exhibit 10.7 of Registration Statement No.
33-96414)
10(vii) Form of Sales Representation Agreement.(Previously filed as Exhibit
10.8 of Registration Statement No. 33-96414)
10(viii) Form of Sales Distribution Agreement. (Previously filed as Exhibit
10.9 of Registration Statement No. 33-96414)
10(ix) Consulting Agreement dated October 17, 1995 between the Registrant
and Alan Broadwin. (Previously filed as Exhibit 10.10 of
Amendment No. 3 of Registration Statement No. 33-96414)
12
<PAGE>
10(x) Agreement and Plan of Merger, dated as of July 25, 1997, among the
Registrant, SM Sub, Inc., Tooltex, Inc. and the persons designated
as the shareholders thereon (excluding schedules and annexes). A
list of omitted schedules and annexes appears on pages iv and v of
the Agreement and Plan of Merger. The Registrant hereby undertakes
to furnish supplementally a copy of any omitted schedule and annex
to the Commission upon request. (incorporated by reference from
Exhibit 2(a) of the Registrant's Form 8-K dated July 25, 1997).
10(xi) Agreement of Merger dated July 25, 1997, among the Registrant, SM
Sub, Inc., and Tooltex, Inc. (incorporated by reference from
Exhibit 2(b) of the Registrant's 8K dated July 25, 1997).
10(xii) Credit Agreement, dated September 19, 1997 between Brown Brothers
Harriman & Co. and Registrant (filed with Registrant's 10KSB dated
September 25, 1997).
10(xiii) Term Loan Note of Registrant dated September 19, 1997, payable to
the order of Brown Brothers Harriman & Co. in the original
principal amount of $427,000 (filed with Registrant's 10KSB dated
September 25, 1997).
10(xiv) Line of Credit Note of Registrant dated September 19, 1997, payable
to the order of Brown Brothers Harriman & Co. in the original
principal amount of $1,500,000 (filed with Registrant's 10KSB
dated September 25, 1997).
10(xv) Bridge Loan Note of Registrant dated September 19, 1997, payable to
the order of Brown Brothers Harriman & Co. in the original
principal amount of $1,600,000 (filed with Registrant's 10KSB
dated September 25, 1997).
10(xvi) Open-End Mortgage Deed from Registrant to Brown Brothers Harriman &
Co. dated September 19, 1997 (filed with Registrant's 10KSB dated
September 25, 1997).
10(xvii) General Security Agreement from Registrant to Brown Brothers
Harriman & Co. dated September 19, 1997 (filed with Registrant's
10KSB dated September 25, 1997).
27 Financial Data Schedule. (Filed Herewith)
(b) none
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SONICS & MATERIALS, INC.
Date: May 15, 1998 By /s/Robert S. Soloff
---------------------------
Robert S. Soloff
President, Chief Executive Officer,
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit Description Location of Exhibit in
No. Sequential Numbering System
3(i) Certificate of Incorporation of the Previously filed as Exhibit 3.1
Registrant, as amended. of Amendment No. 3 to
Registration Statement No.
33-96414
3(ii) Amended By-laws of the Registrant. Previously filed as Exhibit 3.2
of Registration Statement No.
33-96414
10(i) Form of Employment Agreement between Previously filed as Exhibit
the Registrant and Robert S. Soloff. 10.1 of Registration Statement
No. 33-96414
10(ii) 1995 Incentive Stock Option Plan and Previously filed as Exhibit
form of Stock Option Agreement. 10.3 of Registration Statement
No. 33-96414
10(iii) Original Office Lease and Amendments Previously filed as Exhibit
between the Registrant and Nicholas 10.4 of Registration Statement
R. DiNapoli, Jr. DBA DiNapoli Holding No. 33-96414
Co. (Danbury, CT).
10(iv) Lease between Registrant and Aston Previously filed as Exhibit
Investment Associates (Aston, PA). 10.5 of Registration Statement
No. 33-96414
10(v) Amended lease between Registrant Previously filed as Exhibit
and Robert Lenert (Naperville, IL). 10.6 of Amendment No. 4 to
Registration Statement No.
33-96414
10(vi) Lease between Registrant and Janine Previously filed as Exhibit
Berger (Gland, Switzerland). 10.7 of Registration Statement
No. 33-96414
10(vii) Form of Sales Representation Previously filed as Exhibit
Agreement. 10.8 of Registration Statement
No. 33-96414
10(viii) Form of Sales Distribution Previously filed as Exhibit
Agreement. 10.9 of Registration Statement
No. 33-96414
10(ix) Consulting Agreement dated Previously filed as Exhibit
October 17, 1995 between the Exhibit 10.10 of Amendment No.
Registrant and Alan Broadwin. 3 of Registration Statement
No. 33-96414
10(x) Agreement and Plan of Merger, dated
as of July 25, 1997, among the
Registrant, SM Sub, Inc., Tooltex,
Inc. and the persons designated as
the shareholders thereon (excluding
schedules and annexes). A list of
omitted schedules and annexes
appears on pages iv and v of the
Agreement and Plan of Merger. The
Registrant hereby undertakes to
furnish supplementally a copy of
any omitted schedule and annex to
the Commission upon request.
Incorporated by reference from
Exhibit 2(a)of the Registrant's
Form 8-K dated July 25, 1997.
10(xi) Agreement of Merger dated July 25, Incorporated by reference from
1997, among the Registrant, SM Sub, Exhibit 2(b) of the Registrant's
Inc., and Tooltex, Inc. 8K dated July 25, 1997.
10(xii) Credit Agreement, dated September Previously filed with
19, 1997 between Brown Brothers Registrant's 10KSB dated
Harriman & Co. and Registrant September 25, 1997.
10(xiii) Term Loan Note of Registrant Previously filed with
dated September 19, 1997, payable Registrant's 10KSB dated
to the order of Brown Brothers September 25, 1997.
Harriman & Co. in the original
principal amount of $427,000.
10(xiv) Line of Credit Note of Registrant Previously filed with
dated September 19, 1997, payable Registrant's 10KSB dated
to the order of Brown Brothers September 25, 1997.
Harriman & Co. in the original
principal amount of $1,500,000.
10(xv) Bridge Loan Note of Registrant Previously filed with
dated September 19, 1997, payable Registrant's 10KSB dated
to the order of Brown Brothers September 25, 1997.
Harriman & Co. in the original
principal amount of $1,600,000.
10(xvi) Open-End Mortgage Deed from Previously filed with
Registrant to Brown Brothers Registrant's 10KSB dated
Harriman & Co. dated September September 25, 1997.
19, 1997.
10(xvii) General Security Agreement from Previously filed with
Registrant to Brown Brothers Registrant's 10KSB dated
Harriman & Co. dated September 19, September 25, 1997.
1997
27 Financial Data Schedule. Filed Herewith
15
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AT MARCH 31, 1998 AND FROM THE INCOME STATEMENT FOR THE
THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,371,452
<SECURITIES> 1,576,922
<RECEIVABLES> 2,373,399
<ALLOWANCES> 97,000
<INVENTORY> 4,421,426
<CURRENT-ASSETS> 9,906,652
<PP&E> 3,111,498
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,783,742
<CURRENT-LIABILITIES> 3,455,407
<BONDS> 0
0
0
<COMMON> 107,703
<OTHER-SE> 6,934,696
<TOTAL-LIABILITY-AND-EQUITY> 14,783,742
<SALES> 8,922,039
<TOTAL-REVENUES> 8,922,039
<CGS> 5,139,179
<TOTAL-COSTS> 5,139,179
<OTHER-EXPENSES> (72,506)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,609
<INCOME-PRETAX> (30,768)
<INCOME-TAX> (26,327)
<INCOME-CONTINUING> (4,442)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,442)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
