U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-KSB
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(Mark One)
|x| Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934. For the fiscal year ended June 30, 1999.
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934. For the transition period from ____________ to _______________.
Commission File Number: 0-20753
SONICS & MATERIALS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 060854713
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
53 Church Hill Road, Newtown, CT 06470
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (203) 270-4600
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.03 per share
(Title of class)
Warrants to purchase Common Stock
(Title of class)
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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
The issuer's revenues for the most recent fiscal year were: $ 12,953,713
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Company's Common Stock on
September 20, 1999 as reported on the Over the Counter Bulletin Board , was
approximately $502,050 This determination of affiliate status is not necessarily
a conclusive determination for other purposes.
As of September 20, 1999, the issuer had outstanding 3,520,100 shares of Common
Stock, par value $.03 per share, and 1,800,500 Warrants to purchase shares of
Common Stock.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Proxy Statement relating to the 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III.
Pursuant to Rule 12b-25 under the Securities and Exchange Act of 1934, as
amended, Item 6, "Management's Discussion and Analysis or Plan of Operation",
Item 7, "Financial Statements", and Exhibit 27, "Financial Data Schedule" are
omitted from this document. Such items will be included in an amendment to this
Form 10-KSB.
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PART I
Item 1. DESCRIPTION OF BUSINESS
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 also
manufactures a 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.
On July 25, 1997, the Company acquired Tooltex, Inc., an Ohio corporation
("Tooltex"), through a merger transaction (the "Merger"). Tooltex is a
manufacturer of automated systems used in the plastics industry. Pursuant to an
Agreement and Plan of Merger, dated July 25, 1997 (the "Plan of Merger"), among
Sonics, SM Sub, Inc., an Ohio corporation and a wholly owned subsidiary of
Sonics ("Sonics Sub"), Tooltex, and the shareholders of Tooltex, Tooltex was
merged with and into Sonics Sub. Sonics Sub then changed its name to Tooltex,
Inc. (the "Surviving Corporation"). Under the Plan of Merger the shareholders of
Tooltex received, in exchange for 100% of the stock of Tooltex, (i) an aggregate
of 70,000 shares of Sonics Common Stock, par value $.03 per share (the "Common
Stock"), (ii) $70,000 and (iii) options to purchase 10,000 shares of Sonics
Common Stock. The former shareholders of Tooltex have surrendered the 70,000
shares of Sonics Common Stock to the Company in satisfaction of certain
indemnification obligations provided in the Plan of Merger.
In September of 1997, the Company also formed a wholly owned subsidiary,
Vibra-Surge Corporation, for the manufacture and sale of its ultrasonic surgical
device. See "Products" below.
Products
The Company manufactures 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 media. Substances affected by liquid processing include
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molecules, cells, tissues, fluids, chemicals and particles. These devices are
available in different power configurations for low, medium and high volume
applications with various capacities, features and accessories. Operating
similarly to ultrasonic bonding systems and composed of many of the same
components, liquid processors produce a different result because they are
utilized in liquid, semi-liquid and powdered media.
Liquid processors are utilized in biotechnology by scientists, biologists,
chemists and pharmacologists, primarily in laboratories for research and testing
purposes. The Company has extended the applications for its liquid processors
from the research laboratories to industrial settings. The liquid processor also
functions to process and test materials and substances on the production line
and in vats and tanks. In the manufacture of pharmaceuticals and in the
processing of petroleum products and certain specialty chemicals, they reduce
particle size and facilitate mixing; in the preparation of paint and dyes, they
blend and homogenize materials. In the ink industry, processors disperse black
carbon. In the beverage and other industries, they are used to de-gas carbonated
soda, wine, beer, spirits and solvents. The Company's liquid processors are also
used as high-intensity cleaners. These ultrasonic cleaning devices are effective
in spot cleaning and removing various contaminants, such as radioactive
particles, proteins, rust, blood, and oil from laboratory equipment.
The Company also manufactures a liquid processor with a spray nozzle that
atomizes fluids by producing ultra-fine sprays in precisely measured dosages 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.
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, the Vibra-Surge (TM) System Model VS 2120
("Vibra-Surge"), for the removal of soft tissue in general and reconstructive
and plastic surgery. Sonics filed a patent application covering Vibra-Surge (TM)
with the U.S. Patent and Trademark Office on May 1, 1997. The Company received a
Notice of Allowance and Allowability from the U.S. Patent and Trademark Office
for the remaining patent application on February 15, 1999. However, the Company
cannot be certain that this 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. The device received 510(k) clearance from the Food and Drug
Administration (the
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"FDA") on July 25, 1997, which permits Sonics to market the device. In September
1997, Sonics created a wholly owned subsidiary, Vibra-Surge Corporation, which
signed an exclusive distribution agreement with Sonimedix, Inc. ("Sonimedix") on
September, 19, 1997. Under the distribution agreement, Sonimedix serves as the
exclusive worldwide distributor of Vibra-Surge (TM). On September 25, 1997,
Sonics transferred to Vibra-Surge Corporation all of its rights and obligations
under the 510(k) FDA clearance and patent applications and all of the technology
related to Vibra-Surge (TM).
Industry Background
Management believes that in recent years the market for ultrasonic bonding
systems, and other plastic assembly systems has undergone steady and consistent
growth. It appears that more companies are seeking to replace metal components
with thermoplastics in order to reduce the weight of products or to capitalize
on other special properties of synthetic substances. Consequently, ultrasonic
bonding systems and related welding devices have been more extensively utilized
in industrial processing and in new assembly applications. Management believes
that although the market for liquid processors in the past has experienced
inconsistent growth and occasional contractions, 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 recently appeared to have resumed its growth.
Manufacturing and Supply
Sonics' manufacturing operations, conducted at its facilities located in
Danbury, Connecticut, Aston, Pennsylvania, and Grove City, Ohio, 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 year 1998. In fiscal
year 1999, three suppliers each accounted for more than 5%, but less than 10%,
of its total purchases for inventory. 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.
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 towards
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 the fiscal years ended June 30, 1998
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and 1999, expenses attributable to warranties were approximately $66,000 and
$46,000, 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 orders
without contracts at various rates. The Company usually charges for the time
that its employees expend on the task and the cost of the materials or parts
involved in the repair. For the fiscal years ended June 30, 1998 and 1999, the
Company had income of approximately $446,000 and $489,000 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 29 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 ("USS") utilize approximately 45 sales
representatives in 48 states throughout the country. The Company's wholly owned
subsidiary, Tooltex, utilizes two sales representatives throughout the Midwest.
In the overseas market, it relies on approximately 75 distributors and several
sales representatives to distribute its products in 49 countries. The areas
covered by these third parties include North and South America, the Middle and
Far East, Europe and Australia.
Sales Representatives
The Company's relationship with its sales representatives is usually
governed by a written contract which is generally terminable by either party on
30 days prior notice. The contract provides for exclusive territorial and
product representation and commissions payable to them on their sales depending
on whether basic units or accessories are involved and typically covers
ultrasonic bonding systems and liquid processors. OEM sales made by the Company
are excluded from the commission arrangements. Generally, the sales
representatives do not purchase for their own account, but merely sell Sonics'
products on the Company's behalf. They also may represent other manufacturers
but generally not those competitive with the Company's products. No one sales
representative accounted for more than 5% of Sonics' sales in either fiscal year
1998 or 1999. The loss of such representatives representing in the aggregate
significant sales may have a material adverse impact on the Company's business.
USS sells its plastic welder under its division name. USS maintains a
network of sales representatives in the United States different from those for
Sonics' main product lines. The terms of these arrangements with its sales
representatives are similar to the terms Sonics negotiates with its own sales
representatives.
The Company's wholly owned subsidiary, Tooltex, sells its automated
systems under its corporate name, Tooltex, Inc. Tooltex's sales organization
consists of two direct sales personnel, as well as two sales representatives.
Distributors
Sales of Sonics' products to distributors are also generally made pursuant
to written contracts. Under such contracts, distributors provide repair service
and are prevented from selling devices competitive to the Company's products.
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 covers sales of both
ultrasonic bonding systems and liquid processor lines. The Company now also
offers both its spin welder and vibration welder to its
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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 year 1998. In
fiscal year 1999, one distributor accounted for over 5%, but less than 10%, of
sales. The loss of such 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.
Sonics' wholly owned subsidiary, Vibra-Surge Corporation, will sell its
ultrasonic surgical device through its exclusive distributor of the product,
Sonimedix. Under the distribution contract, Sonimedix is prevented from selling
devices competitive to the ultrasonic surgical instrument. Payment must be made
within 60 days of receipt of the product by the end user. The contract may be
canceled by either party if certain terms and conditions are not satisfied.
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 as well as distributors. Many of its customers are repeat
purchasers. None of its customers represented more than 5% of Sonics' sales for
fiscal 1998 or 1999.
International Operations
The Company's international activities are an important portion of its
business. Approximately 25% and 37% of its sales for fiscal years 1998 and 1999,
respectively, are attributable to sales of its products outside the United
States. The Company also operates a branch office in Gland, Switzerland where it
sells and services its ultrasonic devices for the European market except for the
United Kingdom.
Internationally, the Company sells its ultrasonic products under its own
label to end users and distributors or under the trade name of the distributor.
In most cases, Sonics' devices are shipped to foreign distributors and end users
as completed units. However, in certain situations, especially with regard to
distributors of ultrasonic welders located in Asia and South America, the
Company's systems are made available in kit form and assembled there. Kits
frequently contain all components for devices but in some instances only a
portion of the requisite components is provided. For some foreign sales, no
written distribution arrangement exists.
Competition
The Company competes in each of its markets against a variety of other
concerns, many of which are larger and have greater financial, technical,
marketing, distribution and other resources than Sonics. It competes on the
bases of service, performance, reliability, price and delivery.
Prior to making a sale, the Company will expend 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.
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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.
The Company's ultrasonic surgical instrument has three main competitors,
Mentor Corporation, Lysonix Inc., and Misonix, Inc. No one company dominates
this market. However, the Company's three major competitors have entered the
market place prior to Sonics.
Backlog
As of June 30, 1999, the Company's backlog was approximately $2,559,300 as
compared with a backlog of $2,482,000 as of June 30, 1998. No one customer
accounted for more than 10% of such backlog at June 30, 1999.
Substantially all of the Company's backlog figures are based on written
purchase orders executed by the customer and involve product deliveries and not
engineering services. All orders are subject to cancellation.
Research and Development
The Company maintains an engineering staff responsible for the improvement
of existing products, modification of products to meet customer needs and the
engineering, research and development of new products and applications.
Engineering and research and development expenses were approximately $544,000
for 1998, and $365,804 for 1999.
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 and its "Vibra-Surge" 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 June 24, 1999, the Company filed a patent application with the U.S.
Patent and Trademark office for one of its bonding machines. On May 1, 1997, the
Company filed a patent application with the U.S. Patent and Trademark Office
covering its new ultrasonic surgical instrument. The Company received a Notice
of Allowance and Allowability on February 15, 1999 from the U.S. Patent and
Trademark Office for its patent application. The Company cannot predict the
extent of protection which will be offered by the patent.
On September 25, 1997, Sonics transferred to its wholly owned subsidiary,
Vibra-Surge Corporation, the "Vibra-Surge" trade name, and its rights and
obligations under the Vibra-Surge patent application and preliminary patent
application. See "Products" above.
Government Regulation
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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 relating to its manufacture
and sale in the United States. The FDA has rules which govern the design,
manufacture, distribution, approval and promotion of medical devices in the
United States.
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.
On May 1, 1997, Sonics filed a patent application for its ultrasonic
surgical instrument, Vibra-Surge. The Company has obtained 510(k) clearance from
the FDA which permits the Company to market the device for aiding the removal of
soft tissue in general surgery and plastic and reconstructive surgery.
Vibra-Surge has signed an exclusive distribution agreement with Sonimedix for
the sale and marketing of its ultrasonic surgical instrument.
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"). The 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 obtaining or preserving commercial contracts or orders.
Sonics has urged its foreign distributors to comply with the requirements of the
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 September 20, 1999, the Company, including its subsidiaries, had 100
full-time employees including its officers, of whom 56 were engaged in
manufacturing, 4 in repair services, 9 in administration and financial control,
14 in engineering and research and development, and 17 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.
Company's Statement Regarding Forward Looking Statements
Any statements in this Annual Report 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 Annual Report 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'
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existing and new products, continued growth in sales and market share of Sonics
and its USS 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 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.
Item 2. Description of Property
The Company's primary manufacturing and office facility is located in
Newtown, Connecticut in one 62,500 square foot steel and cinder block building
(the "Newtown Property"). This facility is considered adequate for the Company's
current needs, as well as its anticipated future requirements. The facility was
purchased on September 19, 1997. The Company renovated the building and
consolidated all of its former Danbury facilities into the Newtown Property in
May of 1998. The Newtown Property was purchased for $1,265,000 and the cost of
improvements to the property was approximately $2,200,000. The Company intends
to lease 7,200 square feet of the building to an unrelated third party. Although
no party has yet been identified, the Company believes that it will eventually
be able to find a suitable lessee The Newtown Property is insured against fire
and other casualty in an amount the Company believes to be adequate.
The Newtown Property is encumbered by a first mortgage lien in favor of a
bank ("Bank"), which secures two credit facilities dated September 19, 1997: (i)
a revolving line of credit facility in the original principal amount of up to
$1,500,000 (the "Line of Credit"), (ii) a term loan in the original principal
amount of $427,000 (the "Term Loan"); and (iii) a Bridge Loan in the original
principal amount of $1,600,000. On December 12, 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 were used for the purchase and preparation of the Newtown
Property, and the purchase of new machinery and equipment. The Bonds mature in
November 2017 and bear interest at 75% of the Bank's base lending rate (8.25% at
September 20, 1999). The Company began to redeem principal on the Bonds in 228
equal monthly installments of $16,700 in December of 1998. The Company does not
intend to use the proceeds from the Line of Credit or the Term Loan to acquire
or improve the Newtown Property. For information about such borrowings, see
"Management's Discussion and Analysis or Plan of Operations-Liquidity and
Capital Resources."
The following table lists the Company's leased offices by location as of
September 25, 1999, and certain other information:
Approximate Total Approximate
Area Leased in Expiration Date of Current Annual
Square Footage Lease Rent (1)
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Aston, Pennsylvania.... 4,900 September 30, 2002 $40,300
Naperville, Illinois... 2,000 December 31, 1999 14,400
Gland, Switzerland..... 3,000 January 31, 2000(2) 13,800
Grove City, Ohio(3).... 13,600 July 26, 2002(2) 77,900
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(1) Includes proportionate cost of utilities, repairs, cleaning, snow removal,
taxes and insurance.
(2) Contains renewal option as listed below:
Gland Switzerland.................1 year
Grove City, Ohio..................5 years
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(3) Lease is with BPT, Limited, the sole partners of which are the former
shareholders and current President and Vice President of Tooltex.
The Company believes that it has adequate insurance coverage for all of
its leased properties. The Company also leases certain automobiles and
equipment.
Item 3. Legal Proceedings
There is no pending or threatened material litigation or proceeding
against the Company.
Item 4. Submission of Matters to a Vote of Security-Holders
Not applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
From February 27, 1996 to July 24, 1998, the Common Stock and Warrants to
Purchase Common Stock of the Company had been traded and quoted through the
National Association of Securities Dealers Inc. ("NASDAQ") National Market
System under the symbols "SIMA" and "SIMAW,", respectively. From July 24, 1998
to April 13, 1999, the Company's Common Stock and Warrants to purchase Common
Stock had been traded and quoted through the NASDAQ SmallCap Market under the
same symbols used on NASDAQ's National Market System. The Company transferred to
the NASDAQ SmallCap Market when its Common Stock and Warrants no longer
satisfied the National Market System minimum maintenance requirements for the
market capitalization of the Common Stock's public float. As of April 14, 1999,
the Company's Common Stock and Warrants to Purchase Common Stock have been
traded and quoted through the Over the Counter Bulletin Board ("OTCBB"). The
Company transferred to the OTCBB when its Common Stock and Warrants no longer
satisfied the Nasdaq SmallCap Market's minimum maintenance requirements for the
market capitalization of the Common Stock's public float and the minimum bid
price of the Common Stock.
The following table sets forth the range of high and low bids for the
Company's Common Stock and Warrants for the periods indicated as reported by
NASDAQ and the OTCBB.
Stock Warrants
----------------- -----------------
Quarter Ended High Low High Low
- -------------------- ------ ----- ------ -----
September 30, 1997 3.50 3.25 .75 .75
December 31, 1997 1.13 .75 .44 .13
March 31, 1998 1.38 1.25 .13 .13
June 30, 1998 1.25 1.25 .06 .06
September 30, 1998 .88 .81 .06 .06
December 31, 1998 .63 .50 .05 .03
March 31, 1999 .63 .63 .01 .01
June 30, 1999 .81 .81 .02 .02
The prices presented in the table are bid prices, which represent prices
between broker-dealers and do not include retail mark-ups and mark-downs or any
commission to the dealer. The prices presented may not reflect actual
transactions.
<PAGE>
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On September 20, 1999, the closing price of the Common Stock of the
Company, as reported by the OTCBB, was $.50 per share. On September 6, 1999, the
closing price of the Warrants, as reported by the OTCBB, was $.02 per Warrant.
On September 20, 1999, the Company had 38 stockholders of record and 17 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.
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 dividends in the foreseeable future. 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.
In connection with the Company's initial public offering, on June 20, 1996
the Company filed with the Securities and Exchange Commission (the "SEC") a Form
SR reporting the use of proceeds from such offering. Additional Forms SR were
subsequently filed by the Company. As of September 23, 1999, the Company has
applied proceeds from the offering in the following approximate amounts to the
following categories.
Amount
------
Type of Payments
Repayment of Indebtedness $ 1,670,000
Acquisition of other business 92,000
Working capital and general corporate use 1,519,000
-----------
Total $ 3,281,000
Item 6. Management's Discussion and Analysis or Plan of Operation
To be filed pursuant to Rule 12b-25
Item 7. Financial Statements
To be filed pursuant to Rule 12b-25.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Grant Thornton LLP previously served as the independent accountants of the
Company and performed the annual audit for fiscal year 1997. Grant Thornton LLP
served as the Company's independent accountants since 1995. The decision to
change accountants was not occasioned by any disagrement or advice given on any
matter by Grant Thornton. On April 24, 1998, the Company terminated Grant
Thornton LLP as the Company's principal accountants and engaged Schneider
Ehrlich & Wengrover LLP as the Company's principal accountants. The decision to
change accountants was recommended and approved by the Audit Committee of the
Board of Directors.
<PAGE>
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
Information required by this Item 9 is incorporated herein by reference
from the definitive proxy statement of Sonics to be filed with the Securities
and Exchange Commission ("SEC") within 120 days following the end of Sonics'
fiscal year ended June 30, 1999, or October 28, 1999, relating to its 1999
Annual Meeting of Stockholders.
Item 10. Executive Compensation
Information required by this Item 10 is incorporated herein by reference
from the definitive proxy statement of Sonics to be filed with the SEC within
120 days following the end of Sonics' fiscal year ended June 30, 1999, or
October 28, 1999, relating to its 1999 Annual Meeting of Stockholders.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information required by this Item 11 is incorporated herein by reference
from the definitive proxy statement of Sonics to be filed with the SEC within
120 days following the end of Sonics' fiscal year ended June 30, 1999, or
October 28, 1999, relating to its 1999 Annual Meeting of Stockholders.
Item 12. Certain Relationships and Related Transactions
Information required by this Item 12 is incorporated herein by reference
from the definitive proxy statement of Sonics to be filed with the SEC within
120 days following the end of Sonics' fiscal year ended June 30, 1999, or
October 28, 1999, relating to its 1999 Annual Meeting of Stockholders.
<PAGE>
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Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits.
3(i) Certificate of Incorporation of the Registrant, as amended
(incorporated by reference from Exhibit 3.1 of Amendment
No. 3 to Registration Statement No. 33-96414).
3(ii) Amended By-laws of the Registrant (incorporated by
reference from Exhibit 3.2 of Registration Statement No.
33-96414).
3(iii) Form of Warrant Agreement between Registrant and Warrant
Agent (incorporated by reference from Exhibit 4.3 of
Amendment No. 3 to Registration Statement No. 33-96414).
10(i) Form of Employment Agreement between the Registrant and
Robert S. Soloff (incorporated by reference from Exhibit
10.1 of Registration Statement No. 33-96414).
10(ii) 1995 Incentive Stock Option Plan and form of Stock Option
Agreement (incorporated by reference from Exhibit 10.3 of
Registration Statement No. 33-96414).
10(iii) Lease between Registrant and Aston Investment Associates
(Aston, PA) (incorporated by reference from Exhibit 10.5 of
Registration Statement No. 33-96414).
10(iv) Amended lease between Registrant and Robert Lenert
(Naperville, IL) (incorporated by reference from Exhibit
10.6 of Amendment No. 4 to Registration Statement No.
33-96414).
10(v) Lease between Registrant and Janine Berger (Gland,
Switzerland) (incorporated by reference from Exhibit 10.7
of Registration Statement No. 33-96414).
10(vi) Form of Sales Representation Agreement (incorporated by
reference from Exhibit 10.8 of Registration Statement No.
33-96414).
10(vii) Form of Sales Distribution Agreement (incorporated by
reference from Exhibit 10.9 of Registration Statement No.
33-96414).
10(viii) 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(ix) Agreement of Merger, dated as of July 25, 1997, among the
Registrant, SM Sub, Inc. and Tooltex, Inc. (incorporated by
reference from Exhibit 2(b) of the Registrant's Form 8-K
dated July 25, 1997).
10(x) Credit Agreement, dated September 19, 1997, between Brown
Brothers Harriman & Co. and Registrant ( incorporated by
reference from Exhibit 10(xii) of the Registrant's Form
10KSB for the year ended June 30, 1997).
10(xi) 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 (incorporated by
reference from Exhibit 10(xiii) of the Registrants Form
10KSB for the year ended June 30, 1997).
10(xii) 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
(incorporated by reference from Exhibit 10(xiv) of the
Registrants Form 10KSB for the year ended June 30, 1997).
10(xiii) 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 (incorporated
by reference from Exhibit 10(xv) of the Registrants Form
10KSB for the year ended June 30, 1997).
<PAGE>
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10(xiv) Open-End Mortgage Deed from Registrant to Brown Brothers
Harriman & Co. dated September 19, 1997 (incorporated by
reference from Exhibit 10(xvi) of the Registrants Form
10KSB for the year ended June 30, 1997).
10(xv) General Security Agreement from Registrant to Brown
Brothers Harriman & Co. dated September 19, 1997
(incorporated by reference from Exhibit 10(xvii) of the
Registrants Form 10KSB for the year ended June 30, 1997).
10(xvi) Loan Agreement between Connecticut Development Authority
and Sonics & Materials dated December 1, 1997 (incorporated
by reference from Exhibit 10(xvi) of the Registrants Form
10KSB for the year ended June 30, 1998).
10(xvii) Indenture of Trust between Connecticut Development
Authority and Sonics & Materials, Inc. dated December 1,
1997 (incorporated by reference from Exhibit 10 (xvii) of
the Registrants Form 10KSB for the year ended June 30,
1998).
10(xviii) Tax Regulatory Agreement between Connecticut Development
Authority and Sonics & Materials, Inc., and Brown Brothers
Harriman Trust Company as Trustee dated December 12, 1997
(incorporated by reference from Exhibit 10(xviii) of the
Registrants Form 10KSB for the year ended June 30, 1998).
21 Subsidiaries of the Registrant (incorporated by reference
from Exhibit (21 of the Registrants Form 10KSB for the year
ended June 30, 1998).
27 Financial Data Schedule (To be filed pursuant to 12b-25).
(b) The Company did not file any Current Reports on Form 8-K during fiscal
year 1999. independent auditors.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: September 29, 1999
SONICS & MATERIALS, INC.
By: /s/ ROBERT S. SOLOFF
-------------------------------------
Robert S. Soloff
Chairman and President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ ROBERT S. SOLOFF Chairman, President, Treasurer, September 29, 1999
(Robert S. Soloff) Chief Executive and Chief Financial
Officer
<PAGE>
/s/ LAUREN H. SOLOFF Secretary and Director September 29, 1999
(Lauren H. Soloff)
/s/ Ronald Kalb Director September 29, 1999
(Ronald Kalb)
/s/ JACK T. TYRANSKY Director September 29, 1999
(Jack T. Tyransky)
/s/ MICHAEL ZELNO Controller September 29, 1999
(Michael Zelno) Principal Accounting Officer
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Location of Exhibit in
No. Description Sequential Numbering System
--- ----------- ---------------------------
<S> <C> <C>
3(i) Certificate of Incorporation of the Registrant, as amended Incorporated by reference from Exhibit 3.1 of Amendment
No. 3 to Registration Statement No. 33-96414.
3(ii) Amended By-laws of the Registrant Incorporated by reference from Exhibit 3.2 of
Registration Statement No. 33-96414.
3(iii) Form of Warrant Agreement between Registrant and Warrant Incorporated by reference from Exhibit 4.3 of Amendment
Agent No. 3 to Registration Statement No. 33-96414.
10(i) Form of Employment Agreement between the Registrant and Incorporated by reference from Exhibit 10.1 of
Robert S. Soloff Registration Statement No. 33-96414.
10(ii) 1995 Incentive Stock Option Plan and form of Stock Option Incorporated by reference from Exhibit 10.3 of
Agreement Registration Statement No. 33-96414.
10(iii) Lease between Registrant and Aston Investment Associates Incorporated by reference from Exhibit 10.5 of
(Aston, PA) Registration Statement No. 33-96414.
10(iv) Amended lease between Registrant and Robert Lenert Incorporated by reference from Exhibit 10.6 of Amendment
(Naperville, IL) No. 4 to Registration Statement No. 33-96414.
10(v) Lease between Registrant and Janine Berger (Gland, Incorporated by reference from Exhibit 10.7 of
Switzerland) Registration Statement No. 33-96414.
10(vi) Form of Sales Representation Agreement Incorporated by reference from Exhibit 10.8 of
Registration Statement No. 33-96414.
10(vii) Form of Sales Distribution Agreement Incorporated by reference from Exhibit 10.9 of
Registration Statement No. 33-96414.
10(viii) Agreement and Plan of Merger, dated as of July 25, 1997, Incorporated by reference from Exhibit 2(a) of the
among the Registrant, SM Sub, Inc., Tooltex, Inc., and the Registrant's Form 8-K dated July 25, 1997.
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.
10(ix) Agreement of Merger, dated as of July 25, 1997, among the Incorporated by reference from Exhibit 2(b) of the
Registrant, SM Sub, Inc. and Tooltex, Inc. Registrant's Form 8-K dated July 25, 1997.
10(x) Credit Agreement, dated September 19, 1997, between Brown Incorporated by reference from Exhibit 10(xii) of the
Brothers Harriman & Co. and Registrant Registrant's Form 10KSB for the year ended June 30, 1997.
10(xi) Term Loan Note of Registrant, dated September 19, 1997, Incorporated by reference from Exhibit 10(xiii) of the
payable to the order of Brown Brothers Harriman & Co. in the Registrants Form 10KSB for the year ended June 30, 1997.
original principal amount of $427,000
10(xii) Line of Credit Note of Registrant, dated September 19, 1997, Incorporated by reference from Exhibit 10(xiv) of the
payable to the order of Brown Brothers Harriman & Co. in the Registrants Form 10KSB for the year ended June 30, 1997.
original principal amount of $1,500,000
10(xiii) Bridge Loan Note of Registrant, dated September 19, 1997, Incorporated by reference from Exhibit 10(xv) of the
payable to the order of Brown Brothers Harriman & Co. in the Registrants Form 10KSB for the year ended June 30, 1997.
original principal amount of $1,600,000
10(xiv) Open-End Mortgage Deed from Registrant to Brown Brothers Incorporated by reference from Exhibit 10(xvi) of the
Harriman & Co. dated September 19, 1997 Registrants Form 10KSB for the year ended June 30, 1997.
10(xv) General Security Agreement from Registrant to Brown Brothers Incorporated by reference from Exhibit 10(xvii) of the
Harriman & Co. dated September 19, 1997 Registrants Form 10KSB for the year ended June 30, 1997.
10(xvi) Loan Agreement between Connecticut Development Authority Incorporated by reference from Exhibit 10(xvi) of the
and Sonics & Materials dated December 1, 1997 Registrants Form 10KSB for the year ended June 30, 1998.
<PAGE>
10(xvii) Indenture of Trust between Connecticut Development Authority Incorporated by reference from Exhibit 10 (xvii) of the
and Sonics & Materials, Inc. dated December 1, 1997 Registrants Form 10KSB for the year ended June 30, 1998.
10(xviii) Tax Regulatory Agreement between Connecticut Development Incorporated by reference from Exhibit 10(xviii) of the
Authority and Sonics & Materials, Inc., and Brown Brothers Registrants Form 10KSB for the year ended June 30, 1998.
Harriman Trust Company as Trustee dated December 12, 1997
21 Subsidiaries of the Registrant (filed herewith) Incorporated by reference from Exhibit 10(xviii) of the
Registrants Form 10KSB for the year ended June 30, 1998.
27 Financial Data Schedule To be filed pursuant to 12b-25
</TABLE>
Exhibit 21
Subsidiaries of the Registrant
Sonics has three wholly owned subsidiaries:
1. Tooltex, Inc., an Ohio corporation
2. Vibra-Surge Corporation, a Delaware corporation
3. Sonics Realty, Inc., a Delaware corporation
