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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-QSB
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1996.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-20753
SONICS & MATERIALS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-0854713
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 West Kenosia Avenue
Danbury, CT 06810
(Address of principal executive offices)
Telephone Number (203) 744-4400
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
As of November 11, 1996, there were 3,500,100 shares of the Registrant's
Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements *
Condensed Balance Sheets -
September 30, 1996 and June 30, 1996..................3
Condensed Statements of Income -
For the Three Months Ended
September 30, 1996 and 1995...........................4
Condensed Statements of Cash Flows -
For the Three Months Ended
September 30, 1996 and 1995...........................5
Notes to Financial Statements............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................8
Signatures..............................................................9
Index to Exhibits......................................................10
Exhibit 27 - Financial Data Schedule...................................11
* The Balance Sheet at June 30, 1996 has been taken from the audited financial
statements at that date. All other financial statements are unaudited.
Sonics & Materials, Inc.
CONDENSED BALANCE SHEETS
As of
September 30, June 30,
1996 1996
---- ----
(unaudited) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 89,111 $ 73,129
Short-term investments 2,728,032 3,028,032
Accounts receivable, net of allowance
for doubtful accounts of $45,000 1,981,727 1,953,941
Inventories 3,597,576 3,248,782
Prepaid income taxes -- 30,465
Deferred taxes 80,000 80,000
Other current assets 81,991 111,327
---------- ----------
Total current assets 8,558,437 8,525,676
PROPERTY PLANT & EQUIPMENT - NET 290,687 301,706
OTHER ASSETS 356,624 353,124
---------- ----------
$9,205,748 $9,180,506
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $1,026,813 $ 832,813
Demand note payable 500,000 500,000
Accounts payable 501,273 767,620
Commissions payable 148,284 160,081
Other accrued expenses and sundry liabilities 262,456 254,677
---------- ----------
Total current liabilities 2,438,826 2,515,191
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock - 2,000,000 shares authorized,
no shares outstanding at March 31, 1996
or June 30, 1995 -- --
Common stock - 10,000,000 shares
authorized, 3,500,100 shares
issued and outstanding at March 31, 1996
2,500,000 shares issued and outstanding at
June 30, 1995, par value $.03 per share 105,003 105,003
Additional paid in capital 6,417,125 6,417,126
Retained earnings 244,794 143,186
---------- ----------
Total stockholders' equity 6,766,922 6,665,315
---------- ----------
$9,205,748 $9,180,506
========== ==========
* Taken from the audited financial statements at June 30, 1996.
The accompanying notes are an integral part of these statements.
3
Sonics & Materials, Inc.
CONDENSED STATEMENTS OF INCOME
(unaudited)
For the Three Months Ended
--------------------------
September 30,
--------------------------
1996 1995
---- ----
Net sales $ 2,536,238 $ 2,193,127
Cost of sales 1,330,404 1,106,228
Gross profit 1,205,834 1,086,899
Operating expenses
Selling expense 686,395 633,153
General and administrative 219,987 142,797
Research and development 99,808 73,064
------------ ------------
Total operating expenses 1,006,190 849,014
Other income (expense)
Interest expense (32,549) (21,880)
Other 2,250 7,282
------------ ------------
(30,299) (14,598)
Income before provision for income taxes 169,345 223,287
Provision (benefit) for income taxes 67,738 17,803
------------ ------------
Net Income $ 101,607 $ 205,484
============ ============
PRO FORMA DATA
Income before taxes 169,345 223,287
Provision for income taxes 67,738 89,315
------------ ------------
Net Income 101,607 133,972
============ ============
PRIMARY AND FULLY DILUTED INCOME PER SHARE
Net income per share $ .02 $ .05
===== =====
Weighted average number of common and
common equivalent shares outstanding 4,775,870 2,696,000
========= =========
The accompanying notes are an integral part of these statements.
4
Sonics & Materials, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
For the Three Months Ended September 30,
1996 1995
---- ----
Net cash (used in) provided by operations $ (450,607) $ 71,956
Net cash used in investing activities (27,411) (64,948)
Net cash provided by (used in) financing activities 494,000 (73,890)
---------- ----------
Net increase (decrease) in cash for the period 15,982 (66,882)
Cash and cash equivalents - at beginning of period 73,129 187,490
---------- ----------
Cash and cash equivalents - at end of period $ 89,111 $ 120,608
========== ==========
The accompanying notes are an integral part of these statements.
5
Sonics & Materials, Inc.
Notes to Financial Statements
September 30, 1996
NOTE 1: Basis of Presentation
The accompanying financial statements for the interim periods are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. These
financial statements should be read in conjunction with the financial statements
and notes thereto, together with the management's discussion and analysis,
contained on Form 10-KSB for the year ended June 30, 1996. The results of
operations for the three months ended September 30, 1996 are not necessarily
indicative of the results for the entire fiscal year ending June 30, 1997.
NOTE 2: Net Income Per Share
Net income per share is based on the weighted average number of common and
common equivalent shares (warrants and options) outstanding during the period,
calculated using the treasury stock method.
The weighted average number of shares outstanding for the periods presented is
as follows:
Primary and Fully Diluted
Weighted Shares Outstanding
For the Three Months ended September 30,
----------------------------------------
1996 1995
---- ----
Weighted average number of common shares
outstanding 3,500,100 2,500,000
Dilution (warrants and options) 1,275,770 196,000
------------ -----------
Weighted average number of common and
common equivalent shares 4,775,870 2,696,000
============ ===========
NOTE 3: Contingencies.
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, if any, that may be assessed.
6
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
The following information should be read in conjunction with the
unaudited financial statements included herein (see Item 1) and the financial
information contained in the Company's latest annual report on Form 10-KSB for
the year ended June 30, 1996.
RESULTS OF OPERATIONS
Three months ended September 30, 1996 compared to three months ended September
30, 1995.
Net sales. Net sales for the quarter ended September 30, 1996, increased
$343,000 or 15.6% 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 50.4% of sales for the three
months ended September 30, 1995 to 52.5% of sales for the three months ended
September 30, 1996. Initial costs associated with the vibration welder line
caused the cost of sales of these products, as a percentage of their net sales
during the period, to be higher that 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 quarter of fiscal 1997,
increased $53,000 or 8.4% over the same period in fiscal 1996. As a percentage
of net sales these expenses decreased to 27.1% from 28.9% over the same periods.
This decrease in sales expenses as a percentage of sales is a result of the
Company maintaining fixed costs while increasing sales.
General and Administrative Expenses. General and administrative expenses
for the first quarter of fiscal 1997, increased $77,000 or 54.1% over the first
quarter of fiscal 1996. As a percentage of net sales, these expenses increased
to 8.7% from 6.5% over the same period in fiscal 1996. This increase is
primarily attributable to increased costs associated with the Company's
obligations as a new public company, including professional fees, and directors'
and officers' insurance, as well as normal annual increases in salaries.
Research and Development Expenses. Research and development expenses
increased $27,000 or 36.6% 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.
LIQUIDITY AND CAPITAL RESOURCES
Operations of the Company used approximately $451,000 during the three months
ended September 30, 1996 as a result of increasing inventory while reducing
accounts payable. During the first quarter of fiscal 1997, the Company
invested approximately $27,000 in new capital equipment and leasehold
improvements. As of June 30, 1996, the Company's working capital was $6,010,000.
As of September 30, 1996, the Company's working capital had increased to
$6,120,000 representing an increase of approximately 1.8%. During the first
quarter of fiscal 1997, the Company increased its borrowings under its line of
credit by approximately $200,000.
The Company's principal credit line is a $1,000,000 bank credit facility bearing
interest at one-half of one percent above the prime rate. This credit
arrangement matures on February 28, 1997.
7
PART II - OTHER INFORMATION
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)
27 Financial Data Schedule. (Filed Herewith)
(b) none
8
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: November 12, 1996 By /s/ ROBERT S. SOLOFF
------------------------ ----------------------------------
Robert S. Soloff
President, Chief Executive Officer,
Chief Financial Officer
9
EXHIBIT INDEX
Exhibit Location of Exhibit in
No. Description Sequential Numbering System
-- ------------ -----------------------------
3(i) Certificate of Incorporation of the Registrant, as Previously filed as Exhibit 3.1 of
amended . Amendment No. 3 to Registration
Statement No. 33-96414
3(ii) Amended By-laws of the Registrant . Previously filed as Exhibit 3.2 of
Registration Statement No. 33-96414
10(i) Form of Employment Agreement between the Previously filed as Exhibit 10.1 of
Registrant and Robert S. Soloff. Registration Statement No. 33-96414
10(ii) 1995 Incentive Stock Option Plan and form of Stock Previously filed as Exhibit 10.3 of
Option Agreement. Registration Statement No. 33-96414
10(iii) Original Office Lease and Amendments between the Previously filed as Exhibit 10.4 of
Registrant and Nicholas R. DiNapoli, Jr. DBA Registration Statement No. 33-96414
DiNapoli Holding Co. (Danbury, CT) .
10(iv) Lease between Registrant and Aston Investment Previously filed as Exhibit 10.5 of
Associates (Aston, PA). Registration Statement No. 33-96414
10(v) Amended lease between Registrant and Robert Lenert Previously filed as Exhibit 10.6 of
(Naperville, IL). Amendment No. 4 to Registration
Statement No. 33-96414
10(vi) Lease between Registrant and Janine Berger (Gland, Previously filed as Exhibit 10.7 of
Switzerland). Registration Statement No. 33-96414
10(vii) Form of Sales Representation Agreement. Previously filed as Exhibit 10.8 of
Registration Statement No. 33-96414
10(viii) Form of Sales Distribution Agreement. Previously filed as Exhibit 10.9 of
Registration Statement No. 33-96414
10(ix) Consulting Agreement dated October 17, 1995 Previously filed as Exhibit 10.10 of
between the Registrant and Alan Broadwin. Amendment No. 3 of Registration
Statement No. 33-96414
27 Financial Data Schedule. Filed Herewith
10