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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------------
FORM 10-QSB
-------------------------------
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 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 -
December 31, 1996 and June 30, 1996...3
Condensed Statements of Income -
For the Three and Six Months Ended
December 31, 1996 and 1995............4
Condensed Statements of Cash Flows -
For the Six Months Ended
December 31, 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........9
Signatures........................................10
Index to Exhibits.................................11
Exhibit 27 - Financial Data Schedule..............12
* 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
December 31, June 30,
1996 1996
---- ----
(unaudited) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 52,825 $ 73,129
Short-term investments 1,803,491 3,028,032
Accounts receivable, net of allowance
for doubtful accounts of $45,000 1,834,005 1,953,941
Inventories 3,657,922 3,248,782
Prepaid income taxes 15,419 30,465
Deferred taxes 80,000 80,000
Other current assets 107,805 111,327
-------- -------
Total current assets 7,551,467 8,525,676
PROPERTY PLANT & EQUIPMENT - NET 341,131 301,706
OTHER ASSETS 372,285 353,124
-------- --------
$ 8,264,883 $9,180,506
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 32,813 $832,813
Demand note payable 500,000
Current maturities of long-term debt 100,000 -
Accounts payable 479,809 767,620
Commissions payable 244,788 160,081
Other accrued expenses and sundry
liabilities 190,142 254,677
------- ---------
Total current liabilities 1,047,552 2,515,191
LONG TERM DEBT, NET OF CURRENT PORTION 400,000 -
CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock - 2,000,000 shares
authorized, no shares outstanding
at December 31, 1996 or June 30, 1996 - -
Common stock - 10,000,000 shares
authorized, 3,500,100 shares
issued and outstanding at
December 31, 1996 and June 30, 1996 105,003 105,003
Additional paid in capital 6,417,126 6,417,126
Retained earnings 295,202 143,186
--------- ---------
Total stockholders' equity 6,817,331 6,665,315
--------- ---------
$8,264,883 $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 For the Six Months Ended
Ended December 31,
December 31,
1996 1995 1996 1995
---- ---- ---- ----
Net sales $2,745,517 $2,199,030 $5,281,755 $4,392,157
Cost of sales 1,399,335 1,087,596 2,729,739 2,193,824
--------- --------- --------- ---------
Gross profit 1,346,182 1,111,434 2,552,016 2,198,333
Operating expenses
Selling expense 873,715 796,262 1,560,110 1,429,415
General and
administrative 291,784 154,774 511,771 297,571
Research and
development 149,929 118,663 249,737 191,727
-------- --------- -------- ---------
Total operating
expenses 1,315,428 1,069,699 2,321,618 1,918,713
Other income (expense)
Interest, net 56,697 (24,638) 24,148 (46,518)
Other (3,438) 2,766 (1,187) 10,048
--------- --------- --------- ---------
53,259 (21,872) 22,961 (36,470)
Income before
provision for
income taxes 84,013 19,863 253,359 243,150
Provision for income
taxes 33,605 3,865 101,343 21,668
-------- --------- -------- ---------
Net Income $ 50,408 $ 15,998 $152,016 $ 221,482
======== ========= ======== =========
PRO FORMA DATA
Income before taxes 84,013 19,863 253,359 243,150
Provision for
income taxes 33,605 7,945 101,343 97,260
-------- --------- -------- ---------
Net Income 50,408 11,918 152,016 145,890
======== ========= ======== =========
PRIMARY AND FULLY
DILUTED INCOME PER
SHARE
Net income per share $ .01 $ - $ .03 $ .05
===== ==== ===== =====
Weighted average
number of common and
common equivalent
shares outstanding 4,370,551 2,696,000 4,573,211 2,696,000
========= ========= ========= =========
The accompanying notes are an integral part of these statments.
4
Sonics & Materials, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended December 31,
1996 1995
---- ----
Net cash (used in) provided by operations $ (333,857) $ 197,484
Net cash provided by (used in) investing
activities 1,113,553 (71,150)
Net cash used in financing activities (800,000) (313,824)
------------ ------------
Net increase (decrease) in cash for the period (20,304) (187,490)
Cash and cash equivalents - at beginning of
period 73,129 187,490
------------ ------------
Cash and cash equivalents - at end of period $ 52,825 $ 0
============ ============
The accompanying notes are an integral part of these statements.
5
Sonics & Materials, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 1: Basis of Presentation
The accompanying financial statements for the interim periods are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. These
financial statements should be read in conjunction with the financial statements
and notes thereto, together with the management's discussion and analysis,
contained on Form 10-KSB for the year ended June 30, 1996. The results of
operations for the six months ended December 31, 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
December 31,
----------------------------
1996 1995
---- ----
Weighted average number of
common shares outstanding 3,500,100 2,500,000
Dilution (warrants and options) 1,113,064 196,000
--------- --------
Weighted average number of
common and common
equivalent shares 4,613,164 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 December 31, 1996 compared to three months ended December
31, 1995.
Net sales. Net sales for the quarter ended December 31, 1996 increased
$546,000 or 24.9% over the same period in fiscal 1996. This increase is a result
of the Company's increased penetration into the Asian and Pacific Rim markets
due to the expansion of the Company's sales efforts in that region, as well as
initial sales of the Company's new vibration and spin welder products.
Cost of Sales. Cost of sales increased from 49.5% of sales for the three
months ended December 31, 1995 to 51.0% of sales for the three months ended
December 31, 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 than the Company has experienced with other
product lines. The Company is not able to pass these initial costs on to the
customer.
Selling Expenses. Selling expenses for the second quarter of fiscal 1997
increased $77,000 or 9.7% over the same period in fiscal 1996. As a percentage
of net sales these expenses decreased to 31.8% from 36.2% over the same period.
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 second quarter of fiscal 1997 increased $137,000 or 88.5% over the
second quarter of fiscal 1996. As a percentage of net sales, these expenses
increased to 10.6% from 7.0% 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 $31,000 or 26.3% over the same period in fiscal 1996. The largest
factor contributing to this increase was the planned expansion of the research
and development department's technical staff.
Interest Income, net. Total interest income net of interest expense
increased by $81,000 or 330.1% for the three months ended December 31, 1996.
This is due to the receipt and investment of the net proceeds from the Company's
initial public offering. In addition the Company utilized a portion of the net
proceeds to reduce its borrowings under its bank line of credit.
Income Taxes. Income taxes increased by $30,000 or 769.5%. During the
three months ended December 31, 1995, the Company was an S-corporation, and as
such had no federal tax liability. Concurrent with the public offering, the
Company became a C-corporation for federal tax purposes. This resulted in the
Company incurring federal income taxes that it hod not in the past.
Six months ended December 31, 1996 compared to six months ended December 31,
1995.
7
Net sales. Net sales for the six months ended December 31, 1996 increased
$890,000 or 20.3% over the same period in fiscal 1996. This increase is a result
of the Company's increased penetration into the Asian and Pacific Rim markets
due to the expansion of the Company's sales efforts in that region, as well as
initial sales of the Company's new vibration and spin welder products.
Cost of Sales. Cost of sales increased from 50.0% of sales for the six
months ended December 31, 1995 to 51.7% of sales for the six months ended
December 31, 1996. Initial costs associated with the vibration welder line
caused the cost of sales of these products, as a percentage of their net sales
during the period, to be higher than the Company has experienced with other
product lines. The Company is not able to pass these initial costs on to the
customer.
Selling Expenses. Selling expenses for the first six months of fiscal 1997
increased $131,000 or 9.1% over the same period in fiscal 1996. As a percentage
of net sales these expenses decreased to 29.5% from 32.5% over the same period
in fiscal 1996. This decrease in selling expenses as a percentage of net sales
is a result of the Company maintaining fixed costs while increasing sales.
General and Administrative Expenses. General and administrative expenses
for the first six months of fiscal 1997 increased $214,000 or 72.0% over the
same period in fiscal 1996. As a percentage of net sales, these expenses
increased to 9.7% from 6.8% over the same period in fiscal 1996. This increase
is primarily attributable to increased costs associated with the Company's
obligations as a new public company, including professional fees and directors'
and officers' insurance, as well as normal annual increases in salaries and
bonuses.
Research and Development Expenses. Research and development expenses
increased $58,000 or 30.3% over the same period in fiscal 1996. The largest
factor contributing to this increase was the planned expansion of the research
and development department's technical staff.
Interest Income, net. Total interest Income net of interest expense
increased by $71,000 or 151.9% for the six months ended December 31, 1996. This
is due to the receipt and investment of the net proceeds from the Company's
initial public offering. In addition the Company utilized a portion of the net
proceeds to reduce its borrowing under its bank line of credit.
Income Taxes. Income taxes increased by $80,000 or 367.7%. During the six
months ended December 31, 1995, the Company was an S-corporation, and as such
had no federal tax liability. Concurrent with the public offering, the Company
became a C-corporation for federal tax purposes. This resulted in the Company
incurring federal income taxes that it had not in the past.
LIQUIDITY AND CAPITAL RESOURCES
Operations of the Company used cash of approximately $334,000 during the six
months ended December 31, 1996 as a result of increasing inventory while paying
down accounts payable balances. During the second quarter of fiscal 1997, the
Company invested approximately $111,000 in new capital equipment and leasehold
improvements. As of June 30, 1996, the Company's working capital was $6,010,000.
As of December 31, 1996, the Company's working capital had increased to
$6,507,000 representing an increase of approximately 6.6%. During the second
quarter of fiscal 1997, the Company .reduced its borrowings under its line of
credit by $1,000,000. In addition, the Company converted a $500,000 six month
demand note payable to a five year term note at 8.75% interest.
The Company's principal credit line is a $1,000,000 bank credit facility
bearing interest at one-half of one percent above the prime rate. This
credit arrangement matures on February 28, 1997.
8
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
9
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: February 13, 1997 By /s/ROBERT S. SOLOFF
--------------------- -----------------------------------
Robert S. Soloff
President, Chief Executive Officer,
Chief Financial Officer
10
EXHIBIT INDEX
Exhibit Location of Exhibit in
No. Description Sequential Numbering System
--- ----------- ---------------------------
3(i) Certificate of Incorporation of the Previously filed as Exhibit
Registrant, as amended. 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 Previously filed as Exhibit
between the Registrant and Robert 10.1 of Registration
S. Soloff. Statement No. 33-96414
10(ii) 1995 Incentive Stock Option Plan Previously filed as Exhibit
and form of Stock Option Agreement. 10.3 of Registration
Statement No. 33-96414
10(iii) Original Office Lease and Previously filed as Exhibit
Amendments between the Registrant 10.4 of Registration
and Nicholas R. DiNapoli, Jr. DBA Statement No. 33-96414
DiNapoli Holding 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 October Previously filed as Exhibit
17, 1995 between the Registrant and 10.10 of Amendment No. 3
Alan Broadwin. of Registration Statement
No. 33-96414
27 Financial Data Schedule. Filed Herewith
11