<PAGE>
 
<PAGE>
                    U. S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

--------------------------------------------------------------------------------
                                 FORM 10-KSB/A1
--------------------------------------------------------------------------------

(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, 1996.

[ ]  Transition report under Section 13 or 15(d) of the Securities Exchange Act
     of 1934. For the 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.)

     4 WEST KENOSIA AVENUE, DANBURY, CT                        06810
  (Address of Principal Executive Offices)                  (Zip Code)

         Issuer's Telephone Number, Including Area Code: (203) 744-4400

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

      SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

                           Common Stock par value $.03
                                (Title of class)
                        Warrants to purchase Common Stock
                                (Title of class)

Check whether the Company (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 was:  $9,376,170

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 18, 1996, as reported on the Nasdaq National Market System, was
approximately $13,125,000. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

As of September 18, 1996, Issuer had outstanding 3,500,100 shares of Common
Stock, par value $.03 per share and 1,725,000 Warrants to purchase shares of
Common Stock.

Transitional Small Business Disclosure Format (check one): Yes [ ]      No[X]

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement relating to the 1996 Annual Meeting of
Shareholders are incorporated in Part III.

<PAGE>
 
<PAGE>


        THE REGISTRANT HEREBY AMENDS ITEM 5 OF ITS ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 TO READ AS FOLLOWS:

        "ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Since February 27, 1996, the Common Stock and Warrants to purchase
Common Stock of the Company have been traded and quoted through the National
Association of Securities Dealers Inc. National Market System ("NASDAQ") under
the symbols "SIMA" and "SIMAW", respectively. 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.

<TABLE>
<CAPTION>

                                   Stock                            Warrants
                       -------------------------------    ------------------------------
  Quarter Ended            High              Low              High             Low
                       --------------   --------------    -------------   --------------
<S>                     <C>              <C>                <C>             <C>
March 31, 1996             11 1/4            6 3/4             5                3/4

June 30, 1996              13               11 7/8             6 5/8           4
</TABLE>

        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.

        On September 18, 1996, the closing price of the Common Stock of the
Company, as reported by NASDAQ, was 13 1/8 per share, and the closing price of
the Warrants, as reported by NASDAQ was $6 per warrant. On September 18,1996,
the Company had eight stockholders of record and two 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, on the Company's earnings,
its capital requirements and its overall financial condition."

                                       1

<PAGE>
 
<PAGE>

 
       THE REGISTRANT HEREBY AMENDS THE FINANCIAL STATEMENTS APPEARING IN ITS
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1996 TO READ AS
FOLLOWS:

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                        Page
                                                                        ----

<S>                                                                  <C>
Report of Independent Certified Public Accountants                         F-2

Financial Statements

    Balance Sheets                                                         F-3

    Statements of Income                                                   F-4

    Statement of Stockholders' Equity                                      F-5

    Statements of Cash Flows                                               F-6

Notes to Financial Statements                                              F-7
</TABLE>


                                      F-1

<PAGE>
 
<PAGE>

                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS



Board of Directors and Stockholder
   SONICS & MATERIALS, INC.


We have audited the accompanying  balance sheets of Sonics & Materials,  Inc. as
of June 30, 1995 and 1996, and the related  statements of income,  stockholders'
equity and cash flows for the years then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining,  on a test basis evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Sonics & Materials,  Inc. as of
June 30, 1995 and 1996, and the results of its operations and its cash flows for
the  years  then  ended,  in  conformity  with  generally  accepted   accounting
principles.



GRANT THORNTON LLP

/s/ Grant Thornton LLP

New York, New York
August 20, 1996



                                      F-2



<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                                 BALANCE SHEETS

                                    June 30,

<TABLE>
<CAPTION>

                                ASSETS                                       1995             1996
                                                                          ---------        -------
<S>                                                                  <C>              <C>
 CURRENT ASSETS
   Cash and cash equivalents (Note B-4)                                 $   187,490     $     73,129
   Short-term investments  (Note C)                                                        3,028,032
   Accounts receivable, net of allowance for doubtful
     accounts of $45,000 in 1995 and 1996 (Note K)                        1,949,958        1,953,941
   Inventories (Notes B-1 and D)                                          2,058,307        3,248,782
   Prepaid income taxes                                                                       30,465
   Deferred income taxes (Note L)                                                             80,000
   Other current assets                                                      89,741          111,327
                                                                        -----------     ------------

        Total current assets                                              4,285,496        8,525,676

 PROPERTY AND EQUIPMENT - NET (Notes B-2 and E)                             277,807          301,706

 OTHER ASSETS - NET (Note B-6)                                              422,102          353,124
                                                                         ----------       ----------

                                                                         $4,985,405       $9,180,506
                                                                         ==========       ==========


                 LIABILITIES AND STOCKHOLDERS' EQUITY

 CURRENT LIABILITIES
    Notes payable (Note F)                                              $   650,000      $   832,813
    Demand note payable (Note G)                                            500,000          500,000
    Accounts payable                                                        537,625          767,620
    Commissions payable                                                     152,812          160,081
    Other accrued expenses and sundry liabilities (Note B-7)                261,201          254,677
                                                                         ----------       ----------

        Total current liabilities                                         2,101,638        2,515,191

 COMMITMENTS
    (Note H)

 STOCKHOLDERS' EQUITY (Note I)
   Common stock - par value $.03 per share; authorized, 10,000,000
     shares issued and outstanding, 1,350,000 shares at
     June 30, 1995 and 3,500,100 shares at June 30, 1996                     40,500          105,003
   Additional paid-in capital                                               139,237        6,417,126
   Retained earnings                                                      2,704,030          143,186
                                                                          ---------       ----------

                                                                          2,883,767        6,665,315
                                                                         ----------       ----------


                                                                         $4,985,405       $9,180,506
                                                                         ==========       ==========

</TABLE>


The accompanying notes are an integral part of these statements.

                                      F-3


<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                              STATEMENTS OF INCOME

                               Year ended June 30,

<TABLE>
<CAPTION>
                                                                        1995                1996
                                                                     -----------         -------
<S>                                                              <C>               <C>
 Net sales                                                            $8,574,845        $9,376,170
 Cost of sales                                                         4,228,024         5,091,789
                                                                       ---------         ---------

        Gross profit                                                   4,346,821         4,284,381

 Operating expenses
   Selling                                                             2,450,438         2,832,251
   General and administrative                                            676,239           588,923
   Research and development                                              349,360           372,087
   Compensation expense - stock options                                  106,000
                                                                      ----------       -----------

        Total operating expenses                                       3,582,037         3,793,261

 Other income (expense)
   Interest expense                                                      (12,817)         (100,011)
   Other                                                                  27,751            45,201
                                                                     -----------       -----------

                                                                          14,934           (54,810)

        Income before income taxes                                       779,718           436,310

 Provision for income taxes (Note L)                                      45,000            (8,000)
                                                                     -----------       -----------

         NET INCOME                                                  $   734,718       $   444,310
                                                                      ==========        ==========

 Pro forma data (Note P)
   Historical income before taxes                                    $   779,718       $   436,310
   Subchapter S stockholders' tax distribution recorded as salary        160,000              -
                                                                      ----------         ---------

 Income before provision for income taxes                                939,718           436,310

 Provision for income taxes                                              375,887           174,524
                                                                      ----------        ----------

         NET INCOME                                                  $   563,831       $   261,786
                                                                      ==========        ==========

 Primary income per share
   Net income per share                                                     $.22              $.09
                                                                            ====              ====
   Weighted average common shares outstanding                          2,624,000         3,409,303
                                                                       =========         =========
 Fully diluted income per share
   Net income per share                                                     $.22              $.08
                                                                            ====              ====
   Weighted average common shares outstanding                          2,624,000         3,440,770
                                                                       =========         =========
</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-4


<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                        STATEMENT OF STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>

                                         Common stock
                                 ------------------------       Additional
                                                    Par          paid-in    Retained      Stockholders'
                                    Shares         value         capital    earnings        equity
                                 ----------    ----------     ----------- -----------     ----------- 
<S>                           <C>            <C>           <C>           <C>            <C>
 Balance - June 30, 1994           455,555     $  45,556    $   210,181   $2,524,312      $2,780,049

 Purchase of options                                            (76,000)                     (76,000)
   transactions
 Distribution to stockholder                                                (555,000)       (555,000)
 2.96-for-1 stock split            894,445        (5,056)         5,056
 Net income                                                                  734,718         734,718
                                 ---------       -------      ---------    -----------     ---------

 Balance - June 30, 1995         1,350,000        40,500        139,237    2,704,030       2,883,767

 1.85-for-1 stock split          1,150,000        34,500        (34,500)
 Distribution to stockholder                                                (495,730)       (495,730)
 Capital contribution from
   S-corporation earnings                                     2,509,424   (2,509,424)
 Issuance of common stock        1,000,100        30,003      3,802,965                    3,832,968
 Net income                                                                  444,310         444,310
                                 ---------       -------      ---------   -----------      ---------

 BALANCE - JUNE 30, 1996         3,500,100      $105,003     $6,417,126   $  143,186      $6,665,315
                                 =========       =======      =========   ===========     ==========

</TABLE>




The accompanying notes are an integral part of this statement.

                                      F-5


<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                            STATEMENTS OF CASH FLOWS

                               Year ended June 30,


<TABLE>
<CAPTION>

                                                                             1995             1996
                                                                          ---------        -------
<S>                                                                   <C>             <C>
 Cash flows from operating activities
   Net income                                                             $ 734,718    $    444,310
   Adjustments to reconcile net income to net cash provided
     by (used in) operating activities
       Depreciation of equipment and leasehold improvements                 203,425         236,105
       Deferred income taxes                                                                (80,000)
       Compensation expense - stock options                                 106,000
       Gain on sale of equipment                                                             (2,500)
       Increase (decrease) in cash flows from changes in
         operating assets and liabilities
          Accounts receivable                                              (715,587)         (3,983)
          Inventory                                                        (165,867)     (1,190,475)
          Prepaid income taxes                                                              (30,465)
          Other assets                                                     (169,351)        (43,901)
          Accounts payable and accrued liabilities                           62,721         244,354
                                                                        -----------     -----------
        Net cash provided by (used in) operating activities                  56,059        (426,555)
                                                                        -----------     -----------
 Cash flows from investing activities
   Capital expenditures on equipment and leasehold
     improvements                                                          (148,595)       (149,512)
   Proceeds from sale of equipment                                                            2,500
   Short-term investments                                                                (3,028,032)
                                                                        -----------     -----------
        Net cash used in investing activities                              (148,595)     (3,175,044)
                                                                        -----------     -----------
 Cash flows from financing activities
   Distribution to stockholder                                             (555,000)       (495,730)
   Cash paid for stock options                                             (182,000)
   Proceeds from note payable, net                                          525,000         150,000
   Proceeds from demand note payable                                        500,000
   Deferred registration costs                                              (70,000)
   Proceeds from issuance of common stock                                                 3,832,968
                                                                        -----------     -----------
        Net cash provided by financing activities                           218,000       3,487,238
                                                                        -----------     -----------
        NET INCREASE (DECREASE) IN CASH
          AND CASH EQUIVALENTS                                              125,464        (114,361)
 Cash and cash equivalents at beginning of year                              62,026         187,490
                                                                        -----------     -----------
 Cash and cash equivalents at end of year                              $    187,490    $     73,129
                                                                        ===========     ===========
 Supplemental disclosures of cash flow information:
   Cash paid during the year for
     Interest                                                          $      9,400    $     94,000
                                                                        ===========     ===========
     Income taxes                                                      $     32,000    $    150,000
                                                                        ===========     ===========

</TABLE>

 The accompanying notes are an integral part of these statements.


                                      F-6

<PAGE>
 
<PAGE>
                            Sonics & Materials, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                             June 30, 1995 and 1996



NOTE A - BUSINESS

    Sonics & Materials, Inc.'s (the "Company") primary business is the
    manufacturing and distribution of ultrasonic assembly and liquid processing
    machinery and equipment. Sales are made throughout the United States,
    Europe, Asia, South America and Australia. The Company's primary location of
    operations is Danbury, Connecticut.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    1.  Inventories

        Inventories are stated at the lower of cost, determined on a first-in,
        first-out basis, or market.

    2.  Equipment and Leasehold Improvements

        Equipment and leasehold improvements are carried at cost less
        accumulated depreciation and amortization. Depreciation using both the
        declining-balance and straight-line methods is designed to amortize the
        cost of various classes of assets over their estimated useful lives,
        which range from five to seven years. Leasehold improvements are
        amortized over the shorter of the life of the related asset or the term
        of the lease. Expenditures for replacements are capitalized and the
        replaced items are retired. Maintenance and repairs are expensed as
        incurred.

    3.  Taxes

        In 1989, the Company elected to be treated as an S Corporation for
        Federal income tax reporting. An S Corporation is generally treated like
        a partnership, and is exempt from Federal income taxes with certain
        exceptions. Accordingly, no provision or liability for Federal income
        taxes was reflected in the accompanying statements during the period the
        Company was treated as an S Corporation. Instead, the stockholder
        reported his pro rata share of corporate taxable income or loss on his
        respective individual income tax returns. A provision for state income
        taxes was made for those states not recognizing S Corporation status.

        On February 26, 1996, the Company's S Corporation status terminated with
        the completion of the Offering as described in Note I. Upon termination
        of its S Corporation status, the Company uses the liability method for
        both Federal and state income tax purposes. The effect of the change in
        status is reflected in income from continuing operations. Such change in
        status resulted in an increase in deferred tax assets at February 26,
        1996 by approximately $91,000 and earnings by the same amount.

    4.  Cash Equivalents

        For purposes of the statement of cash flows, the Company considers all
        highly liquid investments purchased with an original maturity of three
        months or less to be cash equivalents.

                                      F-7

<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


    NOTE B (CONTINUED)

    5.  Revenue Recognition

        Revenue is recognized upon the shipment of finished merchandise to
        customers. Allowances for sales returns are recorded as a component of
        net sales in the periods in which the related sales are recognized.

    6.  Other Assets

        Demonstration equipment is carried at cost less accumulated
        depreciation. Depreciation is provided for using the declining-balance
        method over the estimated useful life of seven years. The net book value
        is used to calculate any gain or loss on sale of the related
        demonstration equipment.

        At June 30, 1995 and 1996, the major components of other assets were:

<TABLE>
<CAPTION>

                                                                        June 30,           JUNE 30,
                                                                          1995               1996
                                                                       ---------         ----------
<S>                                                               <C>                <C>
           Demonstration equipment - net of accumulated
              depreciation of $150,557 and $196,973 for
              1995 and 1996, respectively                                $247,960           $270,863
           Deferred registration costs                                     70,000
           Other                                                          104,142             82,261
                                                                          -------           --------

                                                                         $422,102           $353,124
                                                                          =======            =======
</TABLE>


    7.  Other Accrued Expenses and Sundry Liabilities

        At June 30, 1995 and 1996, the major components of other accrued
        expenses and sundry liabilities were:


<TABLE>
<CAPTION>

                                                                        June 30,           JUNE 30,
                                                                          1995               1996
                                                                       ---------         ----------
<S>                                                               <C>                <C>
           Accrued payroll                                             $  81,100           $  76,120
           Accrued vacation pay                                           54,808              59,477
           Other                                                         125,293             119,080
                                                                         -------             -------

                                                                        $261,201            $254,677
                                                                         =======             =======

</TABLE>


                                      F-8

<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


    NOTE B (CONTINUED)

     8. Use of Estimates

        In preparing financial statements in conformity with generally accepted
        accounting principles, management is required to make estimates and
        assumptions that affect the reported amounts of assets and liabilities
        and disclosure of contingent assets and liabilities at the date of the
        financial statements, as well as the reported amounts of revenues and
        expenses during the reporting period. Actual results could differ from
        those estimates.

    9.  Fair Value of Financial Instruments

        Based on borrowing rates currently available to the Company for bank
        loans with similar terms and maturities, the fair value of the Company's
        short-term debt approximates the carrying value. Furthermore, the
        carrying values of all other financial instruments potentially subject
        to valuation risk (principally consisting of cash, accounts receivable
        and accounts payable) also approximate fair value.

   10.  Net Income Per Share

        Net income per share is based on the weighted average number of common
        and common equivalent shares (warrants and options) outstanding during
        the period, calculated using the modified treasury stock method in
        fiscal 1996 and the treasury stock method in fiscal 1995 (see Note P).
        The modified treasury stock method limits the assumed purchase of
        treasury shares to 20% of the outstanding common shares.

        In connection with the initial public offering (see Note I), the Company
        paid down $670,000 of outstanding debt. If this transaction had occurred
        as of July 1, 1995, the net income per share would have been the same as
        the reported net income per share.

   11.  Advertising Costs

        All costs related to advertising are expensed in the period incurred.
        Advertising costs were approximately $221,000 and $180,000 for the years
        ended June 30, 1996 and 1995, respectively.


NOTE C - SHORT-TERM INVESTMENT

    The Company has a short-term investment comprised of a U.S. Government
    agency issue. This investment is classified as available-for-sale and is
    reported at fair value on the Company's balance sheet. Quoted market prices
    have been used in determining the fair value of this investment.

                                      F-9


<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


NOTE D - INVENTORIES

    Inventories consist of the following:


<TABLE>
<CAPTION>

                                                                        June 30,           JUNE 30,
                                                                          1995               1996
                                                                       ---------         ----------
<S>                                                               <C>                <C>

        Raw materials                                                 $   615,462        $   975,332
        Work-in-process                                                 1,086,773          1,501,716
        Finished goods                                                    356,072            771,734
                                                                       ----------         ----------

                                                                       $2,058,307         $3,248,782
                                                                       ==========         ==========
</TABLE>


NOTE E - PROPERTY AND EQUIPMENT

    A summary of equipment and leasehold improvements follows:

<TABLE>
<CAPTION>

                                                                        June 30,           JUNE 30,
                                                                          1995               1996
                                                                       ---------         ----------
<S>                                                               <C>                <C>
        Trade show booth                                             $     50,494       $     50,494
        Machinery and equipment                                           518,029            586,063
        Tooling                                                           103,173            103,762
        Office furniture and equipment                                    133,498            143,235
        Leasehold improvements                                            159,688            174,081
        Automobiles                                                        32,408             32,408
        Data processing equipment                                         301,280            365,240
                                                                       ----------         ----------

                                                                        1,298,570          1,455,283
        Less accumulated depreciation                                   1,020,763          1,153,577
                                                                       ----------         ----------

                                                                      $   277,807        $   301,706
                                                                       ==========         ==========

</TABLE>


NOTE F - NOTES PAYABLE

    a.  Bank Line of Credit

        The loan agreement with the Village Bank & Trust Company provides for a
        $1,000,000 collateralized line of credit at one half percent (1/2%)
        above the prime rate. Notes payable under the loan agreement are
        collateralized by a security interest in all of the Company's tangible
        and intangible assets. The Company must also meet certain covenants to
        comply with the loan agreement, the most important of which are: (a) the
        Company must maintain its stockholders' equity at a sum at least equal
        to 75% of the outstanding principal balance of the note, and (b) the
        President/shareholder must be continuously and actively engaged in the
        Company business.

                                      F-10


<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


    NOTE F (CONTINUED)

    b.  Note Payable to President/Shareholder

        In connection with the initial public offering (see Note I), the Company
        paid $45,730 in cash and issued a $450,000 noninterest-bearing note
        payable to the President and major shareholder as a dividend for the
        amount of taxes due by him personally for the earnings of the Company
        from January 1, 1995 through February 26, 1996, a period through which
        the Company was an S Corporation (see Note B-3). As of June 30, 1996, a
        balance of $32,813 is due.


NOTE G - DEMAND NOTE PAYABLE

    The Company has a demand note payable from Village Bank & Trust Company
    bearing interest at one-half percent (1/2%) above the prime rate (8.25% at
    June 30, 1996).


NOTE H - COMMITMENTS

        Leases

        The Company leases certain facilities and automobiles under lease
        agreements that are classified as operating leases and expire in various
        years through 1998.

        The following is a schedule of future minimum lease payments for
        operating leases as of June 30, 1996:

<TABLE>
<CAPTION>
                         Year ending June 30,
                     <S>                                        <C>
                             1997                                      $232,000
                             1998                                        84,000
                                                                       --------

                                                                       $316,000
                                                                       ========
</TABLE>



        Rental expense for operating leases totaled approximately $236,000 and
        $229,000 for the years ended June 30, 1995 and 1996, respectively.


                                      F-11


<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


NOTE I - STOCKHOLDERS' EQUITY

    1.  Initial Public Offering

        On February 26, 1996, the Company successfully completed an initial
        public offering of 1,000,100 shares of common stock of the Company at an
        initial offering price of $5.00 per share, and 1,725,000 warrants to
        purchase 1,725,000 shares of common stock at an exercise price of $6.00
        per share with an offering price of $.15 per warrant. The proceeds from
        the offering were approximately $3,833,000, net of $1,426,000 of costs
        associated with the offering.

        In connection with the offering, the Company granted to the underwriter
        an option to purchase 100,000 shares of common stock at an exercise
        price of $8.25 per share and an option to purchase 100,000 warrants at
        an exercise price of $.25 per warrant over a period of four years
        commencing on February 26, 1997.

    2.  Stock Splits

        In August 1995, the Company's Board of Directors approved a 2.96-for-1
        split of the Company's common stock. A total of 894,445 shares of common
        stock were issued in connection with the split. The stated par value of
        each share was changed from $.10 to $.03. A total of $5,056 was
        reclassified from the Company's common stock account to the Company's
        additional paid-in capital account.

        In February 1996, the Company's Board of Directors approved a 1.85-for-1
        split of the Company's common stock. A total of 1,150,000 shares of
        common stock were issued in connection with the split. The stated par
        value of each share remained at $.03. A total of $34,500 was
        reclassified from the Company's additional paid-in capital account to
        the Company's common stock account.

        All share and per share amounts in the financial statements have been
        restated to retroactively reflect the above stock splits.

    3.  Distribution to Stockholder

        During the period from July 1, 1995, through the termination of the S
        Corporation status, the Company distributed approximately $496,000,
        including an adjustable note payable to the stockholder of $450,000, to
        cover estimated taxes on S Corporation income (see Note F).

    4.  Capital Contribution

        As of February 26, 1996, undistributed S Corporation retained earnings
        of approximately $2,509,000 have been reclassified as additional paid-in
        capital as if the earnings had been distributed to the stockholder and
        then contributed to the Company.



                                      F-12

<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


NOTE I (CONTINUED)

    5.  Stock Options

        a. Incentive Stock Option Plan

           Under the Company's Incentive Stock Option Plan (the "Plan"), options
           to purchase a maximum of 250,000 shares of its common stock may be
           granted to officers, directors and other key employees of Sonics.
           Options granted under the Plan are intended to qualify as incentive
           stock options as defined in the Internal Revenue Code of 1986, as
           amended.

           The Plan is administered by the Board of Directors and a Committee
           presently consisting of two members of the Board that determine which
           persons are to receive options, the number of options granted and
           their exercise prices. In the event an optionee voluntarily
           terminates their employment with the Company, the optionee has the
           right to exercise their accrued options within thirty (30) days of
           such termination. However, the Company may redeem any accrued option
           held by each optionee by paying them the difference between the
           option exercise price and the then fair market value.

           On February 11, 1996, the Board of Directors approved a plan to grant
           options for 80,000 shares of common stock of the Company at the
           initial offering price of $5.00 per share. Subsequently, the approval
           to grant options to acquire 10,500 shares of the common stock was
           rescinded by the Board of Directors. As of June 30, 1996, five year
           options to purchase 69,500 shares of common stock were granted to 26
           officers, directors and key employees of the Company. The Plan will
           expire on February 11, 2006.


                                      F-13


<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


NOTE I (CONTINUED)

        b. Nonqualified Stock Options

           The Company has also granted a nonqualified stock option for 10,976
           shares of common stock to an officer at an option price of $.31 per
           share. In January 1994, the Company granted a nonqualified stock
           option for 274,390 shares of common stock to an officer at an option
           price of $1.03 per share. These options expire on January 1, 2004.

           For the two years ended June 30, 1996, option activity was as
follows:

<TABLE>
<CAPTION>

                                                   Incentive options           Nonqualified options
                                              ------------------------      ------------------------
                                               Number           Option       Number         Option
                                              of shares         prices      of shares       prices
                                              ---------         ------      ---------     ----------
<S>                                        <C>               <C>          <C>           <C>
              Outstanding at July 1, 1994
                 Granted                                                     285,366     $0.31 - $1.03
                 Exercised
                 Canceled
                                                                             -------

              Outstanding at June 30, 1995
                 Granted                         69,500          $5.00       285,366      0.31 -  1.03
                 Exercised
                 Canceled
                                                 ------                      -------

              OUTSTANDING AT JUNE 30,
                 1996                            69,500          $5.00       285,366     $0.31 -  1.03
                                                 ======                      =======

</TABLE>


NOTE J - 401(k) PLAN

    The Company has a 401(k) plan for eligible employees. The 401(k) plan
    provides for eligible employees to elect to contribute to the plan up to 15%
    of their annual compensation. In addition, the 401(k) plan provides for the
    Company to make additional distributions at its discretion up to 4% of the
    participant's annual compensation. Expenses under the plan totaled
    approximately $90,000 and $64,000 for the years ended June 30, 1995 and
    1996, respectively, which have been allocated to cost of sales, selling,
    general and administrative, and research and development expenses.


                                      F-14


<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


NOTE K - CONCENTRATION OF CREDIT RISK

    Financial instruments that potentially subject the Company to concentrations
    of credit risk consist primarily of accounts receivable. Credit risk on
    receivables is minimized as a result of the diverse nature of the Company's
    worldwide customer base. The Company generally requires no collateral from
    its customers.

    Net sales by geographic area for the periods ended are as follows:

<TABLE>
<CAPTION>

                                                                            Year ended June 30,
                                                                       ----------------------------
                                                                         1995               1996
                                                                       --------           ---------
<S>                                                                    <C>              <C>
         United States                                                 $5,699,000       $6,320,000
         Europe                                                         1,279,000        1,376,000
         Asia/Pacific Rim                                               1,159,000          967,000
         Canada and Mexico                                                269,000          396,000
         Other                                                            169,000          317,000
                                                                       ----------       ----------

                                                                       $8,575,000       $9,376,000
                                                                       ==========       ==========

</TABLE>

NOTE L - INCOME TAXES

    Prior to the completion of the initial public offering, the Company had,
    since 1989, elected to be treated as an S Corporation for Federal income tax
    reporting purposes. An S Corporation is generally treated like a
    partnership, and is exempt from Federal income taxes with certain
    exceptions. The S Corporation stockholder reported his pro rata share of
    corporate taxable income or loss on his individual income tax returns. A
    provision for state income taxes was made for those states not recognizing S
    Corporation status. The Company's S Corporation status terminated with the
    completion of the initial public offering described in Note I-1.

    Subsequent to the initial public offering, the Company accounts for income
    taxes using the liability method under Statement of Financial Accounting
    Standards No. 109, "Accounting for Income Taxes."


                                      F-15

<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


NOTE L (CONTINUED)

    The components of the provision for taxes on income are as follows:

<TABLE>
<CAPTION>

                                                                              Year ended June 30,
                                                                          -------------------------
                                                                            1995              1996
                                                                          --------           ------
       <S>                                                              <C>          <C>
         U.S. Federal
            Current tax provision                                                         $ 50,000
            Deferred tax benefit                                                           (68,000)
                                                                                           -------

                                                                                           (18,000)
                                                                                           -------

         State
            Current tax provision                                         $45,000           22,000
            Deferred tax benefit                                                           (12,000)
                                                                           ------          ------- 

                                                                           45,000           10,000
                                                                           ------          -------

         Total income tax provision (benefit)                             $45,000         $ (8,000)
                                                                           ======          ======= 

    The tax effect of temporary differences which give rise to deferred tax
    assets and liabilities at June 30, 1996 are as follows:

         Accrued expenses                                                                  $22,000
         Allowance for doubtful accounts                                                    17,000
         Inventory                                                                          41,000
                                                                                            ------

         Net deferred tax asset                                                            $80,000
                                                                                           =======

</TABLE>


                                      F-16


<PAGE>
 
<PAGE>


                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


NOTE L (CONTINUED)

    The following is a reconciliation of the statutory Federal income tax rate
    to the effective rate reported in the financial statements:

<TABLE>
<CAPTION>


                                                                Year ended June 30,
                                            ------------------------------------------------------------
                                                      1995                            1996
                                            --------------------------       ---------------------------
                                                           Percent of                        PERCENT OF
                                             Amount          income          AMOUNT            INCOME
                                            --------       -----------       ------          -----------
<S>                                     <C>             <C>               <C>              <C>
       Provision for Federal income
          taxes at the statutory rate                                      $148,000             34.0%
       State and local taxes, net of
          Federal income tax benefit        $45,000            5.8%          15,000              3.4
       Tax effect of S Corporation
          earnings during the year                                          (99,000)           (22.8)
       Deferred tax benefit from
          the effect of conversion to
          C Corporation status                                              (91,000)           (20.9)
       Nondeductible expenses                                                 7,000              1.6
       Other                                                                 12,000              2.8
                                             ------            ---        ---------           ------

       Actual provision (benefit) for
          income taxes                      $45,000            5.8%      $   (8,000)            (1.9)%
                                             ======            ===        =========           ======
</TABLE>


NOTE M - EMPLOYMENT AGREEMENT

    Effective July 1, 1995, the Company entered into an employment agreement
    with its President for an initial term expiring in three years at an initial
    annual base salary of $180,000, $198,000 and $218,000 in each of the three
    years, respectively. Such base salary may be increased at the discretion of
    the Board of Directors as follows: (i) any bonus arrangement provided by the
    Company in its discretion and (ii) other compensation or employee benefit
    plans and arrangements, if any, provided to other officers and key employees
    of the Company.


NOTE N - FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    In March 1995, the Financial Accounting Standards Board issued Statement of
    Financial Accounting Standards No. 121 ("SFAS No. 121), "Accounting for the
    Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
    Of." SFAS No. 121 requires that long-lived assets and certain identifiable
    intangibles held and used by an entity be reviewed for impairment whenever
    events or changes in circumstances indicate that the carrying amount of an
    asset may not be recoverable. If the sum of the expected future cash flows
    (undiscounted) is less than the carrying amount of the asset, an impairment
    loss is recognized. Measurement of that loss would be based on the fair
    value of the assets.

                                      F-17


<PAGE>
 
<PAGE>


                               Sonics & Materials, Inc.

                       NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                June 30, 1995 and 1996


NOTE N (CONTINUED)

     SFAS No. 121 also generally requires long-lived assets and certain
    identifiable intangibles to be disposed of to been reported at the lower of
    the carrying amount or the fair value less cost to sell. Effective July 1,
    1996, the Company adopted SFAS No. 121 and no impairment losses have been
    required.

    In October 1995, the Financial Accounting Standards Board issued Statement
    of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
    Stock-Based Compensation." SFAS No. 123 defines a fair value based method of
    accounting for an employee stock option. Fair value of the stock option is
    determined considering factors such as the exercise price, the expected life
    of the option, the current price of the underlying stock and its volatility,
    expected dividends on the stock, and the risk-free interest rate for the
    expected term of the option. Under the fair value based method, compensation
    cost is measured at the grant date based on the fair value of the award and
    is recognized over the service period. A company may elect to adopt SFAS No.
    123 or elect to continue accounting for its stock option or similar equity
    awards using the intrinsic method, where compensation cost is measured at
    the date of grant based on the excess of the market value of the underlying
    stock over the exercise price. If a company elects not to adopt SFAS No.
    123, then it must provide pro forma disclosure of net income and earnings
    per share, as if the fair value based method has been applied.

    SFAS No. 123 is effective for the fiscal year beginning on July 1, 1996. Pro
    forma disclosures for entities that elect to continue to measure
    compensation cost under the old method must include the effects of all
    awards granted in fiscal years that begin after December 15, 1994. Effective
    July 1, 1996, the Company has elected to account for stock-based
    compensation plans under the intrinsic method.


NOTE O - RELATED PARTY TRANSACTIONS

    The Company paid $22,000 to a member of the Board of Directors for
    consulting services during the year ended June 30, 1996.


NOTE P - PRO FORMA INFORMATION

    a.  Pro Forma Statements of Income

        Pro forma adjustments in the statements of income for the years ended
        June 30, 1995 and 1996 reflect: (1) a provision for income taxes based
        upon pro forma pretax income as if the Company had been subject to
        Federal and additional state and local taxes for the full periods; (2)
        adjustments for distribution of additional salary for the
        President/stockholder, representing the estimated personal income tax
        owed on the S Corporation income.

                                      F-18

<PAGE>
 
<PAGE>



                            Sonics & Materials, Inc.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                             June 30, 1995 and 1996


NOTE P (CONTINUED)

    b.  Pro Forma Income Taxes

        As discussed in Note B-3, the Company elected to be taxed as an S
        Corporation pursuant to the Internal Revenue Code. In connection with
        the Offering, the Company terminated its S election and became subject
        to Federal and additional state and local income tax. The pro forma
        provision for income taxes represents the income tax provisions that
        would have been reported had the Company been subject to Federal and
        additional state and local income taxes for the years ended June 30,
        1995 and 1996.

        The pro forma income tax provision has been prepared in accordance with
        SFAS No. 109. The pro forma provision for income taxes, after giving
        effect to the Federal statutory rate of 34% and state and local taxes, a
        net effective rate of 6%, consists of the following:

<TABLE>
<CAPTION>

                                                                            Year ended June 30,
                                                                         -------------------------
                                                                          1995              1996
                                                                         -------           -------
<S>                                                                      <C>               <C>
           Federal                                                       $291,312         $135,256
           State and local                                                 84,575           39,268
                                                                         --------         --------

                                                                         $375,887         $174,524
                                                                         ========         ========

</TABLE>


    c.  Pro Forma Net Income

        Represents the historical amounts after the pro forma adjustments
        discussed above.

    d.  Pro Forma Net Income Per Share

        Represents net income per share including the weighted average number of
        shares outstanding immediately prior to the closing of the offering,
        after giving effect to a 2.96-for-1 stock split and a second stock split
        of 1.85-for-1 and shares issued in the Offering (see Note I). The
        calculations also reflect the dilutive effect of shares issuable for
        common stock equivalents.

                                      F-19

<PAGE>
 
<PAGE>



                                   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:   November 1, 1996


                                            SONICS & MATERIALS, INC.



                                            By:     /s/ ROBERT S. SOLOFF
                                                --------------------------------
                                                        ROBERT S. SOLOFF
                                                     CHAIRMAN AND PRESIDENT