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Microphonics Incorporated: Sound Success Initiative

    NASHVILLE, Tenn.--Sept. 12, 2002--Microphonics Incorporated, the global leader in ultrasound diagnostic equipment, releases the details of the Sound Success Initiative(TM) and Corporate Mission and Vision statement.
    The Sound Success Initiative(TM) will be the foundation of our business acumen. This acumen will provide underpinning to grow and sustain Microphonics today and well into the future. The near term focus is on improving the performance of current business as the foundation for future growth. The Sound Success Initiative(TM) consists of four areas:

    1. Sound People
    2. Sound Business
    3. Sound Products
    4. Sound Growth

    Sound People Initiative The success of this initiative will center on sound people. Without sound people, none of our Sound Success Initiative(TM) would be possible. We are exhibiting a renewal focus on performance, development, accountability, and empowerment of our team. Improved alignment of people, processes, and business will enhance results by leveraging the considerable strength embedded within the organization. Sound people are among the company's greatest strengths delivering solutions directly to our customers and distributors. Microphonics will focus on performance management, human capital development, and compensation planning processes. Sound people are empowered individuals who are responsible for the work and results and are awarded based on real performance. To meet and exceed customer and distributor demands today takes a great deal of teamwork and commitment. Sound People Initiative will provide the framework to align people, skills, and processes. With proper alignment and incentives, Microphonics can deliver on its commitment to customers, employees, and shareholders. We expect to grow our human resources by attracting and hiring proactive, aggressive and action oriented employees with an improved performance based compensation and benefit plan. This will drive growth and maintain cost to contribute to our Sound Success Initiative(TM).
    Sound Business Initiative Microphonics paradigm is to operate from a solid sound business mindset. We will review, analyze, and focus on improvement in the basic areas of sound business. We will focus on the core fundamentals of business and ensure everyone understands these fundamentals.
    Sound Business Initiative will focus on the following: Customers, Cash Generation, Margins, Inventory Velocity, Return on Investment, and Growth.
    Microphonics must stay customer focused. We must provide real solutions to real problems. The solutions we provide must excite and delight our customers and motivate them to purchase our products. As our customers purchase these solutions and products, we must focus on the generation of cash. We will use this cash to reduce debt, bring our balance sheet in better alignment, grow the business, and position this company for a possible future stock repurchase plan. Protecting and improving our margins serves as one of the quickest ways to generate cash. Our overall target margin point will be a minimum of 40% on our current business. While we grow cash and improve on our margins, we will advance our inventory velocity to levels that are more acceptable. Through improved relationships with our manufacturers, our velocity will improve greatly. Using the manufacturing and shipping methods centered on the Six Sigma Process, we will see our velocity improve 30% over the next 12 months. Return on assets (combination of margin and inventory velocity) target will be at least 10% after fees and restructuring charges as we execute this initiative. We know doing the right things day in and day out will build value in Microphonics and provide growth both for the short and long term. We must remember every decision counts. Our decisions will be based on our vision and sound business fundamentals. With this mindset, we will direct our company to improve the all-important returns that increases shareholder value
    Sound Products Initiative. Products are the source for revenues. One of the primary ways to grow is through new products. We will review our current product line and build upon its great foundation. Going into the future, we must focus on what our customers need and want. We must not let ourselves become trapped in the silo effect and think our customers will purchase whatever we build. Microphonics will not produce a product for the sake of producing a new product. The solution must be innovative. Our new products must intrigue customers and make them more productive and profitable. This requires input from areas such as manufacturing, engineering, and marketing as well as outside sources including suppliers and customers. New product sales can be positively affected by the award of patents. Patents contribute to marketability. Patented products are unlike anything else available, and those are products that many customers are willing to buy. As we explore, develop, and sell new products, we will continue to adhere to the foundations of our Sound Business Initiative of customers, cash generation, proper margins, inventory velocity, return on investment, and growth.
    Sound Growth Initiative. Revenue growth will be our highest priority! Our growth must be profitable and sustainable in the years to come. Growth must be accompanied by improved margins and inventory velocity, and the next generation must be able to keep pace. We must always consider whether we are growing in a manner conducive to future sustainable growth.
    Growth is vital to our prosperity. We expect to grow revenues and profits with no decline in inventory velocity. As we grow, we will focus on growth and productivity of our staff, manufacturing capabilities, sales, and distribution channels.
    Maintaining and growing our current company direct sales force and increasing all avenues of distribution will achieve the revenue growth. We will maintain and improve current distribution networks in the U. S. and grow global distributors. Improvements and additions to our global distribution will provide us with a solid and sustainable growth path. The United Kingdom, Europe, Asia, Russia, and others present a new frontier for the development and sale of Ultrasound products. These provide an excellent new revenue channel for us. By following our Sound Business Initiative(TM) and standing firm to our mission, we will improve the shareholder value.
    We expect growth to be 20% or better per year over a three-year period while maintaining margins for the plans that will be executed in the future.
    In the long term, Microphonics vision is to build success and create value through the application of this Sound Success Initiative(TM).
    Mission and Vision: Microphonics strategic mission is and always has been to create an ultrasound industry and maintain the leadership role in that industry relative to technological advancements, product quality, service support, and sales. The strategic vision of our company is to create product awareness, high demand for our products, and to be positioned to provide the product and support services needed to maintain that demand. Microphonics intends to make this mission and vision a reality by targeting specific industries with significant influence regarding recognition and acceptance of our products by other industries thus creating an envied market for our products.
    Microphonics intends to create and lead the industry in ultrasound technology and applications through the systematic approach taken in designing and discovering new applications for our equipment. In condensed form, Microphonics' strategic objectives are to educate the industry, create awareness and demand in targeted markets, and fulfill that demand with specific system designs that exceed customers' expectations while creating excellent improvement in shareholder value.
    Outlook: Microphonics believes long-term underlying fundamental trends that influence its business will remain sound. In the remainder of 2002 and 2003, Microphonics will continue efforts to incorporate the Sound Success Initiative(TM) business process into our organizational culture. The strengths and potential of Microphonics' business will continue to be examined and appropriate actions to drive improvement in this initiative will be a focus. As these changes are implemented, Microphonics will ensure that its near-term efforts of enhancing profitability are balanced with a disciplined review of longer-term profitable growth investments. Microphonics also expects further progress on working capital to lead to improvements in cash flow.
    The Microphonics and Ultraphonics brands are the leading brands preferred by professionals in our markets. High quality, product performance, exacting standards, customer service, strong relationships, and innovative products and services enhance the delivery of value to its customers and reinforcing its strong brand worldwide.
    "I am thrilled about this plan that the management team headed by Terry Mimms has put together. This initiative provides Microphonics the foundation for the future growth that our shareholders are expecting. A CEO and a company are only as good as the team that supports it. The recent changes in the key personnel of Microphonics have instantly confirmed how important this statement is. I now look to the future results of our company with great confidence for success," said Jimmy Gayle, CEO, and Chairman.
    Microphonics is the global leading innovator, manufacturer and distributor of unparalleled performance products in Ultrasound instruments, that serve the industrial, manufacturing, governmental, agricultural, automotive, professional racing, and medical markets. Products are sold through company-direct sales and distributor channels worldwide.
    Safe Harbor: Statements in this document that are not historical facts, including statements (i) that include the words "expects," "targets," "believes," "anticipates," "estimates," or similar words that reference Microphonics or its management; (ii) specifically identified as forward-looking; or (iii) describing Microphonics' or management's future outlook, plans, objectives or goals, are forward-looking statements. Microphonics or its representatives may also make similar statements from time to time orally or in writing. Microphonics cautions the reader that these statements are subject to risk, uncertainties or other factors that could cause (and in some cases have caused) actual results to differ materially from those described in any such statement. Some of those factors are discussed below, as well as elsewhere in this document. Those important factors include the validity of assumptions set forth above and the timing and progress with which Microphonics can continue to achieve further cost reductions and savings from its Sound Success Initiative(TM); Microphonics ability to retain and attract employees, distributors, customers and to withstand external negative factors, including terrorist disruptions on business, changes in trade, monetary and fiscal policies, laws and regulations, or other activities of governments or their agencies; the timing, speed or ability with which Microphonics can realize the benefits of the Sound Success Initiative(TM); and the absence of significant changes in the current competitive environment, inflation, energy supply or pricing, legal proceedings, supplier disruptions, currency fluctuations, or the material worsening of economic and political situations around the world. These factors may constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. Microphonics operates in a continually changing business environment and new factors emerge from time to time. Microphonics cannot predict such factors, nor can it assess the impact, if any, of such factors on Microphonics' financial position or its results of operations. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. Microphonics disclaims any responsibility to update any forward-looking statement provided in this document.