UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal yearFiscal Year ended: February 28, 1999
2009
Commission File Number: 0-16035
SONO-TEK CORPORATION
(Exact name
(Name of Registrantregistrant as Specifiedspecified in its Charter)
NEW YORK 14-1568099
(State or other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
2012 Route 9W, Bldg. 3, Milton, New York 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (914) 795-2020
charter)
| NEW YORK | 14-1568099 |
| (State or other Jurisdiction of | (IRS Employer Identification Number) |
| Incorporation or Organization) | |
| |
| 2012 Route 9W, Milton, New York | 12547 |
| (Address of Principal Executive Offices) | (Zip Code) |
| Registrant's Telephone Number, Including Area Code: | (845) 795-2020 |
| |
| Securities Registered Pursuant to Section 12(b) of the Act: | None |
| |
| Securities Registered Pursuant to Section 12(g) of the Act: | Common Stock, $.01 par value |
| (Title of Class) |
Indicate by checkmark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. |_| Yes |X| No
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 12(b)13 or Section 15(d) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Exchange Act. |_| Yes |X| No
Indicate by check markcheckmark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. X|X| Yes __|_| No
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). |_| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-KS-B is not contained herein, and will not be contained, to the best of Registrant'sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
|X|
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated Filer |_| Accelerated Filer |_| Non-accelerated Filer |_| Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No
The Issuer had revenues of $6,408,796 for the Fiscal Year ended February 28, 2009.
As of May 28, 199918, 2009, the aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant was approximately $1,225,300$6,685,550 computed by reference to the average of the bid and asked prices of the Common Stock on said date, which average was $0.30.
$.55.
The Registrant had
6,281,66714,414,714 shares of Common Stock outstanding as of May
28, 1999.
18, 2009.
DOCUMENTS INCORPORATED BY REFERENCE: None.
PART I
ITEM 1 DESCRIPTION OF BUSINESS
Organization and Business
(a) General Development of Business.
Sono-Tek Corporation (the "Company"“Company”, “Sono-Tek”, “We” or "Sono-Tek"“Our”) was incorporated in New York on March 21, 1975 for the purpose of engaging in the development, manufacture and sale of ultrasonic liquid atomizing nozzles. Ultrasonic nozzlesnozzle systems atomize low to medium viscosity liquids by converting electrical energy into mechanical motion in the form of high frequency (ultrasonic)ultrasonic vibrations whichthat break liquids into minute drops that can be applied to surfaces at low velocity. The Companyprincipal advantage of these nozzle systems is continuously strivingthat they use much less liquid than competitive nozzle systems to improveattain the performancerequired coatings on glass, textiles, food and versatilityfood packaging, circuit boards, medical devices and many other coating applications. This advantage translates into lower costs for materials, less water consumption, less energy required for subsequent drying operations and less release into the environment of its linespray that would normally bounce back with competitive nozzle systems. These factors are increasingly important to customers at a time of ultrasonic nozzles, as well as searchingrising commodity and energy costs and supply limitations.
We operate in one business segment, spraying and coating systems. The spraying systems business has had periods of sales growth and financial stability, but has had sales declines when the electronics industry, a principal market for new industry applications.
During Fiscal 1999, the Company signed an agreement with a large European
manufacturerour products, has had downturns due to lower levels of pressure nozzles to begin selling the Company's line of
ultrasonic nozzles from its sales offices throughout Europe, South America and
Asia.
The Company's SonoFlux System, which applies a uniform coating of flux to printed circuit boards immediately priorbeing made. To offset this, we have diversified our product offerings to provide coating systems to medical device manufacturers, to provide precision coating systems for clean energy applications involving fuel cells and solar cells, to provide spray drying systems for nanotechnology applications, and to provide wide area industrial precision coating equipment, including the components being soldered in
place, was introduced to the market in 1991manufacture of float glass, textiles and has become an industry leading
product.
During Fiscal 1998, the Companyfood products and packaging.
Product Development
We have core technology and have developed and announcedmarket the following products:
| 1. | SonoFlux 2000F – spray fluxer product – designed for high volume operations with standard width lines requiring low maintenance using a variety of solder fluxes, including rosin flux. It is designed to be used by electronic circuit board manufacturers to apply solder flux to fixed width circuit boards. The major customers for the SonoFlux 2000F are original equipment manufacturers (OEMs) that produce their own electronic circuit boards. |
| 2. | SonoFlux 2000FP, SonoFlux XL and SonoFlux EZ- spray fluxer product - applies solder flux to electronic printed circuit boards that vary from two inches to up to 24 inches in width in a cost-effective and uniform manner. They are designed to be used by either OEMs or contract manufacturers of electronic circuit assemblies. All SonoFlux products provide substantial benefits in terms of reduced use of fluxing agents, reduced need for maintenance and reduced cost of operations compared to foam fluxers and competitive pressure nozzle fluxing products. |
| 3. | SonoFlux Servo – a new spray fluxer capable of providing flux to both wide areas of a circuit board as well as selective fluxing. We also sell a selective fluxing apparatus known as Selectaflux. |
| 4. | MediCoat and Medicoat II for stent coating – table-top and stand alone, fully-contained systems designed to apply thin layers of polymer and drug coatings to arterial stents with high precision. The system incorporates motion control of the stent during the coating process and produces coatings having excellent uniformity. The MediCoat systems use either the Accumist or MicroMist nozzle systems, which are precision nozzle configurations used in applications where precise patterns of lines and dots are required. These products provide customers the ability to achieve a minimal amount of waste of expensive drug polymer coatings and high uniformity of drug addition from stent to stent. Medicoat II has higher throughput capabilities, and is suited for a production environment. |
| 5. | WideTrack – Wide area modular coating system – One module can cover substrates from 6 inches to 24 inches wide, depending on the application. Much greater widths can be achieved by linking modules together, and these systems have been applied in glass lines of up to four meters wide. A number of systems have been sold over the past four years, and this application holds promise for the future due to cost and environmental savings demonstrated at customer sites. It uses non-clogging ultrasonic atomizing nozzles to produce a low velocity, highly controllable spray. It is designed to be used in applications that require efficient web-coating or wide area spraying capability. The WideTrack System offers significant advantages over conventional pressure-spray methods in a broad range of applications such as non-woven fabrics, float glass, or odd-shaped industrial or consumer products. Since the ultrasonic spray can be easily controlled, it is possible to use less chemicals, water and energy in applying coatings to glass, textiles, food products and packaging materials than with traditional nozzles. This also results in reduced environmental impact due to less overspray. We recently sold our first WideTrack coater for application in a major textile finishing plant. The sale was based on the projected savings of chemicals, water and energy, which could provide a recoupment of investment in less than a year for the capital equipment. |
| 5. | Advanced Energy Applications – We now offer a line of equipment for applications involving coatings for fuel cell membranes and solar energy panels. This equipment is offered in bench-top configurations as our Exactacoat product and standalone as our Flexicoat product. We have also introduced a new product, Hypersonic, for this market. We have seen increasing sales in these growing industries, especially when combined with a novel ultrasonic syringe pump to agitate and suspend the carbon based suspensions needed in fuel cell applications. |
Other Product Offerings
We have an exclusive distribution relationship with EVS International. Ltd. (“EVS”), a complete familyU.K. Company, to distribute EVS’s line of liquid delivery products including a Gravity Feed System, a Syringe Pump,solder recovery systems and multiple models of Gear Pumpsspares parts. The territory for this distribution relationship is the United States and Pressure Reservoirs. These liquid delivery
products enable customers to purchase a complete, fully integrated and tested
spray solution from a single supplier. Also during Fiscal 1998,Canada. EVS manufactures the Company
announced the MCS Infinity System which is a precise, highly efficient spray
coating system designed for general top-down spraying applications,EVS6000, EVS3000 and the MCS
Accu Mist SystemEVS1000 solder recovery systems which providesare used to reclaim solder from the dross which accumulates in the wave-solder equipment of circuit board manufacturers. The customer base for distribution of these systems is synergistic with Sono-Tek’s existing customer base for spray fluxer sales.
We also sell a line of Laboratory Ultrasonic Spray Drying Systems – The SonoDry Ultrasonic Spray Dryer. This new spray dryer is available in three sizes, providing the ability to spray liquids to very small
areas, either as discrete dots or continuous lines.
During Fiscal 1999, Sono-Tekchoose the proper size machine for differing requirements. All SonoDry Spray Dryers are supplied with Sono-Tek’s unique non-clogging ultrasonic atomizing nozzle incorporated into them. SonoDry systems also began distributing inhave the U.S. market a full
range of pressure nozzles manufactured by a European company. Sono-Tek currently
generates the majority of its revenues from sales of capital equipment, which is
expensive and seldom requires replacement. Sales of pressure nozzles differ
because they are commodity items, relatively inexpensive, and generate a
continuous source of revenue because of their limited useful life.
On March 3, 1999, as part of the Company's plan to grow and diversify, the
Company signed a non-binding letter of intent to acquire a local manufacturer of
specialty equipment that produces cleaning, degreasing and vapor drying systems
for the semiconductor, disk drive, and other high technology industries. The
Company believes this acquisition, if consummated, would complement the
Company's core business including industry focus and manufacturing similarities.
The Company also believes that significant efficiencies could be realized by
integrating the operation of the two companies. The Company anticipates
reporting this transaction on Form 8-K upon the execution of a definitive
acquisition agreement.
On May 5, 1999, the Company released a Private Placement Memorandum to sell via
a private placement 1,666,667 shares of the Company's common stock at a purchase
price of $0.30 per share contingent upon consummation of the acquisition
described above. The proceeds from this private placement will be used to fund
the Company's acquisition as mentioned above, and for working capital purposes.
In the event that the acquisition is not consummated, no shares will be issued
and all funds will be refunded to the purchasers. The shares sold pursuant to
this private placement will not have been registered under the Securities Act of
1933, and may not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements. In connection with the
private placement, the Company has agreedability to use its reasonable best efforts to
cause the purchased shares to become registered under the Securities Act within
180 days of purchase.
(b) Financial Information about Industry Segments.
During Fiscal 1999 the Company was engaged in one industry segment and line of
business. All the products manufactureda traditional twin fluid air atomizing nozzle system as well. Nozzle requirements can be specified by the Company arecustomer depending on application needs. The machines can handle both aqueous and solvent based on the processliquids. All systems include software that allows for recipe storage and complete data logging of ultrasonic spraying.
(c) Description of Business.
Background
The Company is engaged in the development, manufacture, and sale of ultrasonic
liquid atomizing units consisting of a nozzle based on patented technology, an
electrical power supply, and related hardware which atomizes low-to-medium
viscosity liquids used in various spraying applications.
Ultrasonic nozzles break the liquid stream into a spray of minute drops by
intense ultrasonic vibrations concentrated on the head of the nozzle called the
"atomizing surface". The Company manufactures nozzles with atomizing surfaces
that produce spray shapes to meet individual customer specifications. In
addition, nozzles are made in different sizes and configurations to accommodate
various flow rates and to meet the requirements of specific applications.
Ultrasonic nozzles produce a soft low-velocity spray of liquid which virtually
eliminates overspray, thereby minimizing waste and loss to the surrounding
environment. Ultrasonic nozzles are capable of spraying material in minute
amounts on the order of one-millionth of a liter of liquid per second.
Ultrasonic nozzles typically have large passageways which makes them more
resistant to clogging.
Marketing Overview
The SonoFlux System accounted for approximately 71% of the Company's sales
during Fiscal 1999, 76% during Fiscal 1998, and 66% during Fiscal 1997. Nozzle
systems accounted for 18%, 21% and 34% of sales, during those same years,
respectively. Sales of the MCS Systems accounted for 9% of the Company's sales
during Fiscal 1999, and 3% during Fiscal 1998. No single customer accounted for
more than 10% of net sales in Fiscal 1998 and 1997. During Fiscal 1999 one
customer, Delco Electronics, accounted for 17% of net sales.
The Company markets ultrasonic nozzles to customers requiring specialized
applications of liquids to their products. A majority of sales leads are
generated via direct mail advertising, advertisements and technical articles in
trade journals, product news releases, participation in trade shows and
seminars, and by responses to the Company's website. The majority of sales are
made to end users who use ultrasonic nozzles in the manufacture of their own
products, to original equipment manufacturers ("OEMs") who incorporate
ultrasonic nozzles into their own products for resale, and to government,
university, and private laboratories who use nozzle systems for research
projects. The sales function of the Company's products is currently performed by
six people located in the Company's facilities in Milton, New York.
The market for the SonoFlux product line is the Printed Circuit Board (PCB)
assembly industry. For this product line, the Company utilizes the services of
independent Manufacturer's Representatives ("Reps") in North America to augment
its internal direct sales force. These Rep organizations are paid a commission
on sales after the Company receives payment from the customer. The Company
currently has seventeen such Rep organizations under contract with a total of
approximately forty people performing direct sales.
In foreign markets, the Company uses Distributors to market the SonoFlux product
line in certain European and Far Eastern countries. The Company currently has
six such Distributor companies under contract.
Initial sales of the MCS Accu Mist and MCS Infinity Systems were made during
Fiscal 1998 to companies for general top-down spraying applications. During
Fiscal 1999 sales were made into applications such as BGA fluxing, spraying
perfumes onto non-woven fabrics, spraying a mold release agent for a
manufacturer of filters, and spraying plastic spheres used in the manufacture of
touch-screens for flat panel displays. All MCS Systems consist of (i) a control
module which provides power to the ultrasonic nozzle, liquid delivery, and
electronic control and interface functions, (ii) an ultrasonic nozzle, and (iii)
a vertical jet assembly which is available in a wide variety of designs to
accommodate various spray widths. Each module is capable of spraying areas as
narrow as 0.25 inches or as wide as one foot. Areas greater than one foot in
width can be accommodated by grouping together as many individual modules as
necessary. The Company anticipates this product will satisfy the requirements of
a broad range of industrial applications.
In January 1998, the Company signed a distribution agreement with a European
company and its subsidiaries in eleven countries covering parts of Europe, Asia
and South America, to market and sell all Sono-Tek product lines except the
SonoFlux System. There were approximately $36,000 in sales made through this
company in Fiscal 1999.
Markets for the Company's Products
Nozzle Systems
The Company markets ultrasonic nozzles to customers requiring specialized
applications of liquids to their products such as applying chemicals on silicon
wafers in the production of integrated circuits, applying biochemical compounds
to medical devices, spray drying of ceramics, lubrication, moisturization, and
application of protective coatings to float glass.
The Company works with potential customers in industries which it believes can
benefit from ultrasonic nozzles to meet specialized application requirements.
The Company has been concentrating its efforts on establishing its presence in a
number of different markets. (See "Product Development"). Currently, the
Company's principal markets for its products are in the medical products,
semiconductor manufacturing and electronics fabrication industries.
SonoFlux System
The SonoFlux System is attractive to the electronics industry because it
significantly reduces the amount of flux consumed, the related emission of these
materials to the environment, and the cost of disposing of waste flux.
MCS Infinity and MCS Accu Mist Systems
The MCS Infinity System is targeted for markets where surface areas ranging from
several inches up to several feet need to be coated with a precise, low velocity
spray. The initial markets being targeted for this system include non-woven
fabrics, flat panel display manufacturing, and the spraying of mold release
agents.
The MCS Accu Mist System is targeted for markets where the surface area to be
coated is generally small, as low as a quarter of an inch. The initial market
being targeted for this system involves the application of liquid solder flux to
individual leads or connectors used in specialized electronic assembly areas.
The initial shipment of the Sono-Tek's MCS Infinity System occurred during
Fiscal 1998.
Pressure Nozzles
During Fiscal 1999, the Company began distributing pressure nozzles in the U.S.
market. These nozzles are manufactured by a leading European developer and
manufacturer. Sales of pressure nozzles, which require frequent replacement and
are relatively inexpensive, will help diversify the Company's product line and
complement Sono-Tek's sales of capital equipment.
Product Development
For the Fiscal years ended February 28, 1999, 1998, and 1997, the Company
expended approximately $488,000, $410,000, and $369,000, respectively on
research and development. In addition to continuous improvement programs on
nozzle systems and the SonoFlux 9500, these expenditures were incurred to
develop (i) a photoresist application system for the semiconductor industry,
(ii) the MCS Accu Mist and MCS Infinity Systems, (iii) and a range of liquid
delivery systems including a Gravity Feed System, a Syringe Pump, and multiple
models of Gear Pumps and Pressure Reservoirs.
Management believes that the Company's long-term growth and stability is linked
to the continuous development and release of products that provide total
solutions to customer needs across a wide spectrum of industries, and advance
the utility of the Company's core technology.
Nozzle Products
During the third quarter of Fiscal 1997, the Company introduced a new power
supply, the Broadband Ultrasonic Generator, or the "BUG". This power supply
provides a stable, frequency-locked electrical signal to the attached ultrasonic
nozzle and is capable of driving all of the Company's nozzles.
SonoFlux System
The SonoFlux 9500 is based on the industry proven design utilizing Sono-Tek's
patented spray assembly with a stationary ultrasonic nozzle and spray dispersion
mechanism. This well-established technology has been combined with a flexible
programmable logic controller to monitor and control all system functions. Any
system parameterThe SonoDry series of spray dryers is easily changed using an operator keypadof particular importance to product and LCD display. The
controller also provides visual and audible warnings for system errors and
alarms.
The unit can be programmed by a user friendly Windows program from a personal
computer and has the capacity to store up to 250 customized programs.
Several SonoFlux 9500 models are available including units for retrofit inside
wave soldering machines, stand alone units for assembly around existing finger
or pallet conveyors, stand alone units complete with integral chain/tab
conveyors and configurations capable of operating in an inert environment.
During Fiscal 1997, the SonoFlux System was tested and certified by an
independent testing laboratory. The system passed all of the safety and other
tests required to be "CE" compliant, which is a prerequisite to sell into the
European market.
MCS Accu Mist System
The continuing growth of surface mount technologyprocess developers in the electronic assembly
industry has created a needfollowing industries: pharmaceuticals (e.g. for an effective method of applying liquid solder
flux only to selected portions of a PCB assembly. This technique is referred to
as selective soldering. In addition to applying flux selectively to PCBdrug actives and intermediates, enzymes and low molecular weight proteins), foods (e.g. for nutriceuticals, herbal extracts and flavors) and specialty chemicals (e.g. for fragrances, cosmetics ingredients and nano-scale particles).
Manufacturing
We purchase circuit board assemblies there are other applications that can benefit from this technique.
These include ball-grid arrays, flip-chips, and a variety of tape-and-reel
configurations.
The Company recognized the need to target the emerging industry application for
selective soldering, and in Fiscal 1998, released the MCS Accu Mist System to
address this need. The MCS Accu Mist incorporates an ultrasonic nozzle designed
for low flow rates, together with a spray-shaping device to gently shape the
spray from the nozzle into a precisely defined pattern whose width can be
adjusted from 0.070 to 0.250 inches. Other attractive features of this system
are that it is a non-contact process, and because of its low-energy nature,
fragile components are completely shielded from any disturbance due to the
spray.
The nozzle and spray shaping device can be mounted on any type of robotic arm,
conveyor, or X-Y table. Patterns of virtually any shape can be produced. For
example, discrete dots, containing only a few-tenths of a microliter of flux or
continuous patterns, such as lines, can be deposited.
MCS Infinity System
The Sono-Tek MCS Infinity System is a precise, highly efficient spray coating
system designed for general top-down spraying applications. This new product
consists of (i) a control module which provides power to the ultrasonic nozzle,
liquid delivery, and electronic control and interface functions, (ii) an
ultrasonic nozzle, and (iii) a vertical jet assembly which is available in a
wide variety of designs to accommodate various spray widths. Each module is
capable of spraying areas as narrow as 0.25 inches or as wide as one foot. Areas
greater than one foot in width can be accommodated by grouping together as many
individual modules as necessary. This versatile, modular system delivers a soft,
uniform and highly controllable spray over any substrate width. These standard
modules are then custom configured for each user's application with custom
hardware and interface electronics.
Liquid Delivery Systems
During Fiscal 1998, Sono-Tek announced a family of liquid delivery systems.
These new products are intended to enable customers to purchase a complete,
fully integrated and tested spray solution from a single supplier. The liquid
delivery systems fall into four basic categories.
1. Syringe Pumps are the most precise of all liquid delivery methods, and
are ideal for very low flow rates, including single shots down to the
nanoliter (one-billionth of a liter) range.
2. Gear Type Metering Pumps are characterized by their capability to meter
the flow of liquid accurately over a wide range of flow rates without
pulsation. Two models are available to accommodate various flow ranges.
3. Pressurized Reservoir Systems provide a highly reliable, yet cost
effective approach for use in the most demanding applications,
especially where the liquid contains undissolved solids or abrasive
materials. Several models are available, ranging from 6 ounces to 3
gallon reservoir capacities, and can be used for either continuous flow
or single-shot dispensing.
4. Gravity Operated Systems are a low cost, versatile solution for use
primarily in laboratory applications or for feasibility testing.
Manufacturing
The Company currently employs twelve people for its manufacturing and quality
control activities. The Company's manufacturing operations are located in one
facility in the town of Milton, New York. As the Company expands its business by
diversifying its product line, the Company may need to expand into a larger
facility.
The Company's current manufacturing area consists of (i) a machine shop, (ii) a
nozzle assembly/test area, (iii) an electronics assembly area, (iv) a system
assembly area, and (v) a receiving and shipping area. The machine shop produces
machined parts for nozzle systems, components for development projects and
custom parts to satisfy unique customer requirements. During the fourth quarter
of Fiscal 1998, the Company purchased new production equipment which has reduced
production costs and improved quality. It is believed that all of these services
could be obtained at numerous local machine shops if required.
The nozzle assembly and test area assembles the machined components of the
nozzle with purchased crystals and electrodes, and after a visual inspection and
aging period, subjects the nozzle to test procedures to assess its performance
characteristics. In the electronics assembly area, assembled electronic circuit
boards, pumps, and power supplies are mounted in sheet metal enclosures and
wired to provide interconnections between the individual components and
sub-assemblies. The circuit boards and the components that populate them, as
well as the sheet metal components are purchased from outside suppliers andsuppliers. These materials are available from a wide range of suppliers throughout the world. The system assembly area combines the assembled modules from the electronics
assembly area, the assembled and tested ultrasonic nozzle, and additional sheet
metal and wiring to complete SonoFlux systems, MCS Infinity Systems, Liquid
Delivery Systems, and MCS Accu Mist Systems.
All raw materials used in the Company'sour products are readily available from many different domestic suppliers. The Company providesWe provide a limited warranty on all of itsour products covering parts and labor for a period of one year from the date of sale. The Company has begunWe also purchase certain systems and subsystems to purchase for resale, pressure nozzles fromsupplement our in house manufacturing. These items are integrated with our ultrasonic system technology to meet specific applications.
We have a European
manufacturer with whombusiness and quality control system that meets the Company intends to enter into a U.S. distributor
agreement. The Company began salesqualifications of the pressure nozzles manufactured by this
European manufacturer in Fiscal 1999.
The Company maintains comprehensive general liability insurance in an amount
which it believes is adequate for the nature of its operations.
The Company becameISO 9001/2000. We were ISO 9001 Registeredregistered in September 1998. Management believes1998 and we have been recertified annually since then.
Research and Development
We believe that achieving this standard demonstrates aour long-term commitmentgrowth and stability is linked to the businessdevelopment and willrelease of products that provide solutions to customer needs across a competitive edge in marketing.wide spectrum of industries, while advancing the utility of our core technology. We expended approximately $804,000 and $733,000 for Fiscal Years 2009 and 2008, respectively, on new engineering and product development. In addition, we added application engineers to the high degree
of quality implied by being ISO registered, the Company expects that such
registration will discipline the Company in running its businessour sales organizations, and will
stimulate continuous improvement.
these engineers work closely with customers and technical staff to develop new applications for our technology and equipment.
Patents The Company'sand Licenses
Our business is based in part on the technology covered by eightour United States patents held by the Company, two of which have expired with no
material effect on the Company. Patent applications, based on the United States
applications, covering fundamental aspects of the ultrasonic technology
developed by the Company have been issued in several foreign jurisdictions. Two
patents have expired and the rest will expire between now and December 2007. The
Company's earliest patent on its central-bolt nozzle design, used in current
product offerings, is due to expire in October 1999. The Company has been
granted a patent on the spray assembly portion of its SonoFlux System, which
will expire in June, 2010. There can be no assurance that the Company's existing
patents will, if challenged, be upheld, or that any such patents will afford the
necessary degree of patent protection with respect to the nozzle systems.
Furthermore, due to the high cost of maintaining patents in several foreign
jurisdictions, the Company decided not to maintain its patent protection in
certain countries in which the Company believes the protection is no longer
required. There can be no assurance that events will not occur which, as a
result of the Company's failure to maintain its patent protection, would have a
material adverse affect on the Company's sales in such foreign jurisdictions.
In addition, the Company may be unable, for financial or other reasons, to
enforce its rights under its patents. The CompanyWe also reliesrely on unpatented know-how in the design and production of itsour nozzle systems. Management is awareWe have executed non-disclosure and non-compete agreements with all of one
other company that hasour employees to safeguard our intellectual property. We execute reciprocal non-disclosure agreements with our key customers to safeguard any jointly developed intellectual property. We also have an exclusive license from Cornell University for a patented vacuum deposition system using our ultrasonic nozzles.
During the fiscal year ended February 28, 2009, we have made significant progress on building our intellectual property portfolio. We have a patent pending covering a new design for our entire line of nozzle that operatessystems. We have also applied for patents on the following projects:
| - | New air shaping technology (US - Chinese patent applications). |
| - | New ultrasonic food processing design and process. |
| - | New type of ultrasonic syringe pump for fuel cell liquids and other nano particle suspensions. |
In addition, the United States Patent and Trademark Office granted us a patent for a process for coating three dimensional substrates with thin organic films and products. This process uses our ultrasonic nozzles to produce micro-droplets in a manner similar to
the nozzle that is part of the Company's nozzle systems. This company has access
to financial resources significantly greater than the Company's financial
resources. There can be no assurance that this company will not develop
additional nozzle designs and thus expand the applications of its nozzles.
Moreover, technological advances have evolved in the nozzle industry and there
can be no assurance that these companies or other entities with far greater
resources and capabilities than the Company will not develop products
competitive with or superior to the Company's nozzle system. (See
"Competition").
Competition
Ultrasonic nozzles are sold primarily to customers that require specific
performance characteristicsvacuum chamber, which the Company believes are not attainable using
competing methodsthen produce a smooth, continuous, uniform conformal coating on various surfaces such as pressure nozzles orcardiovascular stents, diabetes monitors and other coating methods. At present,
management is aware of only one other company that manufactures nozzles that
operate in a manner similar to the Company's ultrasonic nozzle. Management
believes this company offers a very limited range of ultrasonicimplantable medical devices.
Marketing and Distribution
Our products has
not introduced any new products in several years,are marketed and is rarely encountered by
the Company's sales force. Management believes this company does not currently
present any significant competition to the Company's products.
In the electronic fabrication area, the Company's SonoFlux System competes with
spray fluxing systems from several other companies. Sono-Tek was a pioneer in
this industry and has become one of the industry's leading suppliers of spray
fluxing equipment. The Company has competed favorably against these companies in
the past based on the ease-of-use, performance, and reliability of its
equipment. Management believes that Sono-Tek also has a reputation in the
industry of providing excellent customer support and service.
Although management believes that it has competed against such companies
successfully in the past, there can be no assurance that the Company will be
able to successfully compete against these Companies in the future.
The Company believes that a large market exists for industrial spray nozzles in
the U.S. Sono-Tek competes with several well established companies in this
market. Sono-Tek believes it will be able to compete effectively against these
companies because it will offer a complete range of interchangeable products
that are competitively priced. The Company also believes that it will be able to
offer better customer support and service, be more flexible in offering custom
products to satisfy unique customer requirements, be able to provide a better
level of application engineering support, and provide complete "turn key"
solutions which many customers find desirable.
Employees
As of May 28, 1999, the Company had 28 full-time employees. The Company believes
that its relationship with its employees is good.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
The Company has focused primarily on the North American market. In March 1998,
the Company entered into an agreement with a European nozzle manufacturer to see
its line of pressure nozzles in the U.S. The Company also utilizesdistributed through independent distributors, sales representatives, or sales representative companies, throughout North America
(including partsOEMs and through an in-house direct sales force. Many of Canadaour sales leads are generated from our Internet web site and Mexico)from attendance at major industry trade shows.
In addition to sell SonoFlux equipmentthe above, we have engaged an external marketing firm to expand awareness of our products in our targeted industries.
Competition
We operate in competitive markets in the electronics and stent coating industries. We compete against global and regional manufacturers based on a
commission basis. price, quality, product features and follow up service. We maintain our competitive position by providing highly effective solutions that meet our customers’ requirements and needs. In other markets, there is limited competition based on the uniqueness of the ultrasonic technology in these applications.
Two customers accounted for 3.4% and 3.3%, of our sales for Fiscal Year ended February 28, 2009.
During Fiscal 1999, 1998Years 2009 and 1997, the2008, sales to foreign customers accounted for approximately $620,000, $435,000$3,785,000 and $679,000,
respectively,$2,783,000, or 17%, 12%59% and 22%,49% respectively, of total revenues.
(e) Backlog
The backlog for the Company's products was approximately $115,000, $104,000 and
$81,000 as
Employees
As of February 28, 1999, 19982009, we employed forty-one full-time employees and 1997, respectively. The Company
anticipatessix part-time employees. We believe that it will ship allrelations with our employees are generally good.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports, are also available free of its February 28, 1999 backlog during Fiscal
2000.
ITEM 2 Properties
The Company'scharge on our internet website at http://www.sono-tek.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission.
| ITEM 1A | RISK FACTORS – Not Required for Smaller Reporting Companies. |
| ITEM 1B | UNRESOLVED STAFF COMMENTS - None. |
| ITEM 2 | DESCRIPTION OF PROPERTIES |
Our offices, product development, manufacturing and assembly facilities are located in onean industrial park in Milton, New York. We presently lease a 13,000 square foot building consisting of 13,200and 6,000 square feet of additional office and storage space at 2012 Route 9W, Building 3, Milton, New York.in an adjacent building. Our current manufacturing areas consist of (i) a machine shop, (ii) a nozzle assembly/test area, (iii) an electronics assembly area, and (iv) a receiving and shipping area.
We presently maintain a sales and service office in Hong Kong and an equipment demonstration room in Shenzhen, China. The Company leased these
facilities pursuant to a lease which expired January 31, 1997. The Company had
an option atoffice and demonstration room are located on the endpremises of the lease term to renew the lease for an additional five
year period, but that option was not exercised. Asone of May 28, 1999 the Company
has not signed a renewal lease agreement. The Company is making payments on a
month-to-month basis equal to the amount that would have been required per month
if the option had been exercised.
As the Company increases its sales of new products, and plans the acquisition of
another manufacturing firm (see "General Development of Business" above), the
Company may need to expand into a larger facility or to rent or lease additional
space.
ITEM 3 Legal Proceedings
our product distributors.
| ITEM 3 | LEGAL PROCEEDINGS – None |
| ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - |
None
ITEM 4 Submission of Matters to a Vote of Security Holders
- ------
None
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder Matters
- ------
| ITEM 5 | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
(a)
The Company'sOur Common Stock trades in the over-the-counter market on the OTC Bulletin Board. The following table sets forth the range of high and low closing
bid quotations for
the Company'sour Common Stock for the periods
indicated as furnished
by the National Quotations Bureau, Incorporated.
FISCAL YEAR ENDED FEBRUARY 28, FEBRUARY 28,
1999 1998
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $ 7/8 $ 1/2 $ 3/8 $ 9/32
Second Quarter 41/64 7/16 7/16 17/64
Third Quarter 15/32 7/32 1 5/16
Fourth Quarter 3/8 1/8 13/16 1/2
indicated.
| | YEAR ENDED | | YEAR ENDED |
| | FEBRUARY 28, | | FEBRUARY 29, |
| | 2009 | | 2008 |
| | HIGH | LOW | | HIGH | LOW |
| First Quarter | $1.15 | $0.74 | | $1.30 | $1.08 |
| Second Quarter | 1.15 | 0.75 | | 1.15 | 0.90 |
| Third Quarter | 0.89 | 0.40 | | 1.09 | 0.79 |
| Fourth Quarter | 0.65 | 0.26 | | 0.97 | 0.66 |
The above quotations are believed to represent inter-dealer quotations without retail markups, markdowns or commissions and may not represent actual transactions. The Company believes that, although limited or sporadic quotations
exist, there is no established public trading market for the Company's Common
Stock.
(b) As of May 28, 1999 there were 295 record holders of the Company's
Common Stock.
(c) The Company has not paid any cash dividends on its Common Stock since its
inception and intends to retain earnings, if any, for use in its business or for
other corporate purposes.
ITEM 6 Selected Financial Data(1)
Year Ended 02/28/99 02/28/98 02/28/97 02/29/96 02/28/95
- ---------- -------- -------- -------- -------- --------
Net Sales $2,902,951 $3,570,379 $3,110,672 $2,747,891 $2,548,363
========== ========== ========== ========== ==========
Net (Loss)Income $ (810,702) (2) $ 252,047 $ 152,639 $ 155,078 $ (483,050)
=========== ========== ========== ========== ==========
Basic (Loss) Earnings
Per Share $(0.18) $0.06 $0.04 $0.04 $(0.12)
====== ===== ===== ===== ======
Diluted (Loss) Earnings
Per Share $(0.18) $0.05 $0.03 $0.04 $(0.12)
====== ===== ===== ===== ======
Cash Dividends None None None None None
Weighted Average
Shares - Basic 4,386,799 4,376,064 4,204,913 4,204,913 3,873,146
========= ========= ========= ========= =========
Weighted Average
Shares - Diluted(3) 4,386,799 4,773,667 4,507,441 4,477,646 3,911,323
========= ========= ========= ========= =========
Total Assets $1,335,649 $1,728,678 $1,251,868 $1,199,717 $1,211,161
========== ========== ========== ========== ==========
Long-Term Liabilities $ 46,376(4) $ 585,898 $ 576,722 $ 668,082 $ 775,816
========== ========== ========== ========== ==========
(1) Should be read in conjunction with| (b) | As of May 18, 2009, there were 239 shareholders of record of our Common Stock, according to our stock transfer agent. We estimate that we have between 1,000 and 1,400 beneficial shareholders of our common stock. The difference between the Financial Statementsshareholders of record and notes thereto.
(2) Upon conversion of $530,000 Subordinated Debt to equity, the Company expensed
$354,280 of which $302,857total shareholders is due to stock being held in street names at our transfer agent. |
| (c) | We have not paid any cash dividends on our Common Stock since inception. We intend to retain earnings, if any, for use in our business and for other corporate purposes. |
| (d) | Recent Sales of Unregistered Securities – On December 13, 2008, we issued an aggregate of 21,813 shares of our Common Stock in connection with the loweringrenewal of the conversionlease for our principal premises. We have valued the shares at $9,161, or $.42 per share, on the basis of our closing stock price on that date. The issuance of these shares was deemed exempt from $.70 to $.30 and $51,423 is due to the valueregistration under Securities Act of 1933 in reliance upon Section 4(2) of the new warrants granted.
(3) Stock optionsSecurities Act and/or Rule 506 of Regulation D promulgated thereunder. |
| (e) | Purchases of Equity Securities by the Issuer – None |
| ITEM 6 | SELECTED FINANCIAL DATA – Not Required for employees and outside consultants are antidilutive during
Fiscal 1999 as a result of the net loss and therefore are not considered in the
Diluted EPS calculation.
(4) The Long-Term Liabilities decreased in Fiscal 1999 due to the conversion of
the Subordinated Convertible Debt of $530,000 to equity.
Smaller Reporting Companies. |
ITEM 7 Management's Discussion
| ITEM 7 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
We discuss expectations regarding our future performance, such as our business outlook, in our annual and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Federal Securities Laws. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertaintiesquarterly reports, press releases, and other factors which may cause the actual
results, performance or achievements of the Companywritten and oral statements. These “forward-looking statements” are based on currently available competitive, financial and economic data and our operating plans. They are inherently uncertain, and investors must recognize that events could turn out to be materiallysignificantly different from any future results, performance or achievements expressed or implied by
such forward-looking statements. Suchour expectations. These factors include, among other things, the
following:considerations, general economic and business conditions; political, regulatory, competitive and technological developments affecting the Company's operations or the demand for its products; timely development and market acceptance of new products; adequacy of financing; capacity additions; andadditions, the ability to enforce patents.
The Company undertakespatents and the successful implementation of the business development program.
We undertake no obligation to update publicly any forward-looking statement.
Overview
Sono-Tek has developed a unique and proprietary series of ultrasonic atomizing nozzles, which are being used in an increasing variety of electronic, medical, industrial, and nanotechnology applications. These nozzles are electrically driven and create a fine, uniform, low velocity spray of atomized liquid particles, in contrast to common pressure nozzles. These characteristics create a series of commercial applications that benefit from the precise, uniform, thin coatings that can be achieved. When combined with significant reductions in liquid waste and less overspray than can be achieved with ordinary pressure nozzle systems, there is lower environmental impact and lower energy use.
We have a well established position in the electronics industry with our SonoFlux spray fluxing equipment. It saves customers from 40% to 80% of the liquid flux required to solder printed circuit boards over more labor intensive methods, such as foam fluxing. Less flux equates to less material cost, fewer chemicals in the workplace, and less clean-up. Also, the SonoFlux equipment reduces the number of soldering defects, which reduces the amount of rework.
In recent years we have diversified our product lines and have successfully entered into the medical device market. To accomplish this goal, we have focused engineering resources on the medical device market, with an emphasis on providing coating solutions for the newest generations of drug coated stents. We have sold a significant number of specialized ultrasonic nozzles and MediCoat stent coating systems to large medical device customers. Sono-Tek’s stent coating systems are superior compared to pressure nozzles in their ability to uniformly coat the very small arterial stents without creating webs or gaps in the coatings. We sell a bench-top, fully outfitted stent coating system to a wide range of customers that are manufacturing stents and/or applying coatings to be used in developmental trials. We have also introduced and sold a production oriented stent coater known as Medicoat II in the past year.
Another change that has stimulated an increase in business has been the development of the WideTrack coating system, a broad-based platform for applying a variety of coatings to moving webs of glass, textiles, plastic, metal, food products and packaging materials. The WideTrack is a long-term product and market development effort. Thus far, we have made successful inroads with WideTrack systems into the glass, medical textile (bandages), and textiles industries. This will require a continuation of market and technology development in these areas in the years ahead. Some of these WideTrack applications involve nano-technology based liquids. We believe there is an excellent fit between the thin, precise films required in nano-technology coating applications and our ultrasonic nozzle systems.
We have also invested time and money in developing equipment solutions for applications in the solar cell and fuel cell clean energy markets. We have seen significant growth in these markets and are serving them with our Exactacoat, Flexicoat and Hypersonic products.
In the electronics, medical device and WideTrack coating markets, it has been incumbent upon us to focus our attention and resources on the development of a much greater international presence. We believe we have accomplished this and plan to continue our marketing efforts. Our international sales have risen from approximately 20% of total revenues in Fiscal Year 2003 to approximately 59% today.
Past history shows the cyclical nature of the electronics business. This cycle, coupled with the increasing trend toward moving electronics production offshore, created a need to diversify. As expected, our US based electronics business has had a significant decline as a result of the trend toward production moving offshore, coupled with a slower economy and the reduced competitiveness of our US based automotive customers. We have been able to offset this reduction in US electronics sales with an increase in our international electronics and medical device sales, as well as with new clean energy applications involving coatings on fuel cells and solar cells.
The creation of technological innovations and the expansion into new geographical markets requires the investment of both time and capital. Although there is no guarantee of success, we expect that over time, these newer markets will be the basis for Sono-Tek’s continued growth and will contribute to future profitability.
Liquidity and Capital Resources and Liquidity
On February 28, 1999 the Company had
Working Capital - Our working capital decreased $892,000 from a working capital of $272,916 and
stockholders' equity of $398,682. This compares$3,790,000 at February 29, 2008 to working capital of $691,335
and stockholders' equity of $278,557 on$2,898,000 at February 28, 1998.2009. The net decrease in working capital of $418,419 is primarily due to athe use of cash to fund operations during the current year. Our current ratio is 3.5 to 1 at February 28, 2009, as compared to 5.2 to 1 at February 29, 2008.
Stockholders’ Equity - Stockholders' equity decreased $1,366,000 from $4,898,000 at February 29, 2008 to $3,532,000 at February 28, 2009. The decrease in cash and cash equivalents
and accounts receivable, partiallystockholders’ equity is the result of the current year’s net loss of $1,513,000, offset by an increasestock based compensation of $115,000.
Operating Activities – In 2009, we used $735,000 of cash in inventory.our operating activities. In 2008 our operations provided $491,000 of cash. The net
increasecurrent year’s use of $120,125 in the Company's stockholders' equitycash is a result of converting $530,000our net loss for the year and an increase in accounts receivable and inventories.
Investing Activities - In 2009 and 2008, we used $367,000 and $385,000, respectively, for the purchase or manufacture of Convertible Secured Subordinated Promissory Notes to
equity,equipment, furnishings and leasehold improvements. In addition, in 2009 and 2008 we used $29,000 and $8,000, respectively, for patent application costs.
Financing Activities – In 2009, our net cash provided by financing activities was $264,000, resulting from the proceeds of the 1999 operating loss.
During Fiscal 1999 and 1998 the Company reduced its obligations on a bank loan
by $46,253 and $94,173, respectively. The loan was paid off in full during
Fiscal 1999. During Fiscal 1998 the Company obtained a $150,000 revolvingour line of credit which was increased in Fiscal 1999 to $300,000. Theof $250,000, proceeds from a note payable for equipment purchases of $18,000, proceeds from the exercise of stock options of $22,000 offset by repayments of notes payable of $26,000.
We currently have a revolving credit line of $500,000 and a $150,000 equipment purchase facility, both of these are with a bank. At February 28, 2009, we had $250,000 outstanding borrowings under the line of credit. The revolving credit line is collateralized by accounts receivable, inventory and all other personal propertyof the assets of the Company and guaranteed by the CEOrequires a 30 day annual payoff.
We had outstanding borrowings of the Company. As of May 28, 1999,
the Company has used $250,948 from the line of credit.
Capital expenditures decreased during Fiscal 1999 to $44,000 from $95,000 during
Fiscal 1998. The decrease was mainly due to the fact that the Company purchased
a large piece of production equipment during Fiscal 1998. During Fiscal 1998 the
Company entered into a collateralized $57,000 term loan agreement to purchase
new production equipment. During Fiscal 1999, $9,204 was paid on$43,000 under the equipment loan.facility at February 28, 2009. The Company's Convertible Secured Subordinated Promissory Notes that were
scheduledborrowings have repayment terms which vary from 36 – 60 months and bear interest at rates from 5.2% to mature on August 15, 2000 were converted under6.6%.
Results of Operations
For the Fourth Note
Amendment Agreement datedyear ended February 26, 1999. This agreement provided28, 2009, our sales increased by $710,000 to $6,409,000 as compared to $5,699,000 for the reduction inyear ended February 29, 2008. For the conversion price from $.65 per share to $.30 per share. The
Noteholders received stock for the converted Notes and for the unpaid interest
as of February 26, 1999. At the same time, the exercise price of the warrants
was reduced from $1.50 per share to $.65 per share, and the expiration date of
the warrants was extended toyear ended February 28, 2002.
Due to the losses incurred during Fiscal 1999, the Company was required to
borrow on a short term basis from two officers of the Company. As of May 28,
1999, the balance owed the officers was $165,000. These losses also limited the
Company's ability to pay trade creditors in a timely manner and make interest
payments on the Convertible Secured Subordinated Promissory Notes.
As necessary, the Company plans on funding the operations by using the available
borrowings under the current line of credit agreement and obtaining loans from
shareholders (as required in the past).
Although there can be no assurances, management believes that the introduction
of the MCS Accu Mist, MCS Infinity, and Liquid Delivery Systems, the additional
sales channels for ultrasonic nozzles, and the sustained sales of the SonoFlux
9500 will lead to broader markets and increases in sales and profits, which will
in turn allow the Company to meet its current obligations as they become due.
Results of Operations - 1999 Compared to 1998
The Company's sales decreased $667,428 or 19% from $3,570,379 for Fiscal 1998 to
$2,902,951 for Fiscal 1999. The decrease in sales was a result of a decrease in
unit sales of the Company's SonoFlux Systems and ultrasonic nozzles, partly
offset by2009, we experienced an increase in new product sales. Salessales of fluxingSonoFlux EZ units, SelectaFlux units, Widetrack units, spray drying systems, decreased
by $632,995 or 24% from $2,692,923 in Fiscal 1998 to $2,059,928 in Fiscal 1999.
The Company attributesSonoFlux Servo units and our programmable XYZ precision coating units. For the year ended February 28, 2009, we experienced a decrease in sales of this productnozzles, ultrasonic generators, fluxer units, stent coaters and EVS Systems when compared to the excess of
supply over demandprior year. Our sales to customers located in the electronics assembly industryAsian countries increased by $778,000 or 71% for the last several
months. Sales of the Company's nozzle systemsyear ended February 28, 2009. Our sales to US based customers decreased $233,113 or 31% from
$760,197 in Fiscal 1998 to $527,084 in Fiscal 1999. This decrease was a result
of lower sales and a decrease in nozzle repairs. During Fiscal 1999, new
products accounted for $309,594 in salesby $292,000 or 10% of total sales.for the year ended February 28, 2009.
Our gross profit increased $186,000, to $2,850,000 for the year ended February 28, 2009 from $2,664,000 for the year ended February 29, 2008. Our gross margin percentage was 44% for the year ended February 28, 2009 compared to 47% for the year ended February 29, 2008. During the year ended February 28, 2009, we increased our inventory reserve on our electronics product lines by $99,000 due to the slowdown in this market. The Company's cost of goods sold decreased $123,600 or 7% from $1,740,217 in
Fiscal 1998 to $1,616,617 in Fiscal 1999. The decrease in cost of goods sold is
a result of the decrease in sales of the Company's products, and the subsequent
decrease in material costs partially offset by an increase in cost of goods sold
related to new products. Thethis reserve had a negative impact on our gross profit margin decreased $543,828 or 30%and it reduced our margin from $1,830,162 in Fiscal 199846% to $1,286,334 in Fiscal 1999. The gross profit margin
was 44% and 51% of sales, for Fiscal 1999 and 1998, respectively. The decrease is
attributable to the increases in personnel and benefit costs, including
temporary employees, additional depreciation on production equipment purchased
at the end of Fiscal 1998, and also to supplies needed to operate the new
production equipment.
year ended February 28, 2009.
Research and product development costs increased $78,066 or 19% from $409,722 in
Fiscal 1998$71,000 to $487,788 in Fiscal 1999.$804,000 for the year ended February 28, 2009 as compared to $733,000 for the year ended February 29, 2008. The increase is a result of additional
staffdue to work on new product development.
Generalincreased engineering personnel, engineering materials, depreciation expense and administrativeoffice rent.
Marketing and selling costs increased $102,563 or 26%$745,000 to $1,841,000 for the year ended February 28, 2009 from $395,954$1,096,000, for the year ended February 29, 2008. During the year ended February 28, 2009, we experienced an increase in Fiscal 1998 to $498,517 in Fiscal 1999. The increase was a result of consultingmarketing salaries, international commissions, trade show expenses related to the planned acquisition and raising the capital necessary to
consummate the transaction, a settlement to a former employee, and additional
employee and benefit costs. In Fiscal 1999, the Company also recorded a non-cash
charge of $354,280 associated with inducing Noteholders to convert their
Convertible Secured Subordinated Promissory Notes.
Sales and marketing expense decreased $16,704 or 2% from $723,919 in Fiscal 1998
to $707,215 in Fiscal 1999. A decrease in commissions of $55,000, due to lower
sales, was offset by approximately $72,000 in startup costs associated with
expenses incurred in the distribution of pressure nozzles.
The Company's operating profit decreased $1,062,033 or 353% from $300,567 in
Fiscal 1998 to a loss of $761,466 in Fiscal 1999. The decrease in operating
profit is mainly a result of decreased sales of the Company's products, a
non-cash charge associated with the conversion of the Convertible Secured
Subordinated Promissory Notes of $354,280 and the additional expense of $72,000
related to start up activities associated with the sales of pressure nozzles.
Interest and other income increased $10,844 from $368 in Fiscal 1998 to $11,212
in Fiscal 1999. The Company enrolled in a reinvestment program with its bank,
providing interest income on unused cash for a total of $3,000. The Company also
recovered unclaimed customer credits of $8,000. Interest expense increased
$11,560 or 24% from $48,888 in Fiscal 1998 to $60,448 in Fiscal 1999 due to
interest incurred on a collateralized equipment term loan entered into in
February 1998, and additional balances on the line of credit.
Inflation and changing prices did not have a material effect on the Company's
operations in Fiscal 1998 or 1999.
Results of Operations - 1998 Compared to 1997
The Company's sales increased $459,707 or 15% from $3,110,672 for Fiscal 1997 to
$3,570,379 for Fiscal 1998. depreciation.
The increase in these expenditures is due to the reorganization of our sales resulted fromforce into two separate Strategic Business Units. We added sales personnel, increased the number of trade shows we participated in and engaged an outside marketing firm to help increase in
unit salesthe awareness of our products. These increases were part of the Company's SonoFlux Systems partially offset by a decreasebusiness development program which was initiated in salesthe latter part of the Company's nozzle systems. Sales of the SonoFlux System increased
$630,610 or 31% from $2,062,313 in Fiscal 1997 to $2,692,923 in Fiscal 1998. The
Company attributes the increase in sales of this product to the success of its
newest generation of SonoFlux Systems the "9500". Sales of the Company's nozzle
systems decreased $288,160 or 27% from $1,048,357 in Fiscal 1997 to $760,197 in
Fiscal 1998 due to a decrease in nozzle repairs.
The Company's cost of goods sold increased $221,244 or 15% from $1,518,971 in
Fiscal 1997 to $1,740,217 in Fiscal 1998. The increase in cost of goods sold is
a result of an increase in sales of the Company's products, a change in product
mix and an increase in the cost of certain purchased components of the SonoFlux
System. The gross profit margin remained constant between Fiscal 1997 and 1998.
Research and product development costs increased $40,590 or 11% from $369,133 in
Fiscal 1997 to $409,722 in Fiscal 1998. The increase is a result of additional
staff to work on new product development.
year ended February 29, 2008.
General and administrative expense increased $18,920 or 5%$185,000 to $1,123,000 for the year ended February 28, 2009 from $377,037 in
Fiscal 1997 to $395,954 in Fiscal 1998 as a result of additional employee costs
and professional fees.
Sales and marketing expense increased $93,625 or $15% from $630,295 in Fiscal
1997 to $723,919 in Fiscal 1998.$938,000, for the year ended February 29, 2008. The increase wasis due to commissions generatedan increase in salary expense resulting from higher sales.an increase in personnel and stock based compensation expense.
Interest income decreased $68,000 to $12,000 for the year ended February 28, 2009 as compared to $80,000 for the year ended February 29, 2008. The Company'sdecrease in interest income is due to the drop in interest rates that took place during the year ended February 28, 2009 and our decision to not invest our cash because of the economic volatility that was taking place in the credit markets during the year and maintaining a lower cash balance. Our present investment policy is to invest excess cash in short term commercial paper with an S & P rating of at least A1+.
For the year ended February 28, 2009, we incurred an operating profit increased $85,331 or 40% from $215,236 in Fiscal
1997loss of ($918,000) compared to $300,567 in Fiscal 1998.an operating loss of ($102,000) for the year ended February 29, 2008, an increase of $816,000. The increase in our operating profitloss is a result of increased salesthe effects of our business development plan. Our business development plan began in the third quarter of the Company'syear ended February 29, 2008 and its goal was to focus on areas where we had demonstrated new capabilities and on areas where there appeared to be more opportunity that we could serve with additional technical and sales personnel. The program’s goal was to grow both sales and net income.
The effects of the business development plan can be seen in the growth of both our sales revenue and operating expenses. For the year ended February 28, 2009, our sales revenues increased by $710,000 or 12% when compared to the year ended February 29, 2008. The increase in sales revenue is due to our introduction of new products while keeping increasesinto additional markets. The business development plan increased our sales and marketing expenses by $745,000 or 68% for the year ended February 28, 2009 when compared to the year ended February 29, 2008. The increase in overhead
expenses was mainly in marketing salaries, international commissions, trade show expenses and depreciation.
We have seen positive results from our business development plan in the past fiscal year, such as the 12% increase in revenues. This is particularly noteworthy in that one of our most important business segments, electronics, decreased due to the global recession and reduced consumer demand. Another positive is the increased staffing and international coverage, coupled with attendance at many more trade shows increased our international sales by over $1,002,000 or 36% when compared to the prior year. For the year ended February 28, 2009, sales to foreign customers accounted for approximately 59% of total sales as compared to 49% for the prior year. This increase has offset the deep US decline experienced this past year.
For the year ended February 28, 2009, we incurred a net loss of ($1,513,028) compared to net income of $11,205 for the year ended February 29, 2008, a decrease of $1,524,233. Income tax expense increased $637,000 to $612,000 for the year ended February 28, 2009 as compared to a minimum.
Interest and other income decreased $3,823 or 91%tax benefit of $25,000 for the year ended February 29, 2008. During the year ended February 28, 2009, we increased the valuation reserve of our deferred tax asset resulting in the recognition of current period tax expense of $612,000. The increase in the valuation reserve is a non-cash expense item. The increase in the valuation reserve is based on our estimate of our ability to utilize the current net operating loss carryforwards. In the future, we may adjust the valuation reserve based upon our return to profitable operations.
Other Income
As previously reported on Form 8-K, filed on July 5, 2005, the Company determined that a former employee had misappropriated approximately $250,000 of the Company’s monies, primarily through unauthorized check writing from $4,192 in Fiscal 1997 to
$369 in Fiscal 1998. Interest expense decreased $17,901 or 27% from $66,789 in
Fiscal 1997 to $48,888 in Fiscal 1998 due to monthly installment payments
reducing the outstanding principal balances outstanding during Fiscal 1998 New
equipment that was purchased duringCompany’s accounts over a period of three calendar years. The Company had previously expensed substantially all of the 4th quarter was financed and had a
negligible effect on Fiscal 1998 interest expense.
Inflation and changing prices did not have a material effect onmisappropriated funds over the Company's
operations in Fiscal 1998 or 1997.
Year 2000 Compliance
years.
The Company has performedrecovered approximately 75% of these funds to date. The Company has a thorough assessmentpromissory note that is being repaid by the former employee. The note has been fully reserved for as the collectability is questionable. As previously discussed, the Company can offer no assurances that it will be successful in its attempt to determine its readiness forcollect the Year 2000 (Y2K). This assessment identified areas that needed to be
modified,balance of the remaining restitution.
Critical Accounting Policies
The discussion and resultedanalysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company upgrading both hardwareto make estimates and software used
internally.
judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. The Company believes that its critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies, please see the notes to the Company’s consolidated financial statements.
Accounting for Income Taxes
As part of its assessment,the process of preparing the consolidated financial statements, the Company evaluated its phone, security and
manufacturing machinery and determined that all of these systems are Y2K
compliant.is required to estimate income taxes. Management judgment is required in determining the provision for the deferred tax asset. The Company has also evaluatedincreased the softwarevaluation reserve for the deferred tax asset due to the operating loss for the current year which reduces the possibility for the utilization of the net operating loss carryforwards. In the event that actual results differ from these estimates, the Company may need to again adjust such valuation reserve.
Stock-Based Compensation
The computation of the expense associated with stock-based compensation requires the use of a valuation model. SFAS 123(R) is a complex accounting standard, the application of which requires significant judgment and hardwarethe use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. We currently use a Black-Scholes option pricing model to calculate the fair value of stock options. We primarily use historical data to determine the assumptions to be used in its
productsthe Black-Scholes model and determinedhave no reason to believe that they are Y2K compliant. The Company has surveyed
its major suppliers for their Y2K readiness. Because all major components and
materials used by the Companyfuture data is likely to differ materially from historical data. However, changes in the manufacture of its products are readily
available from several suppliers, management considers this areaassumptions to be of
minimal risk.
Atreflect future stock price volatility and future stock award exercise experience could result in a change in the present time,assumptions used to value awards in the future and may result in a contingency plan has not been developed. The Company will
continue to monitor the need for a contingency plan. The Company has incurred
internal staff costs, as well as the expense to purchase additional hardware and
software of approximately $25,000. The additional costs relatedmaterial change to the Y2K
compliancefair value calculation of stock-based awards. SFAS 123(R) requires the recognition of the fair value of stock compensation in net income. Although every effort is approximately $10,000made to ensure the accuracy of our estimates and isassumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.
Impact of New Accounting Pronouncements
In April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets”. FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”, and requires enhanced disclosures. FSP 142-3 must be applied prospectively to all intangible assets acquired as of and subsequent to fiscal years beginning after December 15, 2008. Management does not anticipatedexpect the adoption of FSP No. 142-3 to have a material effectimpact on our consolidated financial statements.
All other accounting pronouncements issued but not yet effective have been deemed to be not applicable or the adoption of such accounting pronouncement is not expected to have a material impact on the Company's business, resultsfinancials.
| ITEM 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK – Not Required for Smaller Reporting Companies. |
| ITEM 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Our financial statements are presented on pages 27 to 43 of operationsthis Report.
| ITEM 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE – None. |
| ITEM 9A | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”) as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of such date, at a reasonable level of assurance, in ensuring that the information required to be disclosed by our company in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial condition.
Despitereporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Chairman & CEO (principal executive officer) and Chief Financial Officer (principal accounting officer), we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management has concluded that our internal control over financial reporting was effective as of February 28, 2009. Because of its effortsinherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to survey its customers, suppliers and service providers,
the Company cannot be certain asfuture periods are subject to the actual Y2K readinessrisks that controls may become inadequate because of these third
parties or the impact that any non-compliance on their part may have on the
Company's business, results of operations or financial condition. This is a Year
2000 readiness disclosure entitled to protection as provided in the Year 2000
Information and Readiness Disclosure Act.
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk related to changes in interest ratesconditions, or that the degree of compliance with the policies or procedures may deteriorate. This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting pursuant to temporary rules of the Securities and to a lesser extent foreign currency exchange rates. The interest rate on the
Company's debt is based on fluctuations in the prime rates. If the prime rate
increased by 1 percentage point from the levels at February 28, 1999, the effect
on the Company's results of operations would approximate $3,000.
ITEM 8 Financial Statements and Supplementary Data
Financial information required by Item 8 is included elsewhere in this report.
(See Part IV, Item 14.)
ITEM 9 Exchange Commission.
Changes in and Disagreements with Accountants on Accounting andInternal Control Over Financial Disclosure
Not applicable
Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 9B | OTHER INFORMATION - None. |
PART III
ITEM 10 Directors and Executive Officers of the Registrant
| ITEM 10 | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
(a) Identification of Directors
| Name | Age | Position with the Company
---- --- -------------------------
John J. Antretter 36 Director
Harvey |
| | | |
| Christopher L. Berger 60 PresidentCoccio | 68 | Chief Executive Officer, Chairman and a Director
Christopher L. Coccio 57 |
| Edward J. Handler, Esq. | 72 | Director* |
| Donald F. Mowbray | 71 | Director* |
| Joseph Riemer | 60 | President and Director
James L. Kehoe 52 Chairman, Chief Executive Officer and a Director
|
| Samuel Schwartz 79 | 89 | Chairman Emeritus and Director
J. Duncan Urquhart 45 Director
|
| Philip A. Strasburg, CPA | 70 | Director* |
Mr. Antretter has been a Director
* Member of the Company since February 1999. Dr. Berger
has been a Director of the Company since June 1975. Mr. Coccio has been a
Director of the Company since June 1998. Mr. Kehoe has been a Director since
June 1991. Mr. Schwartz has been a Director since August 1987. Mr. Urquhart has
been a Director since September 1988.
Audit Committee and Compensation Committee.
The Board of Directors is divided into two classes, which were established by
the Company's shareholders at their annual meeting held on October 19, 1989.classes. The directors in each class serve for a term of two years, and until their
respective successors are duly elected and qualified.years. The terms of the classes are staggered so that only one class of directors is elected at each annual meeting of the Company. The terms of Messrs. Kehoe, SchwartzDr.’s Coccio and Urquhart will
beRiemer and Mr. Strasburg run until the annual meeting to be held in 2000, and the term2009. The terms of Dr. BergerMowbray and Messrs. AntretterHandler and Coccio will beSchwartz run until the annual meeting to be held in 1999,2010, and in each case until their respective successors are duly elected and qualified.
(b) Identification
Audit Committee
The Company’s Board of Executive Officers
Directors has an Audit Committee composed of Edward J. Handler, Donald F. Mowbray and Philip A. Strasburg, CPA, as Chairman of the Audit Committee. The “audit committee financial expert” designated by the Board is Philip A. Strasburg. The Company considers Mr. Strasburg to be an “independent director”.
The Audit Committee is responsible for (i) selecting an independent public accountant for ratification by the stockholders, (ii) reviewing material accounting items affecting the consolidated financial statements of the Company, and (iii) reporting its findings to the Board of Directors.
Nominating Committee
There have been no changes to the procedures by which shareholders may recommend nominees to the Board of Directors.
| Identification of Executive Officers |
| Name | Age | Position with the Company
---- --- -------------------------
Harvey |
| | | |
| Stephen J. Bagley, CPA | 46 | Chief Financial Officer |
| Christopher L. Berger 60 PresidentCoccio | 68 | Chief Executive Officer, Chairman and a Director
James L. Kehoe 52 Chairman, Chief Executive Officer |
| Vincent F. DeMaio | 71 | Vice President - Director of Programs |
| R. Stephen Harshbarger | 41 | Vice President – Director of Advanced Energy SBU |
| Joseph Riemer | 60 | President and a Director
Kathleen N. Martin 46 Chief Financial Officer and Treasurer
William J. McCormick 42 Vice President
|
Dr. Berger was Vice Chairman of the Board from March 1981 to September 1985. He
was President from November 1981 to September 1984 and again became President in
September 1985. From September 1986 to September 1988 he also served as
Treasurer. Mr. Kehoe has served as Chairman since May 1999 and Chief Executive
Officer since August 1993. Ms. Martin has served as Chief Financial Officer and
Treasurer since November 1997. Mr. McCormick has served as Vice President since
May 1999.
The foregoing officers are elected for terms of one year or until their successors are duly elected and qualified or until terminated by the action of the Board of Directors. There are no arrangements or understandings between any executive officer and any other persons(s) pursuant to which he was or is to be selected as an officer.
(c) Identification
Business Experience
STEPHEN J. BAGLEY, CPA was appointed Chief Financial Officer in June 2005. From 1987 to 1991 he worked in public accounting in various capacities. From 1992 to 2005, he held various leadership positions as Controller, Chief Financial Officer and Vice President of Certain Significant Employees
Not applicable.
(d) Family Relationships
None.
(e) Business Experience
JOHN J. ANTRETTER has beenFinance for companies with up to $45,000,000 in revenues. Mr. Bagley earned a consultant to the Company since November 1998,Bachelor of Science degree from The State University of NY – College at Oneonta and a Director since February 1999. From January 1996 through September 1998, Mr.
Antretter was Chairman and CEO of Technology Manufacturing & Design Inc. (TMD),
an Austin, TX based contract electronics manufacturing firm. Prior to joining
TMD, he was the CEO and a Director of Plasmaco, Inc., a developer of flat panel
display systems from 1994 to 1996. In January 1996, Mr. Antretter negotiated the
sale of Plasmaco to Panasonic. Mr. Antretter has additional experience in the
venture capital and investment banking fields, and was a commercial lending
officer for the Bank of New York. Mr. Antretter received his MBA from Fordham
UniversityMarist College. He was licensed as a CPA in 1989.
1990.
DR. HARVEYCHRISTOPHER L. BERGERCOCCIO was appointed President and Chief Executive Officer of Sono-Tek on April 30, 2001, has been a Director of the Company since June 1975. He1998, and was President of the Company from November 1981 to September 1984, and has again
been President of the Company since September 1985. From September 1986 to
September 1988 he also served as Treasurer. He was Viceappointed Chairman of the Company
from March 1981 to September 1985. Dr. Berger holds a Ph.D. in physics from
Rensselaer Polytechnic Institute and is a member of the Marist College Advisory
Board.
CHRISTOPHER L. COCCIO has been a Director of the Company since June 1998.August 2007. From 1964 to 1996, he held various engineering, sales, marketing and management positions at General Electric Company.Company, with P&L responsibilities for up to $100 million in sales and 500 people throughout the United States. His business experience includes both domestic and international markets and customers. He founded a management consulting business in 1996, and worked with the New York State Assembly’s Legislative Commission on Science and Technology from 1996 to 1998. From 1998 to 2001, he worked with Accumetrics Associates, Inc., a manufacturer of digital wireless telemetry systems, as Vice President of Business Development and member of the Board of Advisors. Dr. Coccio received a B.S.B.S.M.E. from Stevens Institute of Technology, an M.S.M.S.M.E. from the University of Colorado, and a Ph.D. from Rensselaer Polytechnic Institute.Institute in Chemical Engineering.
VINCENT F. DEMAIO has been a Vice President of the Company since March 2003. He joined the Company in August 1991 as Production Manager and has served as Field Service Manager and Director of Operations. Prior to joining the Company, Mr. DeMaio was an independent real estate developer from 1987 to 1991. From 1956 to 1987, Mr. DeMaio was employed by IBM Corporation in various manufacturing positions, the last being Manufacturing Supervisor over 600 employees.
EDWARD J. HANDLER, III, Esq., is a consultantretired partner from Kenyon & Kenyon, a law firm that provided intellectual property advice to the New York State Legislative Commission on Science and
Technology.
JAMES L. KEHOE has been Chairman of the Board since May 1999,Company. Mr. Handler became a Director of the Company since June, 1991on October 1, 2004, coincident with his retirement from his law firm. Mr. Handler has 40 years experience in all aspects of intellectual property, including patents, trade secrets, trademarks and Chief Executive Officercopyrights, including litigation and other adversarial proceedings. Mr. Handler is President and COO of Storm Bio, Inc., a private Delaware corporation active in the area of therapeutics for acute inflammatory conditions. Mr. Handler is past President of the Company since August
1993. Prior to that, he was PresidentWest Point Society of New York and Chief Executive Officer of Plasmaco,
Inc., which he founded in 1987 and remained as President and CEO until 1993.
Plasmaco is involved in the development and manufacture of AC plasma flat panel
displays. Prior to founding Plasmaco, Mr. Kehoe was employed for twenty two
years by International Business Machines Corporation where he held a variety of
engineering and management positions.
KATHLEEN N. MARTIN has been the Chief Financial Officer and Treasurerpast Trustee of the Company since November 1997. From 1992 to 1997, Ms. Martin was employed by
Plasmaco, Inc. where she served as Accounting Analyst and Controller. Ms. Martin
hasAssociation of Graduates, U.S. Military Academy. He holds a B.A. in MathematicsJ.D. degree from Hartwick Collegethe University of Virginia Law School and a B.S. in AccountingEngineering Science from the State University of New York at New Paltz.
WILLIAM J. MC CORMICKUnited States Military Academy.
R. STEPHEN HARSHBARGER has been Vice President of the Company since May 1999.June 2000. He joined Sono-Tekthe Company in 1994October 1993 as a Sales Engineer and served in various sales engineer. Since April 1995 hemanagement capacities from 1997 to 2000. Prior to joining the Company, Mr. Harshbarger was the Sales and Marketing Coordinator at Plasmaco, Inc., a developer and manufacturer of state-of-the-art flat panel displays. He is a graduate of Bentley College, with a major in Finance and a minor in Marketing.
DR. DONALD F. MOWBRAY has been a Director since August 2003. He has been an independent consultant since August 1997. From September 1992 to August 1997 he was the
Engineering Manager of the Company.General Electric Company’s Corporate Research and Development Mechanical Engineering Laboratory. From 1962 to 1992 he worked for the General Electric Company in a variety of engineering and managerial positions. Dr. Mowbray received a B.S. in Aeronautical Engineering from the University of Minnesota in 1960, a Master of Science in Engineering Mechanics from the University of Minnesota in 1962 and a Ph.D. from Rensselaer Polytechnic Institute in Engineering Mechanics in 1968.
DR. JOSEPH RIEMER joined the Company in January 2007 as Vice President of Engineering, became a Director in August 2007 and was appointed President in September 2007. Dr. Riemer holds a Ph.D. in Food Science and Technology from the Massachusetts Institute of Technology (MIT), focusing on food technology, food chemistry, biochemical analysis, and food microbiology. His experience includes seven years with Pfizer in its Adams Confectionary Division, where he was Director, Global Operations Development. Dr. Riemer has also held leading positions with several food, food ingredients, and personal care products companies. He has served in the capacities of research and development, operations, and general management. Prior to joining Sono-Tek, Mr. McCormick
worked for 13 years at IBMthe Company, he was a management consultant serving clients in the food, biotech and Highland Manufacturing Company where he held
various technical, sales, and management positions. He has over thirteen years
of experience managing various business functions such as engineering,
manufacturing, operations, sales, and finance. He has an Electronics Engineering
Technology Degree from Ohio Institute of Technology, and is pursuing his MBA
from SUNY at New Paltz.
pharmaceutical industries
SAMUEL SCHWARTZ has been a Director of the Company since August 1987, and was Chairman of the Board from February 1993 to May 1999.1999 and August 2001 to August 2007. From 1959 to 1992, he was the Chairman and CEOChief Executive Officer of Krystinel Corporation, a manufacturer of ceramic magnetic components used in electronic circuitry. He received a B.CH.E.B.Ch.E. from Rensselaer Polytechnic Institute in 1941 and a M.CH.E.an M.Ch.E. from New York University in 1948.
J. DUNCAN URQUHART
PHILIP STRASBURG, CPA, has been a Director since August 2004. He is a retired partner from the firm of Anchin Block and Anchin, LLP and has 40 years of experience in auditing. He served as Audit Committee Chairman from August 2004 until February 2005, when he was elected Treasurer. Mr. Strasburg was reappointed Audit Committee chairman in May 2005 concurrent with his resignation as Treasurer. He was the lead partner on the Sono-Tek account from Fiscal 1994 to Fiscal 1996. Mr. Strasburg is a certified public accountant in New York State. He has a Master of Science in economics from The London School of Economics and Political Science and a Bachelors of Science degree from Lehigh University, where he majored in business administration. He is a member of the Company since September 1988.
Since January 1999 he has been a Consultant Associate with Resources Connection,
which provides contract accounting services. From October 1997 to December 1998,
Mr. Urquhart was DirectorBoard of Business Operations at The Gun Parts Corporation,
an international supplier of gun parts. Prior to his resignation from Sono-Tek
in October 1997, he was ControllerDirectors of the Company from January 1988, and
Treasurer of the Company from September 1988.
Westchester Public/Private Partnership for Aging Services.
| (b) | Identification of Certain Significant Employees |
| (d) | Involvement in certain legal proceedings |
Section 16(a) Beneficial Ownership Reporting Compliance
Samuel Schwartz, a Director and beneficial owner of greater than 10%
Section 16(a) of the outstandingSecurities Exchange Act of 1934 requires the Company's Directors, executive officers and persons who own more than ten percent of the Company's common stock to file with the Securities and Exchange Commission initial reports of beneficial ownership and reports of changes of beneficial ownership of common stock. Such persons are also required by Securities and Exchange Commission regulations to furnish the Company with copies of all such reports. Based solely on a review of such filings, during the year ended February 28, 2009, all of the Company's Directors and executive officers and holders of more than ten percent of the Company’s stock have made timely filings of such reports.
Code of Ethics
The Company did not timely filehas adopted a Form 4 with
respectCode of Ethics for senior executives and financial officers. The Board intends that this Code satisfy the requirements of the Securities and Exchange Commission rules for a Code of Ethics that applies to certain sharessenior management. A copy of stock he acquired upon conversionthe Company's Code of outstanding
debt. Kathleen N. Martin, Chief Financial OfficerEthics is posted on the "information for investors" web page located at http://www.sono-tek.com/corporate/page/91/88 and Treasurer did not timely
fileis available in print to any shareholder who requests a Form 5 with respect to certain options granted by the Board of Directors.
ITEM 11 Executive Compensation
copy.
| ITEM 11 | EXECUTIVE COMPENSATION |
The following table sets forth the aggregate remuneration paid or accrued by the Company throughfor the Fiscal Years ended February 28, 19992009 and February 29, 2008 for the Chief Executive Officereach named officer of the Company. No other executive officer received aggregate remuneration that equaled
or exceeded $100,000
| Summary Compensation Table |
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards | Option Awards | All Other Compensation ($) | Total ($) |
| | | | | | | | |
| Christopher L. Coccio | 2009 | 191,923 | 0 | 0 | 7,500 | 3,875 | 203,298 |
| CEO, Chairman and Director | 2008 | 168,845 | 0 | 0 | 0 | 4,362 | 173,207 |
| | | | | | | | |
| Joseph Riemer, President | 2009 | 150,298 | 0 | 0 | 18,576 | 2,660 | 171,534 |
| | 2008 | 133,862 | 0 | 0 | 7,642 | 1,820 | 143,324 |
| | | | | | | | |
| R. Stephen Harshbarger | 2009 | 138,758 | 0 | 0 | 0 | 2,775 | 141,533 |
| Vice-President | 2008 | 140,469 | 0 | 0 | 0 | 2,917 | 143,386 |
All Other Compensation represents Company contributions to the Company’s 401K plan.
Outstanding Equity Awards At Fiscal Year End |
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date |
| | | | | |
| Christopher L. Coccio | 139,190 | | 0.74 (1) | 11/12/2014 |
| | 50,000 | | 0.74 | 03/05/2018 |
| | 20,000 | | 0.95 | 05/19/2014 |
| | 100,000 | | 1.00 (2) | 11/12/2014 |
| | 225,000 | | 1.75 | 11/12/2014 |
| | | | | |
| Joseph Riemer | 5,666 | 33,334 | 0.74 | 03/05/2018 |
| | 22,500 | 27,500 | 0.95 | 09/04/2017 |
| | 11,250 | 13,750 | 1.18 | 04/13/2017 |
| | | | | |
| R. Stephen Harshbarger | 10,000 | | 0.95 | 5/19/2014 |
| | | | | |
| (1) | These options were previously exercisable at $1.75 per share. The Board of Directors re-priced them in March 2008. |
| (2) | These options were previously exercisable at $1.75 per share. The Board of Directors repriced them in June 2008. |
Compensation of Directors
Each non-employee director receives $500 for
each meeting attended. Committee Chairmen and committee members receive $100 for each committee meeting attended. Directors who are employees of the
fiscalCompany receive no additional compensation for serving as directors. For the year ended February 28,
1999.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Name and Awards, Securities All Other
Principal Position Year Salary ($) Bonus ($) Underlying Options (#) Compensation ($)1
- ---------------------------------------------------------------------------------------------------------------------
James L. Kehoe 1999 $115,000 $0 0 $2,300
Chief Executive Officer 1998 102,000 0 200,000 1,244
1997 85,000 0 0 818
1 Dollar amounts are Company contributions under the SARSEP.
2009, director compensation is as follows:
| 2009 Director Compensation |
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| | | | | | | | |
| Edward J. Handler | 1,500 | - | 1,431 | - | - | - | 2,931 |
| Donald F. Mowbray | 2,500 | - | 1,431 | - | - | - | 3,931 |
| Samuel Schwartz | 2,500 | - | 1,431 | - | - | - | 3,931 |
| Philip Strasburg | 2,500 | - | 1,431 | - | - | - | 3,931 |
The following table sets forth information regarding option exercises during the
fiscal year ended February 28, 1999, as well as any unexercisednumber of vested and unvested stock options held by non-employee directors as of February 28, 1999 by each named executive.
2009 is as follows:
| | Number of Vested Options | | Number of Unvested
Options |
| | | | |
| Edward J. Handler | 20,000 | | 10,000 |
| Donald F. Mowbray | 30,000 | | 10,000 |
| Samuel Schwartz | 60,000 | | 10,000 |
| Philip Strasburg | 30,000 | | 10,000 |
Number of Securities Underlying Value of Unexercised
Unexercised Options In the Money Options
Shares at Fiscal Year End (#) At Fiscal Year End ($)
Acquire on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
Harvey L. Berger 0 0 50,000 0 0 0
James L. Kehoe 0 0 270,000 0 0 0
Kathleen N. Martin 0 0 9,000 41,000 0 0
William J. McCormick 0 0 20,000 30,000 0 0
| ITEM 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors has a Compensation Committee composed of
Christopher L. Coccio, Samuel Schwartz and J. Duncan Urquhart, all Directors of
the Company. However, the Compensation Committee serves an advisory function
only. All decisions regarding compensation are made by the full Board of
Directors, including Mr. Berger and Mr. Kehoe who could participate in decisions
regarding the compensation of the Company's executive officers, including their
own.
ITEM 12 Security Ownership of Certain Beneficial Owners and Management
The following information is furnished as of May
28, 199918, 2009 to indicate beneficial ownership of the Company's Common Stock by each Director, by each
named executive officer
who has a salary and bonus in excess of $100,000, by all Directors and executive officers as a group, and by each person known to the Company to be the beneficial owner of more than 5% of the Company's outstanding Common Stock. Such information has been furnished to the Company by the indicated owners. Unless otherwise indicated, the named person has sole voting and investment power.
Name (and address if Amount
more than 5%) of Beneficially
Beneficial owner Owned Percent
---------------- ----- -------
Directors
*John J. Antretter 20,000(1) **
*Harvey L. Berger 371,700(2) 4.8%
*Christopher L. Coccio 15,000 **
*James L. Kehoe 603,400(3) 7.8%
*Samuel Schwartz 786,609(4) 10.1%
*J. Duncan Urquhart 10,000(5) **
Executive Officer
*Kathleen N. Martin 14,000(6) **
*William J. McCormick 25,000(7) **
All Executive Officers and
Directors as a Group 1,845,709(8) 23.8%
Additional 5% owners
Herbert Spiegel 514,692(9) 6.6%
425 East 58th Street
New York, NY 10022
*c/o Sono-Tek Corporation, 2012 Route 9W, Bldg. 3, Milton, NY 12547.
** Less than 1%
(1) Includes options to purchase 20,000
Name (and address if | Amount | |
| more than 5%) of | Beneficially | |
| Beneficial owner | Owned | Percent |
| Directors and Officers | | |
| | *Christopher L. Coccio | 1,021,1251 | 6.83% |
| | *Edward J. Handler | 122,5082 | ** |
| | *R. Stephen Harshbarger | 10,0003 | ** |
| | *Donald F. Mowbray | 60,0004 | ** |
| | *Joseph Riemer | 88,0255 | ** |
| | *Samuel Schwartz | 1,580,1476 | 10.91% |
| | *Philip A. Strasburg | 60,0007 | ** |
| | | | |
| All Executive Officers and Directors as a Group | 3,068,3588 | 20.15% |
| | | | |
| Additional 5% owners | | |
| | Herbert Spiegel | 756,931 | 5.25% |
| | 425 East 58th Street | | |
| | New York, NY 10022 | | |
| | | | |
| | Norwood Venture Corporation | 1,084,672 | 7.52% |
| | 65 Norwood Avenue | | |
| | Montclair, NJ 07043 | | |
| | | | |
| | Norman H. Pessin | 721,978 | 5.01% |
| | 366 Madison Avenue | | |
| | New York, NY 10017 | | |
* c/o Sono-Tek Corporation, 2012 Route 9W, Milton, NY 12547.
** Less than 1%
1 Includes 3,000 shares owned jointly with Dr. Coccio’s father, 2,000 shares under the 1993 Plan.
(2) Includes 4,000 shares in the name of Dr. Berger's wife and includes options
to purchase 50,000 shares under the 1993 Plan.
(3) Includes options to purchase 270,000 shares under the 1993 Plan, plus
warrants to purchase 300,000 shares awarded by the Board of Directors in May 1999.
(4) Includes 166,667 shares issued for the conversion of a convertible secured
subordinated promissory note in the principle sum of $50,000 and 12,888 shares
issued for accrued interest of $3,866 related to the note. Also assumes the
exercise of a warrant Mr. Schwartz received upon conversion of a secured
subordinated promissory note, which warrant is exercisable at $.65 per share for
an additional 71,400 shares of Common Stock. Also includes warrants to purchase
300,000 shares awarded by the Board of Directors in May 1999.
(5) Includes options to purchase 10,000 shares granted in May 1999 under the 1993
Plan.
(6) Includes options to purchase 9,000 shares under the 1993 Plan.
(7) Includes options to purchase 20,000 shares under the 1993 Plan.
(8) Includes options to purchase 309,000 shares under the 1993 Plan, and 179,555
shares from the conversion of debt and interest and 71,400 shares from warrants
in footnote 4 above, and warrants to purchase 600,000 shares awarded by the
Board of Directors in May 1999.
(9) Includes 216,667 shares issued for the conversion of a convertible secured
subordinated promissory note in the principle sum of $65,000 and 16,754 shares
issued for accrued interest of $5,026 related to the note. Also assumes the
exercise of a warrant Mr. Spiegel received upon conversion of a secured
subordinated promissory note, which warrant is exercisable at $.65 per share for
an additional 92,820 shares of Common Stock.
ITEM. 13 Certain Relationships and Related Transactions
On February 26, 1999 the Directors of the Company agreed to reduce the
conversion price of the Convertible Secured Subordinated Promissory Notes from
$0.70 per common share to $0.30 per common share. In addition to changing the
conversion price of the Notes, the Directors also extended the term of the
Warrants from August 15, 2000 to February 28, 2002, adjusted the exercise price
from $1.50 per share to $0.65 per share, provided that if the Company's common
stock trades at a price greater than $1.95 per share for a period of thirty
consecutive trading days, the Company can force the exercise of the Warrants
within ninety days of providing notice to the holder, and obtained a waiver of
all events and prospective events of default. Samuel Schwartz agreed to convert
$50,000 in principal and $3,866 in interest into 179,555 shares of common stock,
and Herbert Spiegel agreed to convert $65,000 in principal and $5,026 in
interest into 233,421 shares of common stock. As a result of the conversion, the
Company recorded a non-cash charge of $302,857 due to the lowered conversion
price, and a non-cash charge of $51,423 due to the lowered warrant price.
During Fiscal 1999 Samuel Schwartz and James L. Kehoe loaned the Company a total
of $88,000 that was not repaid at February 28, 1999. The demand loans carried an
interest rate of prime plus 2% (9.75% at February 28, 1999). Subsequent to year
end, Messrs. Schwartz and Kehoe loaned an additional $77,000 to the Company. In
May 1999, the Board of Directors awarded each of them warrants to purchase
300,000 shares of the Company's common stock.
PART IV
ITEM 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The financial statements and schedules listed in the
accompanying "Index
to Financial Statements" are filed as a partname of
this annual report.
(2) See (a)(1) above.
(3) Exhibits
Ex. No. Description
3(a)4 Certificate of Incorporation ofDr. Coccio’s wife and 534,190 options currently exercisable issued under the
Company and all amendments thereto.
3(b)1 By-laws of the Company as amended.
4(a)4 Form of Convertible Note.
4(b)3 Form of Warrant.
4(c)3 Master Security Agreement.
4(d) The Company agrees to furnish a copy of the equipment loan referred toCompany’s Stock Incentive Plans.2 Includes 61,579 shares owned jointly with Mr. Handler’s wife, 35,929 shares in the Company's financial statements toname of Mr. Handler’s wife and 25,000 options currently exercisable issued under the Commission upon request.
4(e)Company’s Stock Incentive Plans.
3 Represents 10,000 options currently exercisable under the Company’s Stock Incentive Plans.
4 Includes 35,000 options currently exercisable issued under the Company’s Stock Incentive Plans.
5 Includes 54,000 options currently exercisable issued under the Company’s Stock Incentive Plans.
6 FormIncludes 65,000 options currently exercisable issued under the Company’s Stock Incentive Plans.
7 Includes 35,000 options currently exercisable issued under the Company’s Stock Incentive Plans.
8 The group total includes 806,460 options currently exercisable issued under the Company’s Stock Incentive Plans. The group total includes 75,303 shares and 15,000 exercisable options held by Mr. DeMaio and 250 shares and 36,250 exercisable options held by Mr. Bagley.
Securities Authorized for Issuance Under Equity Compensation Plans:
EQUITY COMPENSATION PLAN INFORMATION
| | Number of | | Weighted- | | Number of |
| | securities to be | | average exercise | | securities remaining |
| | issued upon | | price of | | available for future |
| | exercise of | | outstanding options, | | issuance under equity |
| | outstanding options, | | warrants and rights | | compensation plans |
| | warrants and rights | | | | (excluding securities |
| | | | | | reflected in column (a)) |
| | (a) | | (b) | | (c) |
| Equity compensation plans approved | | | | | |
| by security holders: | | | | | |
| 1993 Stock Incentive Plan | 62,500 | | $0.71 | | - |
| 2003 Stock Incentive Plan | 1,143,065 | | $1.12 | | 316,500 |
| Total | 1,205,565 | | | | 316,500 |
Description of 1995 Amendment to Convertible Note.
4(f)7 Form of 1996 Amendment to Convertible Note.
4(g)9 Form of 1997 Amendment to Convertible Note
4(h)8 Letter agreement betweenEquity Compensation Plans:
1993 Stock Incentive Plan
Under the Company and The Bank of New York.
4(i) Form of 1999 Amendment to Convertible Note.
4(j) Mr. Kehoe's Personal Guarantee for the Bank of New York.
*10(a)4 Employment Agreement dated October 14, 1993 between the Company and Dr.
Harvey L. Berger.
10(b)2 Lease for the Company's facilities in Milton, NY dated July 19, 1991.
10(c)2 Amendment No. 1 to Milton, NY lease dated December 27, 1991.
10(d)4 Amendment No. 2 to Milton, NY lease dated January 22, 1992.
*10(e)5 1993 Stock Incentive Plan, as amended.
10(f) Bankamended ("1993 Plan"), options have been granted to officers, directors, consultants and employees of New York Linethe Company and its subsidiaries to purchase the Company's common shares. Options granted under the 1993 Plan expire on various dates through 2013. There can be no further grants under the 1993 Plan.
Under the 1993 Stock Incentive Plan, option prices were at least 100% of Credit.
23(a) Independent Auditors' Consent.
27.1the fair market value of the common stock at time of grant. For qualified employees, except under certain circumstances specified in the 1993 plan or unless otherwise specified at the discretion of the Board of Directors, no option may be exercised prior to one year after date of grant, with the balance becoming exercisable in cumulative installments over a three year period during the term of the option.
2003 Stock Incentive Plan
Under the 2003 Stock Incentive Plan, as amended ("2003 Plan"), options can be granted to officers, directors, consultants and employees of the Company and its subsidiaries to purchase up to 1,500,000 of the Company's common shares.
The 2003 Plan supplemented and replaced the 1993 Plan. Under the 2003 Stock Incentive Plan, option prices must be at least 100% of the fair market value of the common stock at time of grant. For qualified employees, except under certain circumstances specified in the 2003 plan or unless otherwise specified at the discretion of the Board of Directors, no option may be exercised prior to one year after date of grant, with the balance becoming exercisable in cumulative installments over a three year period during the term of the option.
| ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Certain Relationships and Related Transactions
On September 1, 2007, the Company entered into identical Executive Agreements with Stephen J. Bagley, Chief Financial Data Schedule. EDGAR filing only.
* Management Contract or Compensatory Plan.
1 Incorporated hereinOfficer, Christopher L. Coccio, Chief Executive Officer and Joseph Riemer, President. The Company also entered into this Executive Agreement with R. Stephen Harshbarger, Vice President, on March 5, 2008. In the event of a change of control of the Company followed by referencea termination of the executives’ employment under certain circumstances, the Executive Agreements provide for severance payments to exhibit 2each officer equal to Amendment No. 1one year of the executive’s annual base and bonus compensation paid by the Company for the previous calendar year.
Based on last years salary arrangements, if the rights of the foregoing officers were to Form 8-A, SEC file #0-16035.
2 Incorporated herein by referencebe triggered following a change of control, they would be entitled to the Company's Form 10-K forfollowing payments from the year ended February 29, 1992.
3 Incorporated herein by reference toCompany: Stephen J. Bagley $119,000, Christopher L. Coccio $203,000, R. Stephen Harshbarger $141,000 and Joseph Riemer $149,000.
Independence of Directors
The Company’s Board of Directors is comprised of four “independent directors”, as that term is defined under Nasdaq rules, and two directors who are not “independent directors”. The Company’s “independent directors” are Samuel Schwartz, Donald Mowbray, Edward Handler and Philip Strasburg. Christopher Coccio and Joseph Riemer are employees of the Company's Form 10-Q Quarterly
Report forCompany and are therefore not independent.
| ITEM 14 | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Audit Fees
For the quarter ended November 30, 1993.
4 Incorporated herein by reference to the Company's Form 10-K for the
yearFiscal Years ended February 28, 1994.
5 Incorporated herein2009 and February 29, 2008, the Company paid or accrued fees of approximately $40,500 and $40,500 for services rendered by reference toSherb & Co., LLP , its independent auditors. These fees included audit and review services.
Audit Related Fees - None
Tax Fees
For the
Company's Form 10-Q quarterly
report for the quarter ended August 31, 1994.
6 Incorporated herein by reference to the Company's Form 10-K for the
yearFiscal Years ended February 28,
1995.
7 Incorporated herein by reference to the Company's Form 10-K for the
year ended2009 and February 29,
1996.
8 Incorporated herein2008, the Company paid or accrued tax preparation fees of approximately $5,500 and $5,500 for services rendered by
reference to the Company's Form 10-Q quarterly
report for the quarter ended May 31, 1996.
9 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 28, 1997.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
Sherb & Co., LLP, its independent auditors.
All Other Fees – None
PART IV
ITEM 15 EXHIBITS
Ex. No. | Description |
3(a)1 | Certificate of Incorporation of the Company and all amendments thereto. |
3(b)1 | By-laws of the Company as amended. |
10(a) 1 | Sono-Tek Corporation 1993 Stock Incentive Plan as amended. |
10(b)1 | Sono-Tek Corporation 2003 Stock Incentive Plan. |
10(c) 4 | Equipment Line Credit Agreement between Sono-Tek Corporation and M&T Bank, dated March 24, 2005. |
10(d) 4 | General Security Agreement between Sono-Tek Corporation and M&T Bank, |
| dated December 21, 2004. |
10(e) 5 | Executive Agreement between Sono-Tek Corporation and Stephen J. Bagley dated September 1, 2007. |
10(f) 5 | Executive Agreement between Sono-Tek Corporation and Christopher L. Coccio dated September 1, 2007. |
10(g) 5 | Executive Agreement between Sono-Tek Corporation and Joseph Riemer dated September 1, 2007. |
10(h) 6 | Executive Agreement between Sono-Tek Corporation and R. Stephen Harshbarger dated March 5, 2008. |
143 | Code of Ethics. |
212 | Subsidiaries of Issuer. |
| 23.1 | Consent of Independent Registered Public Accounting Firm. |
| 31.1 | Rule 13a-14/15d – 14(a) Certification. |
| 31.2 | Rule 13a-14/15d – 14(a) Certification. |
| 32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 1 | Incorporated herein by reference to the Company’s Registration Statement No. 333-11913 on Form S-8 filed on February 18, 2004. |
| 2 | Incorporated herein by reference to the Company’s Form 10-KSB for the year ended February 28, 2003. |
| 3 | Incorporated herein by reference to the Company’s Form 10-KSB for the year ended February 29, 2004. |
| 4 | Incorporated herein by reference to the Company’s Form 10-KSB for the year ended February 28, 2005. |
| 5 | Incorporated herein by reference to the Company’s Form 10-QSB for the quarter ended August 31, 2007. |
| 6 | Incorporated herein by reference to the Company’s Form 10-Q for the quarter ended May 31, 2008. |
SONO-TEK CORPORATION
FORM 10-K
ITEMS 8 AND 14(d)
ITEM 7
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
FOR THE YEARYEARS ENDED FEBRUARY 28, 19992009 and FEBRUARY 29, 2008
REPORT OF INDEPENDENT AUDITORS' REPORTREGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS (ITEM 8):STATEMENTS:
Consolidated Balance Sheets at February 28, 19992009 and February 28, 199829, 2008
Consolidated Statements of Operations
For the Years Ended February 28, 1999, 19982009 and 1997February 29, 2008
Consolidated Statements of Stockholders' Equity (Deficiency)
For the Years Ended February 28, 1999, 19982009 and 1997February 29, 2008
Consolidated Statements of Cash Flows
For the Years Ended February 28, 1999, 19982009 and 1997
February 29, 2008
Notes to the
Consolidated Financial Statements
FINANCIAL STATEMENTS SCHEDULE (ITEM 14(d) SCHEDULE INCLUDED):
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because the conditions
requiring their filing do not exist or because the required information is given
in the financial statements, including the notes.
REPORT OF INDEPENDENT AUDITOR'S REPORT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and DirectorsBoard of Directors
Sono-Tek Corporation
Milton, New York
We have audited the accompanying consolidated balance sheets of Sono-Tek Corporation (the
"Company") as of February 28, 19992009 and 1998February 29, 2008, and the related consolidated statements of operations, stockholders'stockholders’ equity (deficiency), and cash flows for each of the three years in the period ended February 28, 1999. Our audits also included the
financial statement schedule listed in the index at item 14d.2009 and February 29, 2008. These financial statements and financial statement schedule are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards.standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits 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, suchthe financial statements referred to above present fairly, in all material respects, the financial position of the CompanySono-Tek Corporation, as of February 28, 19992009 and 1998February 29, 2008 and the results of its operationstheir operation and itstheir cash flows for each of the three years in the
periodthen ended February 28, 19992009 and February 29, 2008 in conformity with accounting principles generally accepted accounting
principles. Also in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
DeloitteUnited States.
/s/ SHERB & ToucheCO., LLP
Stamford, CT
Certified Public Accountants
New York, New York
May
5, 1999 (May 13, 1999 as to Note 16)
SONO-TEK CORPORATION
BALANCE SHEETS
ASSETS
February 28,
-------------------------------
1999 1998
---- ----
Current Assets
Cash and cash equivalents $70,051 $113,759
Accounts receivable (less allowance of $6,000 and $1,000
in 1999 and 1998, respectively) 264,217 810,560
Inventories - (Note 3) 787,200 615,459
Prepaid expenses and other current assets 42,039 15,780
--------- ---------
Total current assets 1,163,507 1,555,558
Equipment and furnishings (less accumulated depreciation and
amortization of $407,486 and $369,398 in 1999 and 1998,
respectively) (Note 4) 127,892 122,016
Patents and patents pending (less accumulated amortization
of $78,697 and $123,930 in 1999 and 1998, respectively) 38,333 45,187
Other assets 5,917 5,917
--------- ---------
TOTAL ASSETS $1,335,649 $1,728,678
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt (Note 6) $10,503 $55,438
Short term loans-related parties (Note 13) 88,000 -
Revolving Line of Credit (Note 5) 199,948 50,000
Accounts payable 324,192 405,009
Accrued expenses (Note 7) 267,948 353,776
---------- ----------
Total current liabilities 890,591 864,223
---------- ---------
Long term debt, less current maturities (Note 6) 37,293 577,815
Noncurrent rent payable 9,083 8,083
---------- ---------
Total liabilities 936,967 1,450,121
---------- ---------
Commitments and Contingencies (Note 8) - -
Stockholders' Equity
Common stock, $.01 par value; 12,000,000 shares authorized,
6,281,667 and 4,374,387 issued and outstanding in 1999
and 1998, respectively 62,817 43,744
Additional paid-in capital 4,735,975 3,824,221
Accumulated deficit (4,400,110) (3,589,408)
---------- ----------
Total stockholders' equity 398,682 278,557
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,335,649 $1,728,678
========== ==========
19, 2009
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
| ASSETS | | | | | | |
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 1,472,054 | | | $ | 2,339,550 | |
| Accounts receivable (less allowance of $18,500 and $18,500, respectively) | | | 801,290 | | | | 614,378 | |
| Inventories, net | | | 1,663,574 | | | | 1,602,511 | |
| Prepaid expenses and other current assets | | | 98,805 | | | | 69,032 | |
| Deferred tax asset | | | - | | | | 70,000 | |
| Total current assets | | | 4,035,723 | | | | 4,695,471 | |
| | | | | | | | | |
| Equipment, furnishings and leasehold improvements | | | | | | | | |
| (less accumulated depreciation of $1,274,793 and $1,046,195) | | | 588,109 | | | | 536,892 | |
| Intangible assets, net | | | 57,778 | | | | 34,011 | |
| Other assets | | | 7,171 | | | | 7,171 | |
| Deferred tax asset | | | - | | | | 615,803 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 4,688,781 | | | $ | 5,889,348 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable | | $ | 385,825 | | | $ | 412,692 | |
| Accrued expenses | | | 478,413 | | | | 452,911 | |
| Line of credit – Bank | | | 250,000 | | | | - | |
| Current maturities of long term debt | | | 23,633 | | | | 23,909 | |
| Deferred tax liability | | | - | | | | 16,239 | |
| | | | | | | | | |
| Total current liabilities | | | 1,137,871 | | | | 905,751 | |
| | | | | | | | | |
| Long term debt, less current maturities | | | 19,220 | | | | 27,628 | |
| Deferred tax liability | | | - | | | | 57,978 | |
| | | | | | | | | |
| Total Liabilities | | | 1,157,091 | | | | 991,357 | |
| | | | | | | | | |
| Commitments and Contingencies - | | | - | | | | | |
| | | | | | | | | |
| Stockholders’ Equity | | | | | | | | |
| Common stock, $.01 par value; 25,000,000 shares authorized, | | | | | | | | |
| 14,414,714 and 14,361,091 issued and outstanding, respectively | | | 144,148 | | | | 143,612 | |
| Additional paid-in capital | | | 8,490,071 | | | | 8,343,880 | |
| Accumulated deficit | | | (5,102,529 | ) | | | (3,589,501 | ) |
| | | | | | | | | |
| Total stockholders’ equity | | | 3,531,690 | | | | 4,897,991 | |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 4,688,781 | | | $ | 5,889,348 | |
See notes to
consolidated financial statements.
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
Years Ended February 28,
--------------------------------------------------
1999 1998 1997
---- ---- ----
Net Sales (Note 14) $2,902,951 $3,570,379 $3,110,672
Cost of Goods Sold 1,616,617 1,740,217 1,518,971
--------- --------- ---------
Gross Profit 1,286,334 1,830,162 1,591,701
--------- --------- ---------
Operating Expenses
Research and product development
expenses 487,788 409,722 369,133
Marketing and selling expenses 707,215 723,919 630,295
General and administrative expenses 498,517 395,954 377,037
Non-cash charge for conversion of debt (Note 10) 354,280 - -
--------- --------- ---------
Total Operating Expenses 2,047,800 1,529,595 1,376,465
--------- --------- ---------
Operating (Loss) Income (761,466) 300,567 215,236
Interest Expense (60,448) (48,888) (66,789)
Interest and Other Income 11,212 368 4,192
-------- -------- --------
(Loss) Income Before Income Taxes (810,702) 252,047 152,639
Income Tax Expense (Note 9) - - -
-------- -------- --------
Net (Loss) Income $(810,702) $252,047 $152,639
========= ======== ========
Basic (Loss) Earnings Per Share ($0.18) $0.06 $0.04
====== ===== =====
Diluted (Loss) Earnings Per Share ($0.18) $0.05 $0.03
====== ===== =====
Weighted Average Shares - Basic 4,386,799 4,346,064 4,204,913
========= ========= =========
Weighted Average Shares - Diluted 4,386,799 4,773,667 4,507,441
========= ========= =========
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | Years Ended | |
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Net Sales | | $ | 6,408,796 | | | $ | 5,698,602 | |
| Cost of Goods Sold | | | 3,558,356 | | | | 3,034,693 | |
| Gross Profit | | | 2,850,440 | | | | 2,663,909 | |
| | | | | | | | | |
| Operating Expenses | | | | | | | | |
| Research and product development | | | 804,405 | | | | 732,981 | |
| Marketing and selling | | | 1,840,872 | | | | 1,095,544 | |
| General and administrative | | | 1,122,964 | | | | 937,780 | |
| | | | | | | | | |
| Total Operating Expenses | | | 3,768,241 | | | | 2,766,305 | |
| | | | | | | | | |
| Operating Loss | | | (917,801 | ) | | | (102,396 | ) |
| | | | | | | | | |
| Other Income (Expense): | | | | | | | | |
| Interest Expense | | | (5,560 | ) | | | (4,292 | ) |
| Interest Income | | | 12,335 | | | | 80,336 | |
| Other Income | | | 9,584 | | | | 12,158 | |
| Loss before Income Taxes | | | (901,442 | ) | | | (14,194 | ) |
| Income Tax Benefit (Expense) | | | (611,586 | ) | | | 25,399 | |
| | | | | | | | | |
| Net (Loss) Income | | $ | (1,513,028 | ) | | $ | 11,205 | |
| | | | | | | | | |
| Basic (Loss) Earnings Per Share | | $ | (.11 | ) | | $ | .00 | |
| | | | | | | | | |
| Diluted (Loss) Earnings Per Share | | $ | (.11 | ) | | $ | .00 | |
| | | | | | | | | |
| Weighted Average Shares – Basic | | | 14,381,857 | | | | 14,360,618 | |
| | | | | | | | | |
| Weighted Average Shares – Diluted | | | 14,381,857 | | | | 14,394,010 | |
See notes to
consolidated financial statements.
SONO-TEK CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED FEBRUARY 28, 1999, 1998 and 1997
Common Stock Total
Par Value $.01 Additional Stockholders'
----------------------- Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficiency)
------ ------ ------- ------- ------------
Balance - March 1, 1996 4,204,913 $42,049 $3,758,128 $(3,994,094) $(193,917)
Net Income - - - 152,639 152,639
--------- ------- ---------- ----------- ---------
Balance - February 28, 1997 4,204,913 42,049 3,758,128 (3,841,455) (41,278)
Issuance of common stock 169,474 1,695 66,093 - 67,788
Net Income - - - 252,047 252,047
--------- ------- ---------- ----------- ---------
Balance - February 28, 1998 4,374,387 43,744 3,824,221 (3,589,408) 278,557
Issuance of common stock 4,000 40 1,280 - 1,320
Subordinated Debt conversion 1,766,667 17,667 866,613 - 884,280
Interest conversion 136,613 1,366 39,618 - 40,984
Non-employee stock option - - 4,243 - 4,243
Net Loss - - - (810,702) (810,702)
--------- ------- ---------- ----------- --------
Balance - February 28, 1999 6,281,667 $62,817 $4,735,975 $(4,400,110) $398,682
========= ======= ========== =========== ========
See notes to financial statements.
SONO-TEK CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended February 28,
--------------------------------------------------
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $(810,702) $252,047 $152,639
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Non-cash charge for conversion of debt 354,280 - -
Non-cash charge for stock options 4,243 - -
Depreciation and amortization 44,941 37,182 61,298
Provision (benefit) for doubtful accounts 5,000 (34,814) 11,500
(Increase) decrease in:
Accounts receivable 541,343 (244,368) (75,135)
Inventories (171,741) (146,218) 8,140
Prepaid expenses and other current assets (26,258) (1,131) (3,607)
Other assets - 13,564 -
Increase (decrease) in:
Accounts payable and accrued expenses (125,661) 204,518 25,281
Non-current rent payable 1,000 7,417 (9,551)
--------- -------- --------
Net Cash (Used In) Provided by Operating Activities (183,555) 88,197 170,565
---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of equipment and furnishings (43,964) (95,011) (15,634)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes and obligations payable -
professional fees - - (18,472)
Repayments of notes payable - lease termination - - (23,339)
Payments on capital leases - - (1,753)
Repayments of note payable, bank (46,253) (94,173) (72,654)
Repayments of equipment loan (9,204) - -
Proceeds from revolving line of credit 149,948 50,000 -
Proceeds from equipment loan - 57,000 -
Proceeds from short term loans-related parties 88,000 - -
Proceeds from sale of common stock 1,320 - -
------- ------- --------
Net Cash Provided by (Used in) Financing Activities 183,811 12,827 (116,218)
------- ------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (43,708) 6,013 38,713
CASH AND CASH EQUIVALENTS
Beginning of year 113,759 107,746 69,033
------- -------- --------
End of year $70,051 $113,759 $107,746
======= ======== ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $17,960 $29,208 $51,419
======= ======= =======
Non-cash exchange of accrued interest
for common stock (Note 10) $40,984 $67,788 -
======= ======= =======
Conversion of debt to equity (Note 10) $884,280 - -
======= ======= =======
See notes to financial statements.
SONO-TEK CORPORATION
NOTES TO FINANCIAL
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED FEBRUARY 28, 1999, 19982009 AND 1997
1.FEBRUARY 29, 2008
| | | Common Stock | | | Additional | | | | | | Total | |
| | | Par Value $.01 | | | Paid – In | | | Accumulated | | | Stockholders’ | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | |
| Balance – February 28, 2007 | | 14,360,541 | | | $ | 143,606 | | | $ | 8,308,301 | | | $ | (3,600,706 | ) | | $ | 4,851,201 | |
| Exercise of stock options | | 550 | | | | 6 | | | | (6 | ) | | | - | | | | - | |
| Stock based compensation expense | | - | | | | - | | | | 35,585 | | | | - | | | | 35,585 | |
| Net Income | | - | | | | - | | | | - | | | | 11,205 | | | | 11,205 | |
| Balance – February 29, 2008 | | 14,361,091 | | | | 143,612 | | | | 8,343,880 | | | | (3,589,501 | ) | | | 4,897,991 | |
| Stock issued for rent | | 21,813 | | | | 218 | | | | 8,943 | | | | | | | | 9,161 | |
| Exercise of stock options | | 31,810 | | | | 318 | | | | 21,822 | | | | - | | | | 22,140 | |
| Stock based compensation expense | | - | | | | - | | | | 115,426 | | | | - | | | | 115,426 | |
| Net Loss | | - | | | | - | | | | - | | | | (1,513,028 | ) | | | (1,513,028 | ) |
| Balance – February 28, 2009 | | 14,414,714 | | | $ | 144,418 | | | $ | 8,490,071 | | | $ | (5,102,529 | ) | | $ | 3,531,690 | |
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Years Ended | |
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net (Loss) Income | | $ | (1,513,028 | ) | | $ | 11,205 | |
| Adjustments to reconcile net (loss) income to net | | | | | | | | |
| cash provided by (used in) operating activities: | | | | | | | | |
| Depreciation and amortization | | | 263,670 | | | | 154,020 | |
| Stock based compensation expense | | | 115,426 | | | | 35,585 | |
| Shares issued for rent | | | 9,161 | | | | - | |
| Gain on sale of equipment | | | 57,643 | | | | - | |
| (Increase) Decrease in: | | | | | | | | |
| Accounts receivable | | | (186,912 | ) | | | 332,455 | |
| Inventories | | | (61,063 | ) | | | (196,280 | ) |
| Prepaid expenses and other current assets | | | (29,773 | ) | | | 75 | |
| Deferred tax asset | | | 611,586 | | | | (4,564 | ) |
| (Decrease) Increase in: | | | | | | | | |
| Accounts payable and accrued expenses | | | (1,365 | ) | | | 180,261 | |
| Deferred tax liability | | | - | | | | (22,022 | ) |
| Net Cash (Used in) Provided by Operating Activities | | | (734,655 | ) | | | 490,735 | |
| | | | | | | | | |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Purchase of equipment, furnishings and leasehold improvements | | | (367,399 | ) | | | (384,952 | ) |
| Patent application costs | | | (29,020 | ) | | | (7,867 | ) |
| Net Cash Used In Investing Activities | | | (396,419 | ) | | | (392,819 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Proceeds from exercise of options | | | 22,140 | | | | - | |
| Proceeds from note payable – Bank | | | 17,590 | | | | - | |
| Proceeds from line of credit – Bank | | | 250,000 | | | | - | |
| Repayment of long term debt | | | (26,152 | ) | | | (27,342 | ) |
| Net Cash Provided by (Used in) Financing Activities | | | 263,578 | | | | (27,342 | ) |
| | | | | | | | | |
| | | | | | | | | |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | | (867,496 | ) | | | 70,574 | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS: | | | | | | | | |
| Beginning of year | | | 2,339,550 | | | | 2,268,976 | |
| End of year | | $ | 1,472,054 | | | $ | 2,339,550 | |
See notes to consolidated financial statements.
SONO-TEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008
NOTE 1: BUSINESS DESCRIPTION
The Company was incorporated in New York on March 21, 1975 for the purpose of engaging in the development, manufacture, and sale of ultrasonic liquid atomizing nozzles.nozzles, which are sold world-wide. Ultrasonic nozzle systems atomize low to medium viscosity liquids by converting electrical energy into mechanical motion in the form of high frequency (ultrasonic)ultrasonic vibrations whichthat break liquids into minute drops that can be applied to surfaces at low velocity.
2.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements of Sono-Tek Corporation, a New York corporation (the “Company”), include the accounts of the Company and its wholly owned subsidiary, Sono-Tek Cleaning Systems, Inc., a New Jersey Corporation (“SCS”), which the Company acquired on August 3, 1999, and whose operations have been discontinued. There have been no operations of this subsidiary since Fiscal Year Ended February 28, 2002. All significant intercompany accounts and transactions are eliminated in consolidation.
Reclassifications – Where appropriate, prior year’s financial statements reflect reclassifications to conform to the current year’s presentation.
Cash and Cash Equivalents - Cash and cash equivalents consist of money market mutual funds, short term commercial paper and short-term certificates of deposit with original maturities of 90 days or less. The Company occasionally has cash or cash equivalents on hand in excess of the $250,000 insurable limits at a given bank. At February 28, 2009 and February 29, 2008, the Company had $1,121,241 and $2,239,550 over the insurable limit, respectively.
Supplemental Cash Flow Disclosure -
| | | Years Ended | |
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| Interest paid | | $ | 4,928 | | | $ | 4,140 | |
| Income taxes paid | | $ | 6,250 | | | $ | 1,827 | |
Inventories - Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for raw materials, subassemblies and work-in-progress and the specific identification method for finished goods. Consignment goods
Allowance for doubtful accounts - The Company records a bad debt expense/allowance based on management’s estimate of uncollectible accounts. All outstanding accounts receivable accounts are spare
parts used by outside sales representativesreviewed for emergency repairs
performedcollectability on customer's equipment.
an individual basis. The bad debt expense recorded for the years ended February 28, 2009 and February 29, 2008 was $5,196 and $0, respectively.
Equipment, Furnishings and Furnishings -Leasehold Improvements – Equipment, furnishings and furnishingsleasehold improvements are stated at cost. Depreciation of equipment and furnishings is computed by use of the straight-line method based on the estimated useful lives of the assets, which range from three to five to ten years.
Product Warranty - Expected future product warranty expense is recorded when the product is sold.
Patent and Patent Pending Costs
Intangible Assets - CostsInclude costs of patent applications which are deferred and charged to operations over seventeen years for domestic patents and twelve years for foreign patents. However, if it appears
thatpatents and the unamortized portion of deferred financing costs. The accumulated amortization of patents is $64,202 and $58,949 at February 28, 2009 and February 29, 2008, respectively. Annual amortization expense of such costs are related to products which are notintangible assets is expected to be developed$5,300 per year for commercial application within the reasonably foreseeable
future, or are applicable to geographic areas where the Company no
longer requires patent protection, they are written-off to operations.
next five years.
Research and Product Development Expenses - Research and product development expenses represent engineering and other expendituresexpenditures incurred for developing new products, for refining the Company's existing products and for developing systems to meet unique customer specifications for potential orders or for new industry applications and are expensed as incurred. Engineering costs directly applicable to the manufacture of existing products are included in cost of goods sold.
Income Taxes - The Company accounts for income taxes under the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
Earnings (Loss) Per Share - Basic earnings per share ("EPS"(“EPS”) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Stock options granted but not yet exercisedexercisable under the Company'sCompany’s stock option plans are not included for Diluted EPS calculations under the treasury stock method. The convertible secured subordinated promissory notes
Shipping and related warrants (see Note 6) were antidilutiveHandling Costs – Shipping and thereforehandling costs are not
considered forincluded in cost of sales in the Diluted EPS calculations.
accompanying consolidated statements of operations.
Advertising Expenses - The Company expenses the cost of advertising in the period in which the advertising takes place. Advertising expense for the years ended February 28, 1999, 19982009 and 1997February 29, 2008 was $110,805,
$113,153,$281,181 and $102,439,$130,024, respectively.
Long-Lived Assets - The Company periodically evaluates the carrying value of long-lived assets, including intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.
Stock-Based Employee Compensation -
Recognition of Revenue – Sales are recorded at the time title passes to the customer, which, based on shipping terms, generally occurs when the product is shipped to the customer. Based on prior experience, the Company reasonably estimates its sales returns and warranty reserves. Sales are presented net of discounts and allowances. Discounts and allowances are determined when a sale is negotiated. The Company does not grant its customers or independent representatives the ability to return equipment nor does it grant price adjustments after a sale is complete.
Concentration of Credit Risk - The Company does not believe that it is subject to any unusual or significant risks, in the normal course of business. The Company does have cash in excess of the federal insurable limits as noted above. The Company also has two customers, which accounted for 3.4% and 3.3% of sales, respectively, during the year ended February 28, 2009. One customer accounted for 9.1% of the outstanding accounts for
stock-based compensation plans utilizing the provisions of Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued
to Employees" and the Financial Accounting Statementreceivables at February 29, 2008.
Fair Value of Financial Accounting Standards No. 123 (SFAS 123), "AccountingInstruments - The carrying amounts reported in the balance sheet for Stock-Based
Compensation". Under SFAS 123,cash, receivables, accounts payable and accrued expenses approximate fair value based on the Company will continue to apply the
provisionsshort-term maturity of APB 25 to its stock-based employee compensation
arrangements, and is only required to supplement its financial
statements with additional proforma disclosures.
these instruments.
Management Estimates - The preparation of financial statements in conformity with accounting principles generally accepted accounting principlesin the United States of America requires management 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
New Accounting Pronouncements - Certain amountsIn April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets”. FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”, and requires enhanced disclosures. FSP 142-3 must be applied prospectively to all intangible assets acquired as of and subsequent to fiscal years beginning after December 15, 2008. Management does not expect the adoption of FSP No. 142-3 to have a material impact on our consolidated financial statements.
All other accounting pronouncements issued but not yet effective have been deemed to be not applicable or the adoption of such accounting pronouncement is not expected to have a material impact on the financials.
NOTE 3: SEGMENT INFORMATION
The Company currently operates in one business segment, spraying systems and is primarily engaged in the prior year financial
statements havebusiness of developing, manufacturing, selling, installing and servicing ultrasonic spray equipment.
NOTE 4: STOCK-BASED COMPENSATION
On March 1, 2006, the Company adopted SFAS No. 123R, “Share Based Payments.” SFAS No. 123R requires companies to expense the value of employee stock options and similar awards.
The weighted-average fair value of options has been reclassifiedestimated on the date of grant using the Black-Scholes options-pricing model. The weighted-average Black-Scholes assumptions are as follows:
| | 2009 | 2008 |
| Expected life | 4 years | 4 years |
| Risk free interest rate | 1.07% - 3.13% | 4.01% - 4.97% |
| Expected volatility | 56% - 137% | 47% - 57% |
| Expected dividend yield | 0% | 0% |
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to conformestimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.
For the years ended February 28, 2009 and February 29, 2008, net income and earnings per share reflect the actual deduction for stock-based compensation expense. The impact of applying SFAS 123R approximated $115,426 and $35,585 in additional compensation expense for the years then ended, respectively. Such amount is included in general and administrative expenses on the statement of operations. The expense for stock-based compensation is a non-cash expense item.
During the year presentation.
3.ended February 28, 2009 the Company repriced an aggregate of 205,000 options with exercise prices ranging from $1.75 to $2.43 per share, to an exercise price of $0.74 per share. The Company also repriced an additional 100,000 options with an exercise price of $1.75 to an exercise price of $1.00. A total expense of $49,420 was recognized during the year due to these repricings.
NOTE 5: INVENTORIES
| Inventories consist of the following: |
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| Raw Materials | | $ | 596,164 | | | $ | 550,624 | |
| Work-in-process | | | 553,447 | | | | 457,832 | |
| Consignment | | | 9,042 | | | | 9,770 | |
| Finished Goods | | | 811,119 | | | | 788,482 | |
| Totals | | | 1,969,772 | | | | 1,806,708 | |
| Less: Allowance | | | (306,198 | ) | | | (204,197 | ) |
| | | $ | 1,663,574 | | | $ | 1,602,511 | |
NOTE 6: EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS
Equipment, furnishings and leasehold improvements consist of the following:
February 28,
-------------------------------
1999 1998
---- ----
Raw Materials $591,536 $281,467
Work-in-process 56,119 160,450
Consignment 10,868 -
Finished Goods 128,677 173,542
------- -------
$787,200 $615,459
======== ========
4. EQUIPMENT AND FURNISHINGS
Equipment
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| Laboratory equipment | | $ | 371,049 | | | $ | 415,507 | |
| Machinery and equipment | | | 363,167 | | | | 357,702 | |
| Leasehold improvements | | | 126,529 | | | | 86,333 | |
| Tradeshow and demonstration equipment | | | 499,632 | | | | 286,953 | |
| Furniture and fixtures | | | 502,525 | | | | 436,592 | |
| Totals | | | 1,862,902 | | | | 1,583,087 | |
| Less: accumulated depreciation | | | (1,274,793 | ) | | | (1,046,195 | ) |
| | | $ | 588,109 | | | $ | 536,892 | |
Depreciation expense for the years ended February 28, 2009 and furnishingsFebruary 29, 2008 was $258,418 and $149,421, respectively.
NOTE 7: ACCRUED EXPENSES
Accrued expenses consist of the following:
February 28,
------------------------------
1999 1998
---- ----
Laboratory equipment $ 79,441 $ 77,436
Machinery and equipment 324,444 289,576
Furniture and fixtures 131,493 124,402
-------- --------
Totals 535,378 491,414
Less: accumulated depreciation (407,486) (369,398)
-------- --------
$127,892 $122,016
======== ========
5.
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| Accrued compensation | | $ | 177,904 | | | $ | 169,310 | |
| Estimated warranty costs | | | 17,850 | | | | 14,700 | |
| Accrued commissions | | | 175,666 | | | | 47,364 | |
| Professional fees | | | 25,014 | | | | 26,102 | |
| Customer deposits | | | 73,380 | | | | 180,409 | |
| Other accrued expenses | | | 8,599 | | | | 15,026 | |
| | | $ | 478,413 | | | $ | 452,911 | |
NOTE 8: REVOLVING LINE OF CREDIT
On January 2, 1998, the
The Company receivedhas a $150,000$500,000 revolving line of credit at prime which carries an interest rate of prime plus 2% (9.75%was 3.25% at February 28, 1999). On February 15, 1999, the line of credit was restructured and
increased to $300,000.2009. The loan is collateralized by accounts
receivable, inventory and all other personal property of the Company
and is guaranteed by the CEOassets of the Company. The line of credit is payable on demand.demand and must be retired for a 30 day period once annually. As of February 28, 19992009 and 1998,February 29, 2008, the balance was
$199,948Company had outstanding borrowings of $250,000 and $50,000 respectively.
6.$0, respectively, under the revolving line of credit.
NOTE 9: LONG-TERM DEBT
Long-term debt consists of the following:
February 28,
-------------------------------
1999 1998
---- ----
Note payable, bank, collateralized by accounts receivable, inventory
and all other personal property of the Company. As modified in May
1996, the note was payable in monthly installments, including
interest at 2% over the bank's prime rate (10.5% at February 28,
1998), of $7,500. The weighted average interest rate was 10.5% and
10.4% during Fiscal 1999 and 1998, respectively. The loan was
personally guaranteed by the Company's President and a former
Chairman and Chief Executive Officer of the Company. The note was
paid off in August 1998. - 46,253
Convertible secured subordinated promissory notes, as amended with
individuals, collateralized by all of the personal property of the
Company, and subordinate to the note payable to the bank or any
successor credit facility up to $1,500,000. Payable in quarterly
installments of interest at 1/2% under the prime rate in effect on
August 15 of each year until maturity on August 15, 2000. In the
original note, each $1,000 portion of these notes was convertible
into 1,428 common shares of the Company and a warrant, which
expired in August 2000, to purchase an additional 1,428 shares of
common stock at $1.50 a share. During Fiscal 1999, the Company was
in default of the agreement for failure to pay interest when due.
On February 26, 1999 the Note was amended to reduce the conversion
price from $0.70 to $0.30, and the noteholders converted. At the
same time the warrants were extended to February 28, 2002, and the
price was reduced to $0.65 per share (see Note 11). These notes
included $50,000 issued to the Company's former Chairman of the Board. - 530,000
Equipment loan, bank, collateralized by related production equipment,
payable in monthly installments of $1,225, including interest at 2%
over the bank's prime rate (9.75% at February 28, 1999). 47,796 57,000
------- --------
Total long term debt 47,796 633,253
Due within one year (10,503) (55,438)
------- --------
Due after one year $37,293 $577,815
======= ========
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Equipment loan, bank, collateralized by related production equipment, payable in monthly installments of principal and interest of $832 through March 2010. Interest rate 6.51%. 60 month term. | | $ | 10,283 | | | $ | 19,385 | |
| | | | | | | | | |
| Equipment loan, bank, collateralized by related office equipment, payable in monthly installments of principal and interest of $529 through September 2011. Interest rate 5.22%. 36 month term. | | | 15,306 | | | | - | |
| | | | | | | | | |
| Equipment loan, bank, collateralized by related engineering equipment, payable in monthly installments of principal and interest of $770 through February 2011. Interest rate 6.54%. 60 month term. | | | 17,264 | | | | 25,049 | |
| | | | | | | | | |
| Equipment loan, bank, collateralized by related office equipment, payable in monthly installments of principal and interest of $1,039 through September 2008. Interest rate 6.21%. 36 month term. | | | - | | | | 7,103 | |
| | | | | | | | | |
| Total long term debt | | | 42,853 | | | | 51,537 | |
| Due within one year | | | 23,633 | | | | 23,909 | |
| Due after one year | | $ | 19,220 | | | $ | 27,628 | |
Long-term debt is payable as follows (as of February 28, 1999):
February 28, 2000 $10,503
February 28, 2001 11,574
February 28, 2002 12,754
February 29, 2003 12,965
-------
$47,796
=======
Management believes that the fair value of the debt payable to the bank
approximates its carrying value because of the variable interest rate
on the loan. Management does not believe it is practical to determine
the fair value of the convertible secured subordinated promissory notes
as there are no similar notes to compare them to. As of February 28,
1999 the Company was in compliance with the terms of the covenants
related to the bank loan.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
February 28,
-------------------------------
1999 1998
---- ----
Professional fees $ 93,076 $ 88,576
Estimated warranty costs 17,800 30,250
Accrued compensation 120,203 137,068
Accrued commissions 5,593 70,480
Accrued interest 1,364 20,253
Accrued claim 25,000 -
Other accrued expenses 4,912 7,149
------- --------
$267,948 $353,776
======== ========
8.follows:
| | Fiscal Year ending February 28, | |
| | 2011 | $15,597 |
| | 2012 | $ 3,623 |
NOTE 10: COMMITMENTS AND CONTINGENCIES
Litigation - During the normal course of business the Company is
involved in various routine legal matters. The Company believes the
outcome of these matters will not have a material adverse effect on the
Company's financial statements.
Leases - The Company leases an office and manufacturing facility under
a lease that expired in January 1997. The lease provided for a five
year renewal option at annual rentals varying from $65,000 to $78,000,
but that option was not exercised. The Company is making payments on a
month-to-month basis equal to the amount that would have been required
per month if the option had been exercised.
Rent– Total rent expense was approximately $73,000, $73,000,$137,927 and $61,000$104,331, for the years ended February 28, 1999, 1998,2009 and 1997,February 29, 2008, respectively.
9.
The Company has $79,675 in future minimum obligations under its leases, which expire between July 2009 through November 2009.
NOTE 11: INCOME TAXES
The annual provision (benefit) for income taxes differs from amounts computed by applying the maximum U.S. Federal income tax rate
of 33% to pre-tax income (loss) as follows:
February 28,
------------------------------------------------------------------
1999 % 1998 % 1997 %
---- - ---- - ---- -
Computed tax (benefit)
expense at maximum rate ($275,639) (34.0) $85,700 34.0 $52,700 34.0
Permanent differences 2,574 .3 1,330 .5 - -
Tax effect of debt
conversion costs 121,898 15.0 - - - -
Change in valuation
allowance for tax
effect of operating
loss carryforwards 151,167 18.7 (87,030) (34.5) (52,700) (34.0)
------- ------- ---- ------- ----
Provision for
income taxes $ - - $ - - $ - -
======== ===== ======= ==== ======= ====
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| Expected federal income tax (benefit) | | $ | (315,505 | ) | | $ | (4,968 | ) |
| State tax (benefit), net of federal | | | (37,861 | ) | | | (596 | ) |
| Other | | | 7,392 | | | | 14,234 | |
| Recognition of deferred tax asset | | | - | | | | 16,729 | |
| Increase in valuation allowance | | | (265,612 | ) | | | - | |
| Income tax (expense) benefit | | $ | (611,586 | ) | | $ | 25,399 | |
The net deferred tax asset is comprised of the following:
February 28,
-------------------------------------
1999 1998
---- ----
Allowance for doubtful accounts $ 2,000 $ 0
Accumulated depreciation 24,000 24,000
Accumulated amortization 8,000 8,000
Inventory 52,000 19,000
Noncurrent rent payable 4,000 3,000
Accrued vacation 10,000 11,000
Accrued expenses 60,000 57,000
Operating loss carryforwards 1,452,000 1,283,000
--------- ---------
Net deferred tax assets before
valuation allowance 1,612,000 1,405,000
Deferred tax asset valuation allowance (1,612,000) (1,405,000)
--------- ----------
Net deferred tax asset $ - $ -
========== ==========
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| Inventory | | $ | 147,079 | | | $ | 122,000 | |
| Accrued expenses and other | | | 49,177 | | | | 21,000 | |
| Net operating losses | | | 837,643 | | | | 542,803 | |
| Deferred tax asset | | | 1,033,899 | | | | 685,803 | |
| Valuation allowance | | | (1,033,899 | ) | | | - | |
| Net deferred tax asset | | $ | - | | | $ | 685,803 | |
| | | | | | | | | |
| Deferred tax liability | | $ | - | | | $ | 74,217 | |
During the year ended February 28, 2009, the Company increased the valuation reserve of its deferred tax asset resulting in the recognition of current period tax expense of $611,586. The increase in the valuation reserve is a non cash expense item. The increase in the valuation reserve is based on the Company’s estimate of its ability to utilize the current net operating loss carryforwards.
The change in the valuation allowance was $207,000 and ($123,000)$80,000 for the yearsyear ended February 28, 199929, 2008. This represents an $80,000 decrease in the net operating loss valuation allowance offset by a $64,000 change in other timing differences and 1998, respectively.
a $16,000 increase in the net deferred tax asset recorded. A $685,803 tax benefit has been reflected as a tax asset in the financial statements, of which $70,000 is a current asset.
At February 28, 1999,2009, the Company has available net operating loss carryforwards of approximately $3,632,000$2,137,000 for income tax purposes, which expire between 2001fiscal 2019 and 2019.
10. CAPITAL STOCK
On April 30, 1997,fiscal 2029. The net operating loss carryforwards generated by a subsidiary are subject to limitations under Section 382 of the Company reachedInternal Revenue Code.
NOTE 12: STOCKHOLDERS’ EQUITY
During the year ended February 28, 2009, we issued an agreementaggregate of 21,813 shares of our common stock in connection with the holders of
$530,000 of secured convertible secured subordinated promissory notes,
whereby they agreed to, among other things, accept 169,474 sharesrenewal of the Company's Common Stock as payment forlease of our principal premises. We are amortizing an expense of $9,121 in connection with the total amountissuance of interest
due as of February 28, 1997 of $67,788. During Fiscal 1999, as part of
the Fourth Note Amendment Agreement, the Noteholders agreed to convert
$530,000 of convertible secured subordinated promissory notes on
February 26, 1999 into 1,766,667 shares of the Company's Common Stock.
Also, as part of the Fourth Note Agreement, the Noteholders received
136,613 shares of the Company's Common Stock as payment for the total
amount of interest due as of February 26, 1999. The Agreement lowered
the conversion price from $.70 per share to $.30 per share. This
resulted in a non-cash charge of $302,857 to earnings for Fiscal 1999.
An additional non-cash charge of $51,423 was the result of the lowering
of the warrant exercise price from $1.50 per share to $.65 per share
(see Note 11).
11. STOCK OPTIONS AND WARRANTS
these shares.
Stock Options - Under – The Company has two stock option plans, the 1993 Stock Incentive Plan, ("as Amended (“1993 Plan"Plan”) and the 2003 Stock Incentive Plan (“2003 Plan”). Under each Plan, options can be granted to officers, directors, consultants and employees of the Company and its subsidiaries to purchase up to 750,0001,500,000 of the Company's common shares. Options granted under the 1993 Plan expire on various dates through 2003.2013. The 1993 Plan expired in October 2003 and no further options can be granted under the 1993 Plan. A total of 62,500 options remain outstanding under the 1993 Plan. Under the 2003 Plan options expire at various dates through 2015. A total of 1,143,065 options are outstanding under the 2003 Plan.
During Fiscal Year 2009, the Company granted options for 115,000 shares exercisable at $.74 to officers of the Company, options for 40,000 shares exercisable at $.74 to directors of the Company and options for 172,500 shares exercisable at prices from $.42 to $1.10 to employees of the Company.
During Fiscal Year 2008, the Company granted options for 90,000 shares exercisable at prices from $.95 to $1.18 to officers of the Company and options for 20,000 shares exercisable at prices from $.95 to $1.30 to employees of the Company.
Under both the 1993 Stock Incentive Plan optionand the 2003 Plan, options are granted at prices must bethat are at least 100% of the fair market value of the common stock at time of grant. For qualified employees, except under certain circumstances specified in the 1993 planboth Plans or unless otherwise specified at the discretion of the Board of Directors, no option may be exercised prior to one year after date of grant, with the balance becoming exercisable in cumulative installments over a three year period during the term of the option, and terminate at a stipulated period of time after an employee's termination of employment.
During Fiscal 1999, the Company granted options for 172,500 shares
exercisable at between $.38 per share and $.60 per share to qualified
employees, and 20,000 shares exercisable at $.30 per share to a
consultant of the Company. During Fiscal 1999 compensation expense of
$4,243 was recognized based on the fair value of fully vested options
granted to non-employees. During Fiscal 1998, the Company granted
options for 299,000 shares exercisable at between $.37 per share and
$.82 per share to qualified employees. During Fiscal 1997, the Company
granted to qualified employees 17,500 shares exercisable at $.78 per
share and 5,124 shares, exercisable at $.625 per share to outside
consultants.
A summary of the
1993 Plan activity
for the three year period ended
February 28, 1999 is as follows:
Stock Options Exercise Price
Outstanding Exercisable Outstanding Exercisable
----------- ----------- ----------- -----------
Balance -March 1, 1996 283,500 131,450 $ .37 $ .37
Granted - Fiscal 1997 22,624 .74
Canceled - Fiscal 1997 (2,500) .38)
------- ------- ----- -----
Balance - February 28, 1997 303,624 221,544 .40 .35
Granted Fiscal 1998 299,000 .42
Canceled Fiscal 1998 (45,000) (.52)
------- ------- ----- -----
Balance - February 28, 1998 557,624 457,875 .40 .38
Granted Fiscal 1999 192,500 .55
Canceled Fiscal 1999 (43,500) (.39)
Exercised Fiscal 1999 (4,000) (.33)
------- -----
Balance - February 28, 1999 702,624 512,049 $ .44 $ .39
======= ======= ===== =====
The fair value of
options granted under the Company's fixed stock
optionboth plans
during Fiscal 1999, 1998 and 1997 were estimated on the
dates of grant using the minimum value options-pricing models with the
following weighted-average assumptions used: expected volatility of
approximately 83%, 75% and 60% in Fiscal 1999, 1998 and 1997,
respectively, risk free interest rate of approximately 5.25%, 6% and
6.3% in Fiscal 1999, 1998 and 1997, respectively, and expected lives of
option grants of approximately five years.
The estimated fair value of options granted during Fiscal 1999, 1998
and 1997 were $.25 per share, $.17 per share and $.20 per share,
respectively. The Company applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for the 1993 Plan. Had
compensation cost for the Company's stock option plan been determined
based on the fair value at the option grant dates for awards in
accordance with the accounting provisions of SFAS 123, the Company's
net income (loss) and basic and diluted earnings (loss) per share for the years ended February 28,
1999, 19982009 and
1997 would have been
changed to the pro forma amounts indicated below:
1999 1998 1997
---- ---- ----
Net (Loss)Income:
As reported $(810,702) $252,047 $152,639
Pro forma $(882,675) $210,896 $147,229
Basic earnings (loss) per share:
As reported $(.18) $.06 $.04
Pro forma $(.20) $.05 $.04
Diluted earnings (loss) per share (see Note 12):
As reported $(.18) $.05 $.03
Pro forma $(.20) $.04 $.03
Warrants - In connection with the conversionFebruary 29, 2008 is as follows:
| | | | | Weighted Average |
| | | Stock Options | | Exercise Price | | Fair Value |
| | | Outstanding | | Exercisable | | Outstanding | | Exercisable | | Vested |
| Balance – February 28, 2007 | | 949,375 | | 871,500 | | $1.58 | | $1.63 | | $.18 |
| Granted | | 110,000 | | | | 1.03 | | | | |
| Exercised | | (1,500) | | | | (.50) | | | | |
| Cancelled | | (85,500) | | | | (1.36) | | | | |
| Balance – February 29, 2008 | | 972,375 | | 840,950 | | 1.54 | | 1.60 | | .20 |
| Granted | | 327,500 | | | | .73 | | | | |
| Exercised | | (31,810) | | | | (.70) | | | | |
| Cancelled | | (62,500) | | | | (1.07) | | | | |
| Balance – February 28, 2009 | | 1,205,565 | | 920,906 | | $1.10 | | $1.08 | | $.33 |
The intrinsic value of the Convertible Secured
Subordinated Promissory Notes (see Note 6), onCompany’s options exercised during the years ended February 26, 199928, 2009 and February 29, 2008 was $5,373 and $675, respectively.
Information, at date of issuance, regarding stock option grants for the Company modified the termsyears ended February 28, 2009:
| | | Shares | | Weighted Average Exercise Price | | Weighted Average Fair Value |
| Year ended February 28, 2009: | | | | | | |
| Exercise price exceeds market price | | - | | - | | - |
| Exercise price equals market price | | 327,500 | $ | .73 | $ | .35 |
| Exercise price is less than market price | | - | | - | | - |
The aggregate intrinsic value of the original detachable stock warrants
reducingCompany’s outstanding options at February 28, 2009 was $9,500 and the exercise price from $1.50 per share to $0.65 per share.
After conversion of the note, there are 756,840 warrants outstanding.
The estimated fairintrinsic value of these warrantsoptions exercisable at the date issuedFebruary 28, 2009 was $0.07
per share using the minimum value options-pricing model and assumptions
similar to those used for valuing the Company's$7,600.
The following table summarizes information about stock options as
described above, except the expected lives of the warrants is two
years. A non-cash charge for conversion of debt of $51,423 was recorded
in connection with the issuance of these warrants.
12.outstanding and exercisable at February 28, 2009:
| | Number Outstanding | | Weighted- Average Remaining Life in Years | | Weighted Average Exercise Price | | Number Exercisable | |
| Range of exercise prices: | | | | | | | | |
| $.25 to $.50 | 90,000 | | 7.2 | | $.39 | | 40,000 | |
| $.51 to $1.00 | 644,190 | | 7.3 | | $.85 | | 443,181 | |
| $1.01 to $1.75 | 398,875 | | 5.9 | | $1.51 | | 365,225 | |
| $1.76 to $2.30 | 65,000 | | 5.9 | | $2.15 | | 65,000 | |
| $2.31 to $3.00 | 7,500 | | 6.1 | | $2.58 | | 7,500 | |
NOTE 13: EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
February 28,
-----------------------------------------------
1999 1998 1997
---- ---- ----
Numerator-
Numerator for basic and diluted earnings
(loss) per share - net (loss) income $(810,702) $252,047 $152,639
========== ======== ========
Denominator:
Denominator for basic earnings (loss) per
share -weighted average shares 4,386,799 4,346,064 4,204,913
Effects of dilutive securities:
Stock options for employees
and outside consultants 0* 427,603 302,528
--------- --------- ----------
Denominator for diluted earnings (loss)
per share 4,386,799** 4,773,667** 4,507,441**
========= ========= =========
Basic Earnings (Loss) Per Share $(.18) $.06 $.04
====== ==== ====
Diluted Earnings (Loss) Per Share $(.18)*** $.05*** $.03***
====== ==== ====
* Stock
| | | February 29, | | | February 29, | |
| | | 2008 | | | 2008 | |
| | | | | | | |
| Numerator for basic and diluted earnings per share | | $ | (1,513,028 | ) | | $ | 11,205 | |
| | | | | | | | | |
| Denominator: | | | | | | | | |
| Denominator for basic earnings per share-weighted average shares | | | 14,381,857 | | | | 14,360,618 | |
| Effects of dilutive securities: | | | | | | | | |
| Stock options for employees, directors and outside consultants | | | - | | | | 33,392 | |
| Denominator for diluted earnings per share | | | 14,381,857 | | | | 14,394,010 | |
| | | | | | | | | |
| Basic (Loss) Earnings Per Share | | $ | (.11 | ) | | $ | .00 | |
| | | | | | | | | |
| Diluted (Loss) Earnings Per Share | | $ | (.11 | ) | | $ | .00 | |
The effect of stock options for employees and outside consultants are antidilutive
during Fiscal 1999 as a resultthe year ended February 28, 2009 is not used in the calculation of diluted earnings per share. Due to the net loss and therefore are not
consideredfor the year ended February 28, 2009, the inclusion of stock options in the Diluted EPS calculation.
**The effect of considering the warrants issued in connection with the
debt conversion during Fiscal 1999 (see Notes 6 and 11) at February 28,
1999 and the convertible secured subordinated promissory notes and
related warrants (see Notes 6 and 11) at February 28, 1998 and 1997 are
antidilutive and therefore not considered for the diluted (loss)
earnings per share calculations.
***Under the assumption that stock options and warrants were not
antidilutive as described in * and **, the denominator for diluted
earnings (loss) per sharecalculation would be 5,766,578, 5,530,507, and 5,264,281
at February 28, 1999, 1998 and 1997, respectively.
13. RELATED PARTY TRANSACTIONS
Short term loans - related parties - From time to time the Company has
required short term loans to meet its cash requirements. All of these
loans have been provided by two Board members of the Company, one of
which is an officer, at the rate of prime plus 2% (9.75% at February
28, 1999). As of February 28, 1999 the amount outstanding was $88,000.
During Fiscal 1999, interest expense relating to these loans was
$1,354.
Consulting agreement - At February 28, 1999 and February 28, 1998,
accounts payable includes a liability for prior years' consulting fees
to the Company's former Chairman of the Board of $69,076 recorded from
1993 to 1996.
14.anti-dilutive effect.
NOTE 14: SIGNIFICANT CUSTOMERS AND FOREIGN SALES
For the year ended February 28,1999 one customer accounted for 17% of
sales. At February 28, 1999, this customer accounted for 29% of trade
receivables. No single customer accounted for more than 10% of sales or
trade receivables for the years ended February 28, 1998 and February
28, 1997.
Export sales to customers located outside the United States were approximately as follows:
February 28,
------------------------------------------------------------
1999 1998 1997
---- ---- ----
Western Europe $235,000 $ 41,000 $399,000
Far East 100,000 163,000 164,000
Other 285,000 231,000 116,000
------- ------- -------
$620,000 $435,000 $679,000
======== ======== ========
15. FINANCIAL CONSIDERATIONS AND MANAGEMENT'S PLANS
The Company incurred a net loss during
| | | February 28, | | | February 29, | |
| | | 2009 | | | 2008 | |
| Western Europe | | $ | 1,069,000 | | | $ | 918,000 | |
| Far East | | | 1,868,000 | | | | 1,090,000 | |
| Other | | | 848,000 | | | | 775,000 | |
| | | $ | 3,785,000 | | | $ | 2,783,000 | |
During Fiscal 1999Years 2009 and 2008, sales to foreign customers accounted for approximately $3,785,000 and $2,783,000, or 59% and 49% respectively, of $810,702,
consisting of a loss from operations and a non-cash charge of $354,280
resulting from the conversion of the Convertible Secured Subordinated
Promissory Note to equity. The operating loss was a result of lower
sales stemming from a down turn in the capital goods market in the
electronics industry. In response to the loss, the Company initiated a
series of cost reductions, lowered interest expense by converting the
Convertible Secured Subordinated Promissory Notes, and increased its
efforts to expand the customer base outside of the electronics market.
Management also anticipates the acquisition of a company that
manufactures cleaning, rinsing and drying systems for the
semiconductor, disk drive, precision parts manufacturing, and flat
panel display industries, (see Note 16) will give the Company
additional sales, and the ability to reduce overhead costs by sharing
the costs between the two companies.
total revenues.
NOTE 15: OTHER INCOME
As necessary, the Company plans on funding the operations by using the
available borrowings under the current line of credit agreement and
obtaining loans from shareholders (as required in the past).
Although the results of these actions cannot be predicted, including
the success of the acquisition and the ability to derive sufficient
cash flows from the new acquisition (See Note 16), the Company believes
that these steps are appropriate and will help the Company return to
profitability in Fiscal 2000.
16. SUBSEQUENT EVENTS
During the first quarter of Fiscal 2000, two Board members, one of
which is an officer, provided short term loans to the Company in the
amount of $77,000 bringing the total loans from related parties to
$165,000.
On March 3, 1999, as part of the Company's plan to grow and diversify,
the Company signed a non-binding letter of intent to acquire a local
manufacturer of specialty equipment that produces cleaning, degreasing
and vapor drying systems for the semiconductor, disk drive, and other
high technology industries. The Company believes this acquisition will
complement the Company's core business including industry focus and
manufacturing similarities. The Company also believes that significant
efficiencies can be realized by integrating the operation of the two
companies. The Company anticipates reporting this transactionpreviously reported on Form 8-K, upon the execution of a definitive acquisition agreement.
On Mayfiled on July 5, 19992005, the Company releaseddetermined that a Private Placement Memorandum
which offers 1,666,667 sharesformer employee had misappropriated approximately $250,000 of the Company's common stock at $0.30
per share.Company’s monies, primarily through unauthorized check writing from the Company’s accounts over a period of three calendar years. The money raised from this offeringCompany has previously expensed substantially all of the misappropriated funds over the years.
The Company has recovered approximately 75% of these funds to date. The Company has a promissory note that is being repaid by the former employee. The note has been fully reserved for as the collectability is questionable. As previously discussed, the Company can offer no assurances that it will be
used forsuccessful in its attempt to collect the
planned acquisition, as discussed in the proceeding paragraph, and as
working capital.
At a meeting held May 13, 1999, the Board of Directors granted a five
year stock purchase warrant for 300,000 shares, exercisable at $.30 per
share to eachbalance of the
two Board members who have loaned money to the
Company over the last several years. The Board also authorized the
grant of 100,000 shares of the Company's common stock to the CEO upon
the completion of the acquisition discussed above. At the same meeting,
a non-employee director was granted 20,000 options, exercisable at $.30
per share, of which 10,000 were vested immediately and 10,000 vest at
the end of his current term as a director.
SCHEDULE II
SONO-TEK CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Column C
Column A Column B Additions Column D Column E
- ---------------------------------------------------------------------------------------------------------------------
Balance Charged (credited) Charged to Balance
at Beginning to Costs and to Other at End
Description of Period Expenses Accounts Deductions* of Period
- ----------- --------- -------- -------- ----------- ---------
Allowance for doubtful accounts:
Year Ended February 28, 1999 $1,000 $5,000 - $ 0 $6,000
Year Ended February 28, 1998 35,814 (34,814) - 0 1,000
Year Ended February 28, 1997 25,000 11,500 - 686 35,814
* Represents write-offs, net of recoveries, of uncollectible accounts.
remaining restitution.
SIGNATURES
Pursuant to the requirements of
In accordance with Section 13 or 15(d) of the Securities Exchange Act, of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, theretothereunto duly authorized.
Dated: June 1, 1999
May 29, 2009
Sono-Tek Corporation
(Registrant)
By: /s/ James/s/ Dr. Christopher L. Kehoe
- ----------------------
JamesCoccio
Dr. Christopher L. Kehoe
Chairman and Coccio,
Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and officers of
Sono-Tek Corporation, a New York corporation, which is filing its Annual Report
on Form 10-KChairman
In accordance with the
Securities and Exchange Commission under the provisions of
the Securities Exchange Act,
of 1934, as amended, hereby constitute and appoint
James L. Kehoe and Kathleen N. Martin and each of them their true and lawful
attorney-in-fact and agent, with full power and substitution and
re-substitution, for him and her and in his or her name, place and stead, in any
and all capacities, to sign such Form 10-K and any or all amendments to the Form
10-K, and all other documents in connection therewith to be filed with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
interests and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ James L. Kehoe June 1, 1999
- ------------------
James L. Kehoe
Chairman, Chief Executive Officer and Director
/s/ John J. Antretter June 1, 1999 /s/ Harvey L Berger June 1, 1999
- --------------------- -------------------
John J. Antretter Harvey L. Berger
Director President and Director
/s/ Christopher L. Coccio June 1, 1999 /s/ Samuel Schwartz June 1, 1999
- ------------------------- -------------------
Christopher L. Coccio Samuel Schwartz
Director Director
/s/ J. Duncan Urquhart June 1, 1999 /s/ Kathleen N. Martin June 1, 1999
- ---------------------- ----------------------
J. Duncan Urquhart Kathleen N. Martin
Director Treasurer & Chief Financial Officer
Exhibit 4(i) Form of 1999 Amendment to Convertible Note
FOURTH NOTE AMENDMENT AGREEMENT
Reference is made to that certain Convertible Secured Subordinated Note (as
amended, the "Note") by and between Sono-Tek Corporation (the "Company") and
NAME~ (the "Holder") in the principal amount of $DOLLARS~ made as of November
16, 1993, as amended by the Note Amendment Agreement made as of March 23, 1995,
the Second Note Amendment Agreement made as of April 30, 1996, and the Third
Note Amendment Agreement made as of April 30, 1997.
Whereas the Company has not made several interest payments to Holder which were
due on the dates and in the amounts shown in Attachment I hereto, and
Whereas the failure of the Company to make said interest payments on the dates
due constitutes (or in the case of the interest payment due February 15, 1999
will, with the passage of time constitute) events of default in accordance with
the terms of the Note, and
Whereas the Company may not be able to repay the principal amount of the Note in
the amount stated above when such amount becomes due on August 15, 2000, and
Whereas the Board of Directors of the Company unanimously agreed on February 19,
1999 to reduce the conversion price of the Note from $0.70 per share to $0.30
per share;
Now, therefore, the Company and the Holder hereby agree as follows:
1. The Holder hereby agrees and elects to convert the entire Note, the past
due interest on the Note, and interest due on the past due interest, all as
shown in Attachment I hereto, into Common stock of the Company at the rate
of $0.30 per share. The Holder and the Company agree that rounding to the
nearest whole share will be in lieu of a cash payment for any fractional
share.
2. Upon the signing hereof and the surrender of the Note, the Company will
promptly issue instructions to it's transfer agent to issue to the Holder
certificates for a total of SHARES~ shares of its common stock, in
denominations as shown in Attachment I hereto. Certificates for these
shares shall bear the restrictive legend set forth in Attachment II hereto.
3. The Company agrees to use its reasonable best efforts to register the
shares issued in connection with this Agreement within one year of the date
hereof, unless the Company shall furnish an opinion of counsel to the
Company that such registration is not required under the Securities Act of
1933 or unless the shares are eligible for sale pursuant to Rule 144 under
such Act.
4. The Holder hereby waives all events and prospective events of default under
the Note (including those described above) and will not seek to enforce any
rights or remedies against the Company provided in the Note or otherwise
based on or resulting from such defaults.
5. The Company hereby extends the expiration date of the Warrant to be issued
to the Holder upon conversion of the Note from August 15, 2000 to February
28, 2002, and further agrees to reduce the exercise price of said Warrant
from $1.50 per share to $0.65 per share. The Holder agrees that if the
common stock of Sono-Tek trades at a price equal to or greater than $1.95
per share for a period of thirty (30) consecutive days, the Company shall
have the right to require that the warrant be exercised at the reduced
exercise price of $0.65 within ninety (90) days of providing notice to the
Holder of such event. If the Warrant is not exercised as herein described,
the Company shall have the right to repurchase the Warrant at $0.001 per
share. The Holder agrees that the Warrant to be issued to the Holder will
reflect the provisions of this paragraph 5.
6. Holder, by his signature hereto, agrees to all of the provisions of
Attachment II hereto.
Sono-Tek Corporation February 26, 1999
- --------------- ---------------
James L. Kehoe NAME
Chief Executive Officer
Fourth Note Amendment Agreement - Attachment II
The undersigned understands, agrees, represents and warrants as follows:
1. The shares referred to in paragraph 1 of the Fourth Note Amendment
Agreement are referred to as the "Shares" in this Attachment II.
2. Holder's right to transfer the Shares will be highly restricted. The Shares
may not be transferred except (a) pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), (b) if,
in the opinion of counsel to the Company, such transfer may be made
pursuant to an exemption from the registration requirements of the Act, or
(C) pursuant to SEC Rule 144 under the Act. Holder is familiar with the
provisions of Rule 144, including without limitation the holding periods
required by said Rule. Holder is prepared to bear the economic risk of this
investment for an indefinite period of time.
3. The certificates for the Shares may bear a legend reading substantially
as follows:
"These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged, hypothecated or
otherwise transferred in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel to
the Company that such registration is not required or unless sold pursuant
to Rule 144 under such Act."
Appropriate stop transfer instructions with respect to certificates for
the Shares will be placed with the Company's transfer agent. 4. Holder is
acquiring the Shares for Holder's own account for investment purposes and
not for sale or with a view to distribution of all or any part of such
Shares. Holder agrees not to make any transfer of the Shares unless the
Shares are the subject of an effective registration statement under the
Act or unless an exemption from the registration requirements of the Act is
available.
5. The Company has provided Holder with all information, documents, books and
records which Holder has requested for deciding whether to purchase the
Shares, including without limitation true and complete copies of the
Company's Annual Report to Shareholders for its fiscal year ended February
28, 1998; its definitive proxy statement dated July 13, 1998 for its annual
meeting of shareholders held August 20, 1998, its annual report on Form
10-K for its fiscal year ended February 28, 1998, its quarterly reports on
Form 10-Q for its fiscal quarters ended May 31, 1998, August 31, 1998 and
November 30, 1998, and its Form 8-A amendment No. 2 dated February 23,
1999. Holder is aware that the Company has not made the interest payments
described in the Fourth Note Amendment Agreement, to any holders of the
Company's Convertible Secured Subordinated Notes in the aggregate principal
sum of $530,000. Holder confirms that Holder has been granted the
opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares.
6. Holder recognizes that investment in the Shares involves certain risks, and
Holder has taken full cognizance of and understands all of the risks
related to the purchase of the Shares. Holder is an "accredited investor"
within the meaning of SEC Regulation D promulgated under the Act, has the
financial sophistication, knowledge and experience in financial and
business matters to evaluate and analyze the merits and risks of an
investment in the Shares, and is able to bear the risk of loss of such
investment. If Holder is a natural person, Holder represents that Holder's
individual net worth, or joint net worth with that person's spouse, exceeds
$1,000,000 or that Holder had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year. If
Holder is not a natural person, Holder represents that it was not organized
for the specific purpose of making this particular investment.
7. This Attachment II is not transferable or assignable by Holder.
DATED: February 26, 1999 ACCEPTED
- ------------------------------ -----------------------------
NAME~ Sono-Tek Corporation
STREET~ James L. Kehoe
TOWN~ Chief Executive Officer
Exhibit 4(j) Mr. Kehoe's Personal Guarantee for the Bank of New York
THE
BANK OF
NEW GENERAL GUARANTEE
YORK
285 Main Mall, Poughkeepsie February 15, 1999
(Banking Office)
FOR VALUE RECEIVED, and in consideration of loans made or to be made or credit
otherwise extended or to be extended by THE BANK OF NEW YORK (the "Bank") to or
for the account of Sono-Tek Corporation (the "Borrower") of 2012 Route 9W, Bldg.
3, Milton, NY from time to time and at any time and for other good and valuable
consideration and to induce the Bank, in its discretion, to make or commit to
make such loans or extensions of credit and to make or grant such renewals,
extensions, releases of collateral or relinquishments of legal rights as the
Bank may deem advisable, the undersigned (jointly and severally, if more than
one guarantor, whether executing the same instrument or separate instruments)
absolutely and unconditionally guarantees to the Bank the prompt payment when
due, whether by acceleration or otherwise, of all present or future obligations
and liabilities of any and all kinds of the Borrower to the Bank and of all
instruments of any nature evidencing or relating to any such obligations and
liabilities upon which the Borrower or one or more parties and the Borrower is
or may become liable to the Bank, whether incurred by the Borrower as maker,
indorser, drawer, acceptor, guarantor, accommodation party, counterparty,
purchaser, seller or otherwise, and whether due or to become due, secured or
unsecured, absolute or contingent, joint and/or several, and howsoever or
whensoever acquired by the Bank (all of which are referred to as the
"Obligations"), and irrespective of the genuineness, validity, regularity,
discharge, release or enforceability of such Obligations, or of any instrument
evidencing any of the Obligations or of any collateral therefor or of the
existence or extent of such collateral or of the obligations of the undersigned
under this guarantee. The Obligations shall include interest accruing thereon
before or after the commencement of any insolvency, bankruptcy or reorganization
proceeding in respect of the Borrower or any other guarantor of the Obligations
whether or not such interest is an allowable claim in any such proceeding and
irrespective of the discharge or release of the Borrower or any other guarantor
in such proceeding.
The undersigned assents that the Bank may at any time and from time to time,
either before or after the maturity thereof, without notice to or further
consent of the undersigned, extend the time of payment of, exchange, release,
substitute or surrender any collateral for, renew or extend any of, or change
the amount of, the Obligations or increase the interest rate thereon, and may
also make any agreement with the Borrower or with any other party to or person
liable on any of the Obligations or any guarantor of or hypothecator of
collateral or other surety for such Obligations or interested therein, for the
extension, renewal, payment, compromise, discharge or release thereof, in whole
or in part, or for any modification of the terms thereof or of any agreement
between the Bank and the Borrower of any such other party or person, without in
any way impairing or affecting this guarantee.
The undersigned agrees that this guarantee shall not be impaired or otherwise
affected by any failure to call for, take, hold, protect or perfect, continue
the perfection of or enforce any security interest in or other lien upon, any
collateral for the Obligations, or by an failure to exercise, delay in the
exercising or waiver of, or forbearance with respect to, any right or remedy
available to the Bank with respect to the Obligations.
The undersigned acknowledges that it has derived or expects to derive a
financial or other benefit from each and every Obligation incurred by the
Borrower to the Bank.
The undersigned waives notice of the acceptance of this guarantee and of the
making of any such loans or extensions of credit or the incurrence of any
Obligation, presentment to or demand of payment from anyone whomsoever liable
upon any of the Obligations, protest, notice or presentment, nonpayment or
protest and notice of any sale or other disposition of collateral security or
any default of any sort.
To secure the liabilities of the undersigned under this guarantee, the
undersigned grants to the Bank a security interest in and a lien upon all
personal property of the undersigned or in which the undersigned may have an
interest which is now or may at any time hereafter come into the possession or
control of the Bank, or of any third party acting on behalf of the Bank, whether
for the express purpose of being used by the Bank as collateral security or for
custody or for any other or different purpose, including such personal property
as may be in transit by mail or carrier for any purpose or covered or affected
by any documents in the Bank's possession or control, or in the possession or
control of any third party acting on behalf of the Bank, or any collateral which
secures any other obligations of the undersigned to the Bank. The undersigned
authorizes the Bank in its discretion, at any time, to appropriate and apply
upon any of the liabilities of the undersigned under this guarantee any such
property of the undersigned and to charge any of such liabilities against any
balance of any account standing to the credit of the undersigned on the books of
the Bank. To satisfy the liabilities of the undersigned under this guarantee,
the Bank shall have, in addition to all other rights and remedies allowed by
law, the rights and remedies of a secured party under the Uniform Commercial
Code and without limiting the generality of the foregoing, the Bank may
immediately, without demand of performance and without notice of intention to
sell or otherwise dispose of or of the time or place of sale or other
disposition or of redemption or other notice or demand whatsoever to the
undersigned, all of which are expressly waived, to the extent permitted by law,
and without advertisement, sell at public or private sale, grant options to
purchase or otherwise realize upon, in the State of New York, or elsewhere, the
whole or from time to time any part of said collateral upon which the Bank shall
have a security interest and lien as aforesaid, and after deducting from the
proceeds of sale or other disposition of the said collateral all expenses
(including all reasonable expenses for legal services of every kind and other
expenses as set forth below), the Bank shall apply the residue of such proceeds
towards the payment of any of the liabilities of the undersigned under this
guarantee in such order as the Bank shall elect, the undersigned remaining
liable for any deficiency remaining unpaid after such application. If notice of
any sale or other disposition is required by law to be given, the undersigned
hereby agrees that notice sent at least five days before the time of any
intended public sale or of the time after which any private sale or other
disposition of the said collateral is to be made, shall be reasonable notice of
such sale or other disposition.
At any such sale or other disposition the Bank or any other person designated by
the Bank may itself purchase the whole or any part of the collateral sold or
otherwise disposed of, free from any right of redemption on the part of the
undersigned, which right, to the extent permitted by law, is hereby waived and
released.
The undersigned agrees to pay on demand, all expenses (including, but not
limited to, reasonable attorneys' fees and expenses, whether or not litigation
is commenced, and cost of any insurance and payment of taxes or other charges)
of, or incidental to, the custody, care, sale or collection of, or realization
upon, any of the said collateral.
This is a continuing guarantee and shall apply to all Obligations
notwithstanding that at any particular time any or all of the Obligations shall
have been paid in full. This guarantee shall remain in full force and effect and
be binding upon the undersigned, and the undersigned's successors and assigns,
until written notice of its revocation shall actually be received by the Bank.
No such revocation shall release the undersigned or affect in any manner the
rights, remedies, powers, security interests and liens of the Bank under this
guarantee with respect to any of the Obligations which shall have been created,
contracted, assumed or incurred prior to actual receipt by the Bank of such
written notice of revocation and any renewals or extensions thereof or any
Obligations which shall have been created, contracted, assumed or incurred after
actual receipt of such written notice pursuant to any agreement entered into by
the Bank prior to actual receipt of such written notice and any renewals or
extensions thereof. Any such revocation by one of the undersigned shall not
affect the continuing liabilities hereunder of such of the undersigned as do not
give notice of revocation. If any on the present or future Obligations are
guaranteed by persons, partnerships, limited liability companies or corporations
in addition to the undersigned, the death, release or discharge in whole or in
part, or the bankruptcy, liquidation or dissolution of one or more of them,
shall not discharge or affect the liabilities of the undersigned under this
guarantee.
This guarantee shall continue to be effective, or shall be reinstated, as the
case may be, if at any time payment of all or any part of any payment of any of
the Obligations is rescinded or must be restored or returned by the Bank whether
under any insolvency, bankruptcy, receivership or reorganization proceeding or
otherwise.
This guarantee may be assigned by the Bank and its benefits shall inure to the
successors, indorsees and assigns of the Bank.
This guarantee is a guarantee of payment and not of collection, and the Bank
shall be under no obligation to take any action against the Borrower or any
other person liable with respect to any of the Obligations or resort to any
collateral security securing any of the Obligation or this guarantee as a
condition precedent to the undersigned being obligated to make payment and to
perform as agreed herein. The undersigned hereby waives any right to claim or
interpose any defense, counterclaim or offset of any nature and description
which it may have or which may exist between and among the Bank, the Borrower
and/or the undersigned or to seek injunctive relief.
Promptly upon the Bank's request, the undersigned agrees to furnish such
information (including financial statements and tax returns of the undersigned)
to the Bank and to permit the Bank to inspect and make copies of its books and
records, as the Bank shall reasonable request from time to time.
The undersigned authorizes the Bank to date this guarantee and to complete any
blank space herein according to the terms upon which this guarantee was given.
Any notice to the Bank shall be effective only upon receipt by the Bank and if
directed to the Bank at its banking office set forth above or any other address
hereafter specified by written notice from the Bank to the undersigned.
Until such time as the Bank shall have received payment in full in cash
satisfaction of all of the Obligations, the undersigned waives any right to be
subrogated to the rights of the Bank with respect to the Obligations, and the
undersigned waives any right to and agrees that it will not institute or take
any action against the Borrower seeking contribution, reimbursement or
indemnification by the Borrower with respect to any payment made by the
undersigned to the Bank hereunder.
The undersigned agrees to pay all costs and expenses incurred by the Bank
incidental to or in any way relating to the enforcement of the Obligation or the
obligations of the undersigned hereunder or the protection of the rights of the
Bank hereunder or with respect to any of the Obligations including, but not
limited to, reasonable attorneys' fees and expenses, whether or not litigation
is commenced.
Every provision of this guarantee is intended to be severable; if any term or
provision of this guarantee shall be invalid, illegal or unenforceable for any
reason whatsoever, the validity, legality and enforceability of the remaining
provision hereof shall not in any way be affected or impaired thereby.
No failure on the part of the Bank to exercise, and no delay in exercising, any
right, remedy or power hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by the Bank of any right, remedy or power
hereunder preclude any other or future exercise thereof or the exercise of any
other fight, remedy or power.
Each and every right, remedy and power hereby granted to the Bank or allowed it
by law or other agreement shall be cumulative and not exclusive of any other
right, remedy or power, and may be exercised by the Bank at any time and from
time to time.
This guarantee contains the entire agreement and understanding between the Bank
and the undersigned with respect to the subject matter hereof and supersedes all
prior agreements and understanding relating to the subject matter hereof. This
guarantee may not be amended, and compliance with its terms may not be waived,
orally or by course of dealing, but only by a writing signed by an authorized
officer of the Bank.
Until cash payment in full of the obligation, the liability of the undersigned
under this guarantee shall not be released.
IF THE UNDERSIGNED IS A CORPORATION:
The undersigned represents and warrants that the undersigned is a corporation
duly organized, validly existing- and in good standing under the laws of the
state of' its incorporation; that the execution, delivery and performance of
this guarantee are within the undersigned's corporate powers and have been duly
authorized by all necessary action of its board of directors arid shareholders;
and that each person executing this guarantee has the authority to execute and
deliver this guarantee on behalf of the undersigned.
IF THE UNDERSIGNED IS A LIMITED LIABILITY COMPANY:
The undersigned represents and warrants that the undersigned is a limited
liability company duly organized, validly existing and in good standing under
the laws of the state of' its organization; that the execution, delivery and
performance of this guarantee are within the undersigned's company powers and
have been duly authorized by all necessary action of its members; and that each
person executing this guarantee has the authority to execute and deliver this
guarantee on behalf of the undersigned.
IF THE UNDERSIGNED IS A PARTNERSHIP:
The undersigned represents and warrants that the undersigned is a partnership
duly formed under the laws of the state of' its formation; that the execution,
delivery and performance of this guarantee are within the undersigned's
partnership powers and have been duly authorized by all necessary action of its
partners and do not contravene the provision of its partnership agreement; and
that each person executing this guarantee has the authority to execute and
deliver this guarantee on behalf of the undersigned.
THIS GUARANTEE SHALL BE CONSTRUED AND INTERPRETED, AND ALL RIGHTS AND
OBLIGATIONS HEREUNDER SHALL BE DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. UNLESS THE
TEXT OTHERWISE REQUIRES, ALL TERMS USED HEREIN SHALL HAVE THE MEANINGS SPECIFIED
IN THE UNIFORM COMMERCIAL CODE. THE UNDERSIGNED SUBMITS TO THE JURISDICTION OF
STATE AND FEDERAL COURTS LOCATED IN THE CITY AND STATE OF NEW YORK IN PERSONAM
AND AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO
THIS GUARANTEE SHALL BE LITIGATED ONLY IN SAID COURTS OR COURTS LOCATED
ELSEWHERE AS THE BANK MAY SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS. THE
UNDERSIGNED WAIVES PERSONAL SERVICE UPON IT AND CONSENTS TO SERVICE OF PROCESS
OUT OF SAID COURTS BY MAILING A COPY THEREOF TO IT BY REGISTERED OR CERTIFIED
MAIL.
THE UNDERSIGNED AND THE BANK WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY CONNECTED TO THIS GUARANTEE
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THE OBLIGATIONS.
IN WITNESS HEREOF, this guarantee has been executed by the undersigned as of the
date first written above.
NAME OF GUARANTOR: James L. Kehoe
12 Lenape Lane
Salisbury Mills, NY 12577
SIGNATURE OF GUARANTOR
OR AUTHORIZED SIGNER:-/s/James L. Kehoe
If Authorize Signer
Name: James L. Kehoe
ACKNOWLEDGEMENT FOR INDIVIDUAL
State of New York
County of Ulster
On the 15th day of February, 1999, before me personally came James L. Kehoe, to
me known to be the individual described in and who executed the foregoing
instrument, and acknowledged that (s)he executed the same
/s/ Claudine Y. Corda
Claudine Y. Corda
Notary Public State of New York
Reg No. 01C06005915
Qualified in Dutchess County
Commission Expires 4/20/2000
LIMITATION OF LIABILITY
(the following provisions shall be effective only if executed by a duly
authorized officer of the Bank)
Notwithstanding the aggregate amount of the Obligations which may become due to
the Bank from the Borrower at any time and from time to time, the liability of
the guarantor under this guarantee shall be limited to the sum of (i) $
_________________ (hereinafter referred to as the "Maximum Amount"), (ii) such
portion of the interest, legal expenses, insurance, taxes and other charges and
expenses as are provided for in the instruments or other documents (if any)
evidencing the Obligations of the Borrower as the Maximum Amount bears to the
aggregate principal amount of all Obligations of the Borrower to the Bank at the
time the Bank demands payment under this guarantee and (iii) all expenses
(including, but not limited to, reasonable attorneys' fees and expenses, whether
or not litigation is commenced) in any way relating to the enforcement or
protection of the rights of the Bank under this guarantee. It is understood,
however, that the Obligations of the Borrower to the Bank may at any time exceed
the Maximum Amount without affecting the liabilities of the guarantor under this
guarantee.
BANK OFFICER
Exhibit10(f) Bank of New York Line of Credit
THE
BANK OF
NEW MASTER PROMISSORY NOTE
YORK (PRIME RATE)
$ 300,000.00 February 15, 1999
FOR VALUE RECEIVED, the undersigned (the "Borrower") hereby promises to pay to
the order of THE BANK OF NEW YORK (the "Bank") at its 285 Main Mall,
Poughkeepsie, New York office, the principal sum of THREE HUNDRED THOUSAND
Dollars ($300,000.00) or the aggregate unpaid principal amount of all advances
made by the Bank to the Borrower (which aggregate unpaid principal amount shall
be equal to the amount duly indorsed and set forth opposite the date last
appearing on the schedule attached to this note), whichever is less.
Advances evidenced by this note shall be payable ON DEMAND.
The Borrower agrees to pay interest on the unpaid principal balance of each
advance evidenced hereby from the date such advance is made at a rate per annum
equal to the Prime Rate plus 2.0%, but not to exceed the maximum rate permitted
by law. If any payment which is to be made hereunder is not paid when due, the
Borrower agrees to pay interest on such payment, payable on demand, at a rate
per annum equal to the rate specified in the preceding sentence plus 2%, but not
to exceed the maximum rate permitted by law. "Prime Rate" shall mean, for any
day, the prime commercial lending rate of the Bank as publicly announced to be
in effect from time to time, such rate to be adjusted automatically, without
notice, on the effective date of any change in such rate. The Borrower
acknowledges that the Prime Rate is not the lowest rate at which the Bank may
make loans or other extensions of credit. Interest shall be computed on the
basis of a 360 day year for the actual number of days elapsed and shall be
payable on the ____ day of each month and at maturity of each advance evidenced
by this note (whether by acceleration or otherwise).
If any payment of principal of or interest on the advances evidenced by this
note becomes due and payable on a Saturday, Sunday or other day on which the
Bank is permitted or required by law to be closed, then such payment shall be
extended to the next succeeding business day, and interest shall be payable at
the rate set forth above during such extension.
Advances evidenced by this note may be prepaid at any time without penalty, but
with interest on the amount being prepaid through the date of prepayment.
If the Bank shall make a new advance on a day on which the Borrow is to repay an
advance hereunder, the Bank shall apply the proceeds of the new advance to make
such repayment and only the amount by which the amount being advanced exceed the
amount being repaid shall be made available to the Borrower in accordance with
the terms of this note.
The Borrow authorizes the Bank to accept oral (including telephonic) and written
(including facsimile) instructions from the Borrower or an authorized
representative of the Borrower to make an advance hereunder or receive any
payment hereof and to indorse on the schedule attached hereto the amount of all
advances hereunder and all principal payments hereof received by the Bank. The
Borrower agrees that the Bank may rely on instructions believed by the Bank to
be genuine and given by the Borrower or an authorized representative of the
Borrower.
The Bank is authorized to charge any deposit account of the Borrower maintained
at the Bank for each principal prepayment hereof on the date made, and for each
principal payment and for each interest payment due hereunder on the due date
thereof. The Bank shall credit the Borrower's deposit account maintained at the
Bank in the amount of each advance hereunder on the date of such advance, which
credit will be confirmed to the Borrower by standard advice of credit or
notation in the monthly statement sent to the Borrower in connection with such
account. The Borrower agrees that the actual crediting of the amount of the
advance to the Borrower's deposit account shall constitute conclusive evidence
that the advance was made, and neither the failure of the Bank to indorse on the
schedule attached hereto the amount of the advance nor the failure of the Bank
to forward an advice of credit to the Borrower or note such advance in the
monthly statement sent to the Borrower shall effect the Borrower's obligations
hereunder.
The Bank shall have a lien on the balances of the Borrower now or hereafter on
deposit with or held as custodian by the Bank and the Bank shall have full
authority to set off such balances against the indebtedness evidenced by this
note or any other Obligation (which term shall include any and all present and
future obligations or liabilities of the Borrower as maker, indorser, drawer,
acceptor, guarantor, accommodation party, counterparty, purchaser, seller or
otherwise, and whether due or to become due, secured or unsecured, absolute or
contingent, joint and/or several, and howsoever and whensoever acquired by the
Bank) and may at any time, without notice, to the extent permitted by law, apply
the same to the advances evidenced by this note or such other Obligations,
whether due or not.
All obligations of the Borrower to the Bank under this note are secured pursuant
to the terms of any security agreement executed by the Borrower in favor of the
Bank dated of even date herewith as such agreement may be amended or modified
from time to time and any other security agreement that the Borrower shall have
executed or shall at any time execute in favor of the Bank, and the Bank is
entitled to all the benefits thereof.
The Borrower acknowledges that the advances evidence hereby are payable on
demand and payment thereof may be demanded by the Bank at any time for any
reason in the sole and absolute discretion of the Bank.
All advances evidenced hereby together with all accrued interest thereon shall
become immediately and automatically due and payable, without demand,
presentment, protest or notice of any kind, upon the commencement by or against
the Borrower, any guarantor of this note or any hypothecator of collateral
securing this note of a case or proceeding under any bankruptcy, insolvency or
other law relating to the relief of debtors, the readjustment, composition or
extension of indebtedness or reorganization or liquidation.
The Borrower waives presentment, demand, protest and notice of protest,
non-payment or dishonor of this note.
The Borrower agrees to pay all costs and expenses incurred by the Bank
incidental to or in any way relating to the Bank's enforcement of the
obligations of the Borrower hereunder or the protection of the Bank's rights in
connection herewith, including, but not limited to, reasonable attorneys' fees
and expenses, whether or not litigation is commenced.
Promptly upon the Bank's request, the Borrower agrees to furnish such
information (including, without limitation, financial statements and tax returns
of the Borrower) to the Bank and to permit the Bank to inspect and make copies
of its books and records, as the Bank shall reasonably request from time to
time.
So long as any obligation of the Borrower to the Bank is or may be outstanding
and unpaid, the Borrower agrees that it will not grant, without the prior
written consent of the Bank, a security interest in, a lien upon or an
assignment of, any of its current assets (as classified in accordance with
generally accepted accounting principles) now owned or hereafter acquired, to
secure any obligation for the payment of borrowed money indebtedness except
indebtedness owed to the Bank.
The Borrower waives any right to claim or interpose any counterclaim or set-off
of any kind in any litigation relating to this note or the transactions
contemplated hereby.
This note may not be amended. and compliance with its terms may not be waived,
orally or by course of dealing, but only by a writing signed by an authorized
officer of the Bank.
This note may be assigned or indorsed by the Bank and its benefits shall inure
to the successors, indorsees and assigns of the Bank.
The Borrower authorizes the Bank to date this note and to complete any blank
space herein according to the terms upon which said advances were granted.
No failure on the part of the Bank to exercise, and no delay in exercising, any
right, remedy or power hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by the Bank of any right, remedy or power
hereunder preclude any other or future exercise thereof or the exercise of any
other right, remedy or power.
Each and every right, remedy and power hereby granted to the Bank or allowed it
by law or other agreement shall be cumulative and not exclusive of any other
right, remedy or power, and may be exercised by the Bank at any time and from
time to time.
Every provision of this note is intended to be severable; if any term or
provision of this note shall be invalid, illegal or unenforceable for any
reason, the validity, legality and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
IF THE BORROWER IS A CORPORATION:
The Borrower represents and warrants that the Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the state of'
its incorporation and is duly qualified to do business in the State of New York;
that the execution, delivery and performance of this note are within the
Borrower's corporate powers and have been duly authorized by all necessary
action of its board of directors and shareholders; and that each person
executing this note has the authority to execute and deliver this note on behalf
of the Borrower.
IF THE BORROWER IS A LIMITED LIABILITY COMPANY:
The Borrower represents and warrants that the Borrower is a limited liability
company duly organized, validly existing- and in good standing under the laws of
the state of' its organization and is duly qualified to do business in the State
of New York; that the execution, delivery and performance of this note are
within the Borrower's company powers and have been duly authorized by all
necessary action of its members; and that each person executing this note has
the authority to execute and deliver this note on behalf of the Borrower.
IF THE BORROWER IS A PARTNERSHIP:
The Borrower represents and warrants that the Borrower is a partnership duly
formed under the laws of the state of' its formation and is duly qualified to do
business in the State of New York; that the execution, delivery and performance
of this note are within the Borrower's partnership powers and have been duly
authorized by all necessary action of its partners and do not contravene the
provisions of its partnership agreement; and that each person executing this
note has the authority to execute and deliver this note on behalf of the
Borrower.
THE PROVISIONS OF THIS NOTE SHALL BE CONSTRUED AND INTERPRETED, AND ALL RIGHTS
AND OBLIGATIONS HEREUNDER DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER
SUBMITS TO THE JURISDICTION OF STATE AND FEDERAL COURTS LOCATED IN THE CITY AND
STATE OF NEW YORK IN PERSONAM AND AGREES THAT ALL ACTIONS AND PROCEEDINGS
RELATED DIRECTLY OR INDIRECTLY TO THIS NOTE SHALL BE LITIGATED ONLY IN SAID
COURTS OR COURTS LOCATED ELSEWHERE AS SELECTED BY THE BANK AND THAT SUCH COURTS
ARE CONVENIENT FORUMS. THE BORROWER WAIVES PERSONAL SERVICE UPON IT AND CONSENTS
TO SERVICE OF PROCESS BY MAILING A COPY THEREOF TO IT BY REGISTERED OR CERTIFIED
MAIL.
THE BORROWER AND THE BANK WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY CONNECTED TO THIS NOTE OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
Name of Borrower: Sono-Tek Corporation
Address of Borrower: 2012 Route 9W, Bldg. 3
Milton, NY 12547
Signature of Borrower
or Authorized Signer: /s/James L. Kehoe
Name: James L. Kehoe
Title: CEO
Signature of Borrower
or Authorized Signer: /s/Kathleen N. Martin
Name: Kathleen N. Martin
Title: CFO, Treasurer
Exhibit 23(a) Independent Auditors' Consent
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-60481 on Form S-8 of our report dated May 5, 1999 (May 13, 1999 as to Note
16) appearing in the Annual Report on Form 10-K of Sono-Tek Corporation for the
year ended February 28, 1999.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
May 28, 1999
/s/ Dr. Christopher L Coccio | May 29, 2009 | /s/ Samuel Schwartz | May 29, 2009 |
| Christopher L. Coccio | | Samuel Schwartz | |
| Chief Executive Officer, | | Director | |
| Chairman and Director | | | |
| | | |
/s/ Stephen J. Bagley | May 29, 2009 | /s/ Dr. Joseph Riemer | May 29, 2009 |
| Stephen J. Bagley | | Dr. Joseph Riemer | |
| Chief Financial Officer | | President and Director | |
| | | |
/s/ Edward J. Handler, III | May 29, 2009 | /s/ Philip A. Strasburg | May 29, 2009 |
| Edward J. Handler, III | | Philip A. Strasburg | |
| Director | | Director | |
| | | |
| | /s/ Dr. Donald F. Mowbray | May 29, 2009 |
| | Donald F. Mowbray | |
| | Director | |