UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 2000August 31, 2008
OR
[ ]|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No.: 0-16035
SONO-TEK CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1568099
------------------------------- -------------
(State or other jurisdiction of ( IRS(IRS Employer
incorporation or organization) Identification No.)
2012 Rt. 9W, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant'sIssuer's telephone no., including area code: (845) 795-2020
Indicate by check mark 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 Registrantregistrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X|X| NO _____|_|
Indicate by check mark 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.
Large Accelerated Filer |_| Accelerated Filer |_| Smaller reporting company |X|
Non Accelerated Filer |_| (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |_| NO |X|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding as of
Class January 16, 2001October 2, 2008
----- ---------------
Common Stock, par value $.01 per share 9,092,35514,381,996
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Consolidated Financial Statements: 1 - 3
Consolidated Balance Sheets - November 30, 2000August 31, 2008 (Unaudited) and
February 29, 20002008 1
Consolidated Statements of OperationsIncome - NineSix Months and Three
Months Ended November 30, 2000August 31, 2008 and 19992007 (Unaudited) 2
Consolidated Statements of Cash Flows - NineSix Months Ended
November 30, 2000August 31, 2008 and 19992007 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 97
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 108 - 1211
Item 3 - Quantitative and Qualitative Disclosure AboutDisclosures about Market Risk 12
Item 4 - Controls and Procedures 12
Part II - Other Information 13 - 14
Signatures 1415
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
November 30,August 31,
2008 February 29,
2000 2000
Current AssetsAssets: Unaudited ------------------------------2008
------------- -------------
Cash and cash equivalents $ 43,7201,285,399 $ 8,1762,339,550
Accounts receivable (less allowance of
$36,997 and $39,997$18,500 at November 30August 31 and February 29, respectively) 1,155,788 1,619,63929) 816,730 614,378
Inventories (Note 5) 1,240,232 1,224,3802,039,119 1,602,511
Prepaid expenses and other current assets 131,300 74,308
------------ ------------86,694 69,032
Deferred tax asset 70,000 70,000
------------- -------------
Total current assets 2,571,040 2,926,5034,297,942 4,965,471
------------- -------------
Equipment, furnishings and leasehold improvements
(less accumulated depreciation
of $532,913$1,127,398 and $469,011$1,046,195 at November 30August 31 and
February 29, respectively) 320,095 256,994495,752 536,892
Intangible assets, net:
Goodwill 1,275,084 1,232,571
Patents, patents pending and copyrights (Note 1) 27,142 31,642
Deferred financing fees 27,235 32,563
------------- -----------
Total intangible assets, net 1,329,461 1,296,776
Long-term equity investments (Note 6) 16,686 19,31049,789 34,011
Other assets 11,342 14,5427,171 7,171
Deferred tax asset 615,803 615,803
------------- -------------
TOTAL ASSETS $4,248,624 $4,514,125
========== ==========$ 5,466,457 $ 5,889,348
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 975,647339,018 $ 847,135
Deferred revenue 0 725,491412,692
Accrued expenses 736,738 437,342
Revolving line of credit 350,000 334,307
Short term loans-related parties (Note 7) 302,084 239,084335,641 452,911
Current maturities of long term debt 253,611 220,532
Short term convertible loan 0 100,000
---------------- ----------18,348 23,909
Deferred tax liability 16,239 16,239
------------- -------------
Total current liabilities 2,618,080 2,903,891
---------- ---------
Subordinated mezzanine debt 398,368 382,060709,246 905,751
Long term debt, less current maturities 121,737 273,544
Subordinated convertible loans-related parties 150,000 150,000
---------- -------18,847 27,628
Deferred tax liability 57,978 57,978
------------- -------------
Total liabilities 3,288,185 3,709,495786,071 991,357
------------- -------------
Commitments and Contingencies Put Warrants 77,000 77,000-- --
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares
authorized, 9,092,35514,371,091 and 8,866,61214,361,091 shares
issued and outstanding at November 30August 31 and
February 29, respectively 90,924 88,666144,212 143,612
Additional paid-in capital 5,980,167 5,711,8008,433,429 8,343,880
Accumulated deficit (5,187,652) (5,072,836)
----------- ----------(3,897,255) (3,589,501)
------------- -------------
Total stockholders' equity 883,439 727,630
----------- ------------4,680,386 4,897,991
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,248,624 $4,514,125
========== ==========$ 5,466,457 $ 5,889,348
============= =============
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
Unaudited
NineSix Months Ended November 30,August 31, Three Months Ended November 30,
Unaudited Unaudited
2000 1999 2000 1999August 31,
---------------------------- ----------------------------
2008 2007 2008 2007
---------------------------- ----------------------------
Net Sales $6,274,904 $3,660,200 $1,980,921 $1,551,772$ 3,226,003 $ 2,647,166 $ 1,605,482 $ 1,414,523
Cost of Goods Sold 3,608,736 1,726,067 1,024,411 739,523
---------- --------- --------- ---------1,678,928 1,387,884 847,271 758,751
------------ ------------ ------------ ------------
Gross Profit 2,666,168 1,934,133 956,510 812,249
---------- --------- --------- ---------1,547,075 1,259,282 758,211 655,772
------------ ------------ ------------ ------------
Operating Expenses
Research and product development costs 687,693 430,068 218,058 170,712419,460 370,257 213,890 175,517
Marketing and selling expenses 1,108,465 787,757 363,191 303,061843,755 494,086 429,846 260,042
General and administrative costs 691,249 591,840 243,105 300,986
--------- ---------- --------- ---------606,298 447,881 297,642 232,893
------------ ------------ ------------ ------------
Total Operating Expenses 2,487,407 1,809,665 824,354 774,759
--------- --------- --------- ---------1,869,513 1,312,224 941,378 668,452
------------ ------------ ------------ ------------
Operating (Loss) (322,438) (52,942) (183,167) (12,680)
Interest Expense (1,480) (2,377) (677) (1,142)
Interest Income 178,761 124,468 132,156 37,49010,502 47,829 3,717 23,061
Other (Loss) Income:
Interest expense (230,765) (167,587) (53,402) (38,550)
Equity loss in PNR (Note 6) (70,585) 0 (18,558) 0
Interest income and other (loss) income 7,773 11,980 3,826 (588)
---------- --------- -------- ----------
Total OtherIncome 5,662 5,661 2,831 2,831
------------ ------------ ------------ ------------
(Loss) Income (293,577) (155,607) (68,134) (39,138)
(Loss) Incomefrom Operations Before Income Taxes (114,816) (31,139) 64,022 (1,648)(307,754) (1,829) (177,296) 12,070
Income Tax Expense 0 0 0 0
---------- --------- -------- ---------(Benefit) -- (33,813) -- --
------------ ------------ ------------ ------------
Net (Loss) Income $(114,816) $(31,139) $64,022 $(1,648)
========= ========= ======== =======$ (307,754) $ 31,984 $ (177,296) $ 12,070
============ ============ ============ ============
Basic (Loss) Earnings Per Share $(0.01) $(0.00) $ 0.01 $(0.00)
======= ======= ====== =======(0.02) $ 0.00 $ (0.01) $ 0.00
============ ============ ============ ============
Diluted (Loss) Earnings Per Share $(0.01) $(0.00) $ 0.01 $(0.00)
======= ======= ====== =======(0.02) $ 0.00 $ (0.01) $ 0.00
============ ============ ============ ============
Weighted Average Shares - Basic 8,984,787 7,155,467 9,047,025 8,289,566
========= ========= ========= =========14,364,732 14,360,541 14,368,374 14,360,541
============ ============ ============ ============
Weighted Average Shares - Diluted 8,984,787 7,155,467 10,987,648 8,289,566
========= ========= ========== =========14,364,732 14,445,376 14,368,374 14,444,427
============ ============ ============ ============
See notes to consolidated financial statements.
-2-
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NineSix Months Ended November 30,August 31,
---------------------------
Unaudited
2008 2007
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
2000 1999
------------------------------
Net Loss $(114,816) $(31,139)(Loss) Income $ (307,754) $ 31,984
Adjustments to reconcile net loss(loss) income to net cash
(used in) provided by (used in)
operating activities:
Non-cash charge for issuance of warrants 75,831 102,626
Accrued interest-short term loans-related parties 27,337 13,293
Imputed interest expense on subordinated mezzanine debt 16,308 3,624
Loss on equity investment 2,624 0
Depreciation and amortization 141,529 75,937
(Benefit) provision for doubtful accounts (3,000) 3,915104,420 67,907
Stock based compensation expense 84,149 19,838
Gain on sale of equipment 23,384 --
Decrease (Increase) decrease in:
Accounts receivable 466,851 (421,013)(202,352) 149,557
Inventories (15,852) (36,919)(436,608) (159,851)
Prepaid expenses and other current assets (53,792) (10,423)(17,662) 41,761
Deferred tax asset -- (35,000)
(Decrease) Increase (decrease) in:
Accounts payable and accrued expenses 219,176 (16,640)
Customer deposits181,396 (16,000)
Deferred revenue (725,491) 0
Non-current rent payable 0 749
-------- ----------(190,944) (84,187)
----------- -----------
Net Cash (Used In) Provided by (Used in)By Operating Activities 218,101 (331,990)
-------- ----------(943,367) 32,009
----------- -----------
CASH FLOWSFLOW FROM INVESTING ACTIVITIES:
AcquisitionPatent application costs net of cash received (102,813) (315,518)(18,073) --
Purchase of equipment and furnishings (127,003) (46,424)
--------- ---------(84,369) (64,002)
----------- -----------
Net Cash Used in(Used In) Investing Activities (229,816) (361,942)
--------- ---------(102,442) (64,002)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 15,693 100,000
Proceeds from bank loan for production equipment 78,859 0
Proceeds from short term loans-related parties 204,000 127,000
Proceeds from subordinated mezzanine debt 0 450,000
Proceeds from issuance of stock 130,000 287,000
Proceeds from exercise of warrants 55,692 0
Proceeds from exercise of stock options 1,602 0
Deferred financing fees 0 (35,523)and warrants 6,000 --
Repayments of short term loans-related party (141,000) (100,000)
Repayments of short term borrowings (100,000) 0
Repayments of notenotes payable and equipment loans (197,587) (64,181)
-------- --------(14,342) (13,469)
----------- -----------
Net Cash Provided by(Used In) Financing Activities 47,259 764,296
--------- --------(8,342) (13,469)
----------- -----------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 35,544 70,364(1,054,151) (45,462)
CASH AND CASH EQUIVALENTS
Beginning of period 8,176 70,051
------- --------2,339,550 2,268,976
----------- -----------
End of period $43,720 $140,415
======= ========$ 1,285,399 $ 2,223,514
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $34,859 $ 39,179
======= ========
Common stock issued in connection with purchase of SEREC assets $7,500 $0
====== ==
Non-cash equity contribution in PNR $9,800 $0
====== ==
Non-cash exchange of accrued bonuses for common stock $0 $17,188
== =======1,351 $ 2,376
=========== ===========
See notes to consolidated financial statements.
-3-
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
November 30, 2000Six Months Ended August 31, 2008 and 19992007
NOTE 1: SUMMARY OF 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.
("SCS"), a New
Jersey Corporation formerly known as S&K Products International,
Inc., ("S&K"SCS"), which the Company acquired on August 3, 1999, (the "Acquisition").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.
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 inclusionCompany occasionally has cash
or cash equivalents on hand in excess of SCS's results since August 3, 1999 has an effectthe $100,000 insurable limits at a
given bank.
Fair Value of Financial Instruments - The carrying amounts reported in the
balance sheet for cash, receivables, accounts payable and accrued expenses
approximate fair value based on the comparisonshort-term maturity of the Company's Fiscal Year 2001 results to prior periods.these instruments.
Interim Reporting - The attached summary consolidated financial information does
not include all disclosures required to be included in a complete set of
financial statements prepared in conformity with accounting principles generally
accepted in the United States of America. Such disclosures were included with
the financial statements of the Company at February 29, 2000,2008, and included in
its report on Form 10-K.10-KSB. Such statements should be read in conjunction with
the data herein.
The financial information reflects all adjustments, normal and recurring, which,
in the opinion of management, are necessary for a fair presentation of the
results for the interim periods presented. The preparation of financial
statements in conformity with generally accepted accounting principles 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. The results for such interim periods are not necessarily indicative
of the results to be expected for the year.
Patent and Patent Pending CostsIntangible Assets - CostsInclude cost of patent applications that are deferred and
charged to operations over seventeen years for domestic patents and twelve years
for foreign patents. However, if it appears that such costs are related to
products which are not expected to be developed 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. The accumulated amortization is $84,554$61,244 and $80,053$58,949 at
November 30August 31, 2008 and February 29, 2000,2008, respectively. Annual amortization expense
of such intangible assets is expected to be $4,600 per year for the next five
years.
-4-
Reclassifications - Certain February 29, 2000 balancesreclassifications have been reclassifiedmade to the prior period
to conform withto the presentations of the current period presentations.
Adoption of Financial Accounting Standards - In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). This statement establishes standards for the
accounting and reporting for derivative instruments and for hedging activities
and requires the recognition of all derivatives as assets or liabilities
measured at their fair value. Gains or losses resulting from changes in the fair
value of derivatives would be recognized in earnings in the period of change
unless certain hedging criteria are met. The Company does not expect SFAS 133 to
have a material impact on the consolidated financial statements. The FASB issued
SFAS Nos. 137 and 138, which deferred the effective date of implementation of
SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000 and amended SFAS 133, respectively.
Revenue Recognition in Financial Statements - In December 1999, the Securities
and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying accounting principles generally accepted in the
United States of America to revenue recognition in financial statements. On June
26, 2000, the SEC issued SAB 101B to defer the effective date of implementation
of SAB 101 until no later than the fourth quarter of fiscal years beginning
after December 31, 1999. The Company is required to adopt SAB 101 by February
28, 2001. The Company does not expect the adoption of SAB 101 to have a material
impact on the consolidated financial statements.period.
NOTE 2: SEGMENT INFORMATION
The Company has two reportable segments: spraying products and cleaning and
drying systems. The spraying products segment is primarily engaged in the
business of developing, manufacturing, selling, installing and servicing
ultrasonic spray equipment. The cleaning and drying systems segment is engaged
in the business of developing, manufacturing, selling, installing and servicing
cleaning and drying systems for the semiconductor, disk drive and precision
cleaning industries.
Summary financial information concerning the Company's reportable segments is
shown in the following table:
Nine Months Ended November 30, 2000
Spraying Cleaning
Products Systems Total
Net Sales $3,361,438 $2,913,466 $6,274,904
Net Income (Loss) 370,566 (485,382) (114,816)
Capital Expenditures 121,561 5,442 127,003
Depreciation and Amortization Expense 57,225 84,305 141,530
Three Months Ended November 30, 2000
Spraying Cleaning
Products Systems Total
Net Sales $1,190,617 $790,303 $1,980,921
Net Income (Loss) 233,426 (169,404) 64,022
Capital Expenditures 23,253 0 23,253
Depreciation and Amortization Expense 23,329 30,871 54,201
The Company operated in a single reportable segment for the period from March 1,
1999 through August 3, 1999.
NOTE 3: ACQUISITION OF SCS
On August 3, 1999 the Company purchased all the outstanding stock of S&K, a
supplier of cleaning and drying systems for the semiconductor, disk drive, and
precision cleaning industries. In June 2000, the Company changed S&K's name to
SCS.
The following unaudited proforma information presents a summary of the
consolidated results of operations of the Company and SCS as if the acquisition
had occurred on March 1, 1999.
Proforma Consolidated Statement of Operations
Nine months ended November 30, 1999
Net Sales $4,219,427
Cost of Goods Sold 1,962,130
---------
Gross Profit 2,257,297
Operating Expenses 2,329,840
---------
Operating Loss (72,543)
Interest Expense (198,672)
Interest & Misc. Income 28,382
---------
Net Loss $(242,833)
=========
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense as
a result of goodwill and the elimination of extraordinary items associated with
the acquisition. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred on
March 1, 1999, or of future results of operations of the consolidated entities.
NOTE 4: ACQUISITION OF SEREC ASSETS
On September 21, 2000, the Company acquired certain intellectual property and
intangible assets of Serec Corporation, a Rhode Island corporation which
manufactured and sold solvent based cleaning systems. In exchange for $100,000
cash, the Company received the rights to seven patents, one registered
trademark, unfulfilled purchase orders, engineering designs and certain other
intangible assets. Professional fees and other costs of $10,313, $7,500 of
which, was attributed to the issuance of common stock, were capitalized as
additional purchase price. The aggregate purchase price of $110,313 is recorded
as goodwill due to the inability to specifically identify the values associated
with the various intangible assets acquired. The goodwill will be amortized on
the straight-line basis over 5 years. Accumulated amortization of goodwill at
November 30, 2000 was $3,678.
NOTE 5: INVENTORYINVENTORIES
Inventories at November 30, 2000August 31, 2008 are comprised of:
Finished goods $440,492$ 1,067,722
Work in process 135,188629,523
Consignment 9,770
Raw materials and subassemblies 860,152
----------554,302
-----------
Total 1,435,8322,261,317
Less: Allowance (195,600)
----------(222,198)
-----------
Net total inventories $1,240,232$ 2,039,119
===========
NOTE 6: LONG-TERM EQUITY INVESTMENT3: STOCK OPTIONS AND WARRANTS
Stock Options - NET
In January 2000, in connection withUnder the formation of PNR America, LLC, a
Delaware limited liability company2003 Stock Incentive Plan, as amended ("PNR America"2003 Plan"),
the Company invested $19,600
in PNR America for a 49% ownership interest. Flowtech Srl ("Flowtech"), an
Italian pressure nozzle manufacturer, owns the remaining 51%. In August 2000,options can be granted to officers, directors, consultants and employees of the
Company and Flowtech pledged an additional investment of $9,800 and $10,200,
respectively, in PNR America, thereby maintaining each's proportional share. On
November 30, 2000 the Company made its $9,800 contribution by decreasing the
amount owedsubsidiaries to the Company by PNR America.
PNR America was formedpurchase up to market and sell nozzles imported from Flowtech in the
U.S. The PNR America product line compliments the Company's existing business as
there are certain basic nozzle properties common to both product lines and
capitalizes on the Company's existing relationships with its customers. Prior to
the formation of PNR America, the Company had been a U.S. distributor of
Flowtech products.
Certain1,500,000 of the Company's officerscommon
shares. The 2003 Plan supplemented and directors are also officersreplaced the 1993 Stock Incentive Plan
(the "1993 Plan"), under which no further options may be granted. Options
granted under the 1993 Plan expire on various dates through 2013. As of August
31, 2008, there were 62,500 options outstanding under the 1993 Plan and
directors
of PNR America, however, PNR America's board of directors is controlled by
Flowtech. The Company does not control PNR America1,130,375 options outstanding under the 2003 plan.
Under both the 1993 and it is therefore not
consolidated for reporting purposes.
The Company shares its facilities and personnel with PNR America. The Company
allocated costs of $21,438 and $78,668 to PNR America for the three and nine
month periods ended November 30, 2000, respectively, and $13,967 for the period
of inception through February 29, 2000. Balances due from PNR America of $58,161
and $13,9672003 Stock Incentive Plans, option prices must be at
November 30, 2000 and February 29, 2000, respectively, are
expected to be repaid out of PNR America's fiscal year 2001 operating cash
flows.
PNR America's year end is December 31, however, for financial reporting purposes
the Company will reflect its proportionate shareleast 100% of the operating results of PNR
America on a monthly basis, as the records are compiled by the Company. The
Company's cumulative recorded equity loss in PNR America at November 30, 2000
was $55,442. The Company recognized, during the nine and three month period
ended November 30, 2000 and the period from inception to February 29, 2000,
$70,585, $18,558 and $14,257, respectively, as its estimatefair market value of the proportionate
sharecommon stock at time of grant. For
qualified employees, except under certain circumstances specified in the net loss of PNR America. The Company, for financial reporting
purposes, has netted the cumulative equity loss in PNR America with the
intercompany balances due from PNR America.
The condensed financial information of PNR America as of November 30, 2000 and
for the three month period ended November 30, 2000 is as follows:
Net loss-three months ended November 30, 2000 $(35,654)
=========
Net loss-nine months ended November 30, 2000 $(144,048)
=========
Total assets - current $91,622
=======
Due to Sono-Tek $72,128
Due to Flowtech 137,087
Accrued Expenses 5,756
--------
Liabilities 214,971
Stockholders' deficiency (123,49)
--------
Total liabilities and stockholders' deficiency $91,622
=======
Note 7: SHORT TERM LOANS RELATED PARTIES
From time to time the Company has required short-term loans to meet its payment
obligations. All of these loans, which are payable on demand, have been provided
by certain officers and directors of the Company at an interest rate of prime
plus 2% computedplans
or unless otherwise specified at the timediscretion of the loan (9.75% to 11.5% at November 30, 2000).
As of November 30, 2000 the amount of these loans outstanding was $302,084.
Interest expense for the nine month period and three month period ended November
30, 2000 was $16,657 and $7,381, respectively. Accrued interest was $27,337 and
$13,165 at November 30, 2000 and February 29, 2000, respectively.
NOTE 8: COMMITMENTS AND CONTINGENCIES
On October 1, 2000, the Company entered into a lease agreement for additional
production space in Milton, NY. The lease, which terminates November 30, 2002,
has an annual rent of $18,000. The Company has the option to renew the lease for
a period of three years after expiration.
NOTE 9. EARNINGS (LOSS) PER SHARE
Basic earnings per share ("EPS") and loss per share ("LPS") are computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding for the period. Diluted EPS would reflect, if applicable, the
potential dilution that could occur if securities or other obligations to issue
common stock were exercised or converted into common stock. Stock options
granted but not yet exercised under the Company's stock option plans would be
included for Diluted EPS calculations, if applicable, under the treasury stock
method.
The computation of basic and diluted (loss) per share are set forth on the
following table:
Nine Months Ended Three Months Ended
November 30, November 30,
2000 1999 2000 1999
---- ---- ---- ----
Numerator-
Numerator for basic and diluted
earnings (loss) per share $(114,816) $(31,139) $64,022 $(1,648)
========== ========= ======= ========
Denominator:
Denominator for basic earnings (loss)
per share - weighted average shares 8,984,787 7,155,467 9,047,025 8,289,467
Effects of dilutive securities:
Stock warrants 0* 0* 1,526,483 0*
Stock options for employees, directors
and outside consultants 0* 0* 414,140 0*
-------------- --------------- ------------ --------------
Denominator for diluted earnings
(loss) per share 8,984,787* 7,155,467* 10,987,648* 8,289,566
========= ========= ========== =========
*Stock options and warrants for employees, directors and outside consultants
are antidilutive as a result of the net loss and therefore are not
considered in the Diluted LPS calculation.
Under the assumption that stock options, warrants and convertible long term
loans were not antidilutive as described above, the denominator for Diluted LPS
would be 11,234,771 and 9,408,667 weighted average shares for the nine month
period at November 30, 2000 and 1999, respectively and 11,340,411 weighted
average shares for the three month period at November 30, 1999.
On October 9, 2000, 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 Company granted options to
acquire 72,500 sharesoption, and terminating at a stipulated period of common stock to qualified employeestime after an
employee's termination of employment.
NOTE 4: STOCK BASED COMPENSATION
On March 1, 2006, the Company which are exercisableadopted SFAS No. 123R, "Share Based Payments."
SFAS No. 123R requires companies to expense the value of employee stock options
and similar awards for periods beginning after December 15, 2005, and applies to
all outstanding and vested stock-based awards at thea company's adoption date.
The weighted-average fair market value of options has been estimated on the date of
grant underusing the Company's 1993 Stock Incentive Plan,Black-Scholes options-pricing model. The weighted-average
Black-Scholes assumptions are as amended.
NOTE 10: SUBSEQUENT EVENTS
Letterfollows:
-5-
2008 2007
-----------------------------
Expected life 4 years 4 years
Risk free interest rate 1.8% - 3.13% 4.35% - 5.07%
Expected volatility 55% - 70% 39% - 78%
Expected dividend yield 0% 0%
In computing the impact, the fair value of intent - On May 16, 2000,each option is estimated on the Company signeddate
of grant based on the Black-Scholes options-pricing model utilizing certain
assumptions for a letterrisk free interest rate; volatility; and expected remaining
lives of intent to
purchase all the outstanding stockawards. 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 corporation to further expand the
Company's product base. This letter of intent has expired by its termsresult, if factors change and the Company is no longer pursinguses different
assumptions, the purchase.
Short term loans - related parties - During December 2000, a director ofCompany's stock-based compensation expense could be materially
different in the future. In addition, the Company loanedis required to estimate the
expected forfeiture rate and only recognize expense for those shares expected to
vest. In estimating the Company's forfeiture rate, the Company $20,000 atanalyzed its
historical forfeiture rate, the fixedremaining lives of unvested options, and the
amount of vested options as a percentage of total options outstanding. If the
Company's actual forfeiture rate of 9%, convertible at $1.00is 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 six months ended August 31, 2008 and 2007, net income and earnings per
share intoreflect the Company's common stock.
Subordinated mezzanine debt - During December 2000,actual deduction for stock-based compensation expense. The
impact of applying SFAS 123R approximated $84,149 and $19,838 in additional
compensation expense during the note was increased by
$100,000. Ifsix months ended August 31, 2008 and 2007,
respectively. Such amount is included in general and administrative expenses on
the $100,000 plus intereststatement of operations. The expense for stock-based compensation is a
non-cash expense item.
NOTE 5: EARNINGS PER SHARE
The denominator for the calculation of diluted earnings per share at August 31,
2008 and 2007 are calculated as follows:
August 31, 2008 August 31, 2007
--------------- ---------------
Denominator for basic earnings per share 14,364,732 14,360,541
Dilutive effect of stock options -- 84,835
---------- ----------
Denominator for diluted earnings per share 14,364,732 14,445,376
========== ==========
The effect of stock options for the six months ended August 31, 2008 is not repaid by March 22, 2001,used
in the scheduled principal payments will increasecalculation of diluted earnings per share. Due to $15,278 per month andthe net loss for the
six months ended August 31, 2008, the inclusion of stock options in the
calculation would have an anti-dilutive effect.
-6-
NOTE 6: OTHER INCOME
As previously disclosed on Form 8-K, filed on July 5, 2005, the Company
determined that a replacement Warrant will be issued for 1,344,444 sharesformer employee had misappropriated approximately $250,000 of
the Company's common
stock.monies, primarily through unauthorized check writing from the
Company's accounts over a period of three calendar years. The Company had
previously expensed substantially all of the misappropriated funds over the
years.
The Company has recovered approximately 74% of these funds to date. The Company
has a note that is being paid down by the former employee. The note has been
fully reserved for as the collectibility is questionable. As previously
discussed, the Company can offer no assurances that it will be successful in its
attempts to collect the balance of the remaining restitution.
-7-
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
Certain statements madeWe discuss expectations regarding our future performance, such as our business
outlook, in this report may constituteour annual and quarterly reports, press releases, and other written
and oral statements. These "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 Companyare based on currently
available competitive, financial and its managementeconomic data and involve knownour operating plans. They
are inherently uncertain, and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Companyinvestors 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 statements.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 other 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.
One change that has proven successful is our diversification into the medical
device market. In the past several years, we have focused engineering resources
on the medical device market, with emphasis on providing coating solutions for
the new generation 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 several multiple stent coaters known as
Medicoat II, designed for production use.
-8-
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), textiles and solar
and fuel cell industries. We plan to increase our marketing efforts into the
broader textile and food industry markets. 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.
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. It is management's opinion that this strategy will be a better
one than relying solely on our traditional domestics electronics business.
Liquidity and Capital Resources
The Company'sWorking Capital - Our working capital decreased $69,652$471,000 from $22,612a working capital
of $4,060,000 at February 29, 20002008 to a working capital deficiency of $(47,040)$3,589,000 at November 30, 2000.August 31, 2008. The
Company's current ratio is 6.06 to 1 at August 31, 2008 as compared to 5.5 to 1
at February 29, 2008.
Stockholders' Equity - Stockholder's Equity decreased $218,000 from $4,898,000
at February 29, 2008 to $4,680,000 at August 31, 2008. The decrease in working capital was primarilyis a result
of a decreasethe net loss of $308,000, an adjustment for stock based compensation expense
of $84,000 and the exercise of stock options of $6,000.
Operating Activities - We used $943,000 of cash in our operating activities for
the six months ended August 31, 2008. The use of cash resulted from the current
period net loss of $308,000, an increase in accounts receivable of $466,851 that was offset by a decrease$202,000, an
increase in deferred revenueinventories of $725,491$437,000 and increasesan increase of $18,000 in prepaid
assets. In addition to the above, our accounts payable and accrued expenses
of $219,176 and customer deposits of
$181,396.
The Company's stockholders' equity increased $155,809 from $727,630 on February
29, 2000 to $883,439 on November 30, 1999. Of this increase, $137,500 was due todecreased $191,000 during the sale of 137,500 shares of common stock through a Private Placement, $132,242
was due to the exercise of warrants and options that were offset by the $114,816
losscurrent period.
Investing Activities - We used $84,000 for the ninepurchase of capital equipment and
$18,000 for patent application costs during the six months ended November 30, 2000.
During Fiscal Year 2000,August 31,
2008. For the Company entered into an agreement with a Small
Business Investment Corporation, Norwood Venture Corporation ("Norwood"),
pursuant to which the Company obtained a five-year loan in the principal amount
of $450,000. The terms of the loan require interest payments onlysix months ended August 31, 2007, we used $64,000 for the first
two years followed by monthly paymentspurchase
of $12,500 plus interest through
September 30, 2004. The Company also granted Norwood a warrant to purchase
1,100,000 sharescapital equipment.
Financing Activities - For the six months ended August 31, 2008, we used $8,000
in financing activities resulting from the repayment of our notes payable of
$14,000 and $6,000 from the Company's commonproceeds of stock which can be put tooption exercises. For the Company.
Such warrants were valued at $77,000 which is accounted for as a discount and
will be imputed as additional interest expense oversix
months ended August 31, 2007, we used $13,000 in financing activities resulting
from the termrepayment of the loan.
The Company currently has a $350,000 linenotes payable of credit with a bank. The loan is
collateralized by accounts receivable, inventory and all other personal property
of the Company and is guaranteed by the Chairman and CEO of the Company. As of
November 30, 2000 the outstanding balance was $350,000.
Due to losses incurred during Fiscal Years 2000 and 1999, the Company has
borrowed on a short-term basis from officers and directors. As of November 30,
2000 the balance owed these officers and directors was $302,084.
Although there can be no assurances, management believes that its current
backlog of orders and continued sales and expanding markets for its products
will lead to increases in profits. These factors, and the anticipated success of
PNR America, should allow the Company to meet its current obligations as they
become due.$13,000.
-9-
Results of Operations
The Company'sDuring the six month period ended August 31, 2008, our sales increased $2,614,704 from $3,660,200$579,000
or 22% to $3,226,000 as compared to $2,647,000 for the ninesix months ended November 30, 1999 to $6,274,904 forAugust
31, 2007. For the ninethree months ended November 30,
2000. The increase was due to an increase in SCS sales of $2,310,100, increased
sales of the SonoFlux System of $609,948, that were offset by a decrease in
nozzle and liquid delivery sales of $107,657.
The Company'sAugust 31, 2008, our sales increased
$429,149 from $1,551,772$190,000 to $1,605,000 as compared to $1,415,000 for the three months ended
November 30, 1999 to $1,980,921 for the three months ended November 30,
2000. The increase was due to $274,710 in sales attributable to SCS, increased
sales of the SonoFlux System of $109,084, MCSoInfinity and AccuMistoSystems of
$163,673, that were offset by a decrease in nozzle and liquid delivery sales of
$68,918.
Gross profit increased $732,035 from $1,934,133 for the nine-month period ended
November 30, 1999 to $2,666,168 for the nine-month period ended November 30,
2000. The increase in gross profit is due to the increase in sales that was
offset by increases in personnel costs of $607,175, service travel of $135,651
and warranty expense of $75,314.
The Company's gross profit increased $144,261 from $812,249 for the three months
ended November 30, 1999 to $956,510 for the three months ended November 30,
2000. The increase in gross profit is due to the increase in sales that was
offset by increases in personnel costs of $89,627, service travel of $45,899 and
warranty expense of $19,922.
The gross profit was 42% and 53% of sales for the nine month period ending
November 30, 2000 and 1999, respectively. The gross profit was 48% and 52% ofAugust 31, 2007. Our sales for the three month period ending November 30, 2000ended August 31, 2008 were
improved over the same period last year due to additional sales of fluxer units,
nozzles, stentcoaters, spray dryer units and 1999,
respectively. For bothour programmable XYZ precision
coating units.
Our gross profit increased $288,000 to $1,547,000 for the six months ended
August 31, 2008 from $1,259,000 for the six months ended August 31, 2007. The
gross profit margin was 48% of sales for the six months ended August 31, 2008
and 2007. Our gross profit increased $102,000 to $758,000 for the three and nine month periodsmonths
ended August 31, 2008 as compared to $656,000 for the decrease in the
Company'sthree months ended August
31, 2007. The gross profit margin was primarily a result47% of increased sales offor the Company's products with lower profit margins.three months ended
August 31, 2008 and 46% for the three months ended August 31, 2007.
Research and product development costs increased $257,625 from $430,068$49,000 to $419,000 for the ninesix
months ended November 30, 1999 to $687,693August 31, 2008 from $370,000 for the ninesix months ended November 30, 2000. ResearchAugust 31,
2007 and product development costs increased $47,346 from
$170,712$38,000 to $214,000 for the three months ended November 30, 1999 to $218,058August 31, 2008 from
$176,000 for the three months ended November 30, 2000. For both the three and nine month periods, theAugust 31, 2007. The increases were
principally due to an increase in engineering personnel in the Company's research and productcurrent periods.
The increases are aimed at the development costs was a result of
increased compensation and rent expense resulting from a larger engineering
staff and travel costs associated with new products for SCS.which will benefit
future periods.
Marketing and selling costs increased $320,708 from $787,757$350,000 to $844,000 for the ninesix months
ended November 30, 1999 to $1,108,465August 31, 2008 from $494,000 for the ninesix months ended November 30,
2000. The increase was a result of increased sales commissionsAugust 31, 2007 and
additional
sales personnel that totaled $236,312 and increased marketing expenses of
$25,030.
Marketing and selling costs increased $60,130 from $303,061$170,000 to $430,000 for the three months ended November 30, 1999 to $363,191August 31, 2008 from $260,000
for the three months ended November 30,
2000.August 31, 2007.
The increase in these expenditures is due to the reorganization of our sales
force into two separate Strategic Business Units. We have added additional sales
personnel, increased the number of trade shows we participate in and have
engaged an outside marketing firm to help increase the awareness of our
products. These increases are part of the business development program which was
a result of additional commissions of $118,707 that were
offset by decreases in personnel costs of $15,623, travel costs of $11,471 and
marketing costs of $23,899.initiated last year.
General and administrative costs increased $99,409 from $591,840$158,000 to $606,000 for the nine
month periodsix
months ended November 30, 1999 to $691,249August 31, 2008 from $448,000 for the nine month period ended
November 30, 2000. The increase was due to increases in professional and
consulting fees of $128,817 plus goodwill and deferred financing amortization of
$44,232 that were offset by a decrease in personnel costs of $58,929.
General and administrative costs decreased $57,881 from $300,986 for the three
month period ended November 30, 1999 to $243,105 for the three month period
ended November 30, 2000. The decrease was due to increases in professional and
consulting fees of $45,758 that were offset by decreased personnel costs of
$81,313.
Interest expense increased $63,178 from $167,587 for the nine month period ended
November 30, 1999 to $230,765 for the ninesix months ended November 30, 2000.
Interest expense increased $14,852 from $38,550 for the three month period ended
November 30, 1999August 31,
2007 and $65,000 to $53,402$298,000 for the three months ended November 30, 2000.August 31, 2008 from
$233,000 for the three months ended August 31, 2007. The increase is primarilyincreases were
principally due to an increase in interest costs associated with the
additionsalary expense and an increase in stock based
compensation expense.
Critical Accounting Policies
The discussion and analysis of SCS and Norwood loan interest and new equipment loans from the bank.
For the nine months ended November 30, 2000 the Company had a net loss of
$114,816 or $(0.01) per share as compared to a net loss of $31,139 or $(0.00)
per share for the nine months ended November 30, 1999.
For the three months ended November 30, 2000 the Company had a net income of
$64,022 or $0.01 per share as compared to a net loss of $1,648 or $(0.00) per
share for the three months ended November 30, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest 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
29, 2000, the negative effect on the Company'sfinancial condition and results of
operations would
approximate $1,300are based upon the 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 to make estimates and 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.
-10-
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 critical accounting policies are limited to those
described below. For a detailed discussion on the application of these and other
accounting policies see Note 2 to the Company's consolidated financial
statements included in Form 10-KSB for the quarteryear ended November 30, 2000 and $3,500February 29, 2008.
Accounting for Income Taxes
As part of the process of preparing the Company's consolidated financial
statements, the Company is required to estimate its income taxes. Management
judgment is required in determining the provision for the nine months ended November 30, 2000.deferred tax asset.
The Company reduced the valuation reserve for the deferred tax asset resulting
from the net operating losses carried forward due to the Company having
demonstrated consistent profitable operations. 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 the 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. The Company currently uses a Black-Scholes
option pricing model to calculate the fair value of its stock options. The
Company primarily uses historical data to determine the assumptions to be used
in the Black-Scholes model and has no reason to believe that future data is
likely to differ materially from historical data. However, changes in the
assumptions to reflect future stock price volatility and future stock award
exercise experience could result in a change in the assumptions used to value
awards in the future and may result in a material change to the fair 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 made to
ensure the accuracy of our estimates and assumptions, 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
All new accounting pronouncements issued but not yet effective have been deemed
to be not applicable to the Company, hence the adoption of these new accounting
pronouncements once effective is not expected to have any impact on the Company.
-11-
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
The Company does not issue or invest in financial instruments or derivatives for
trading or speculative purposes. Substantially all of the operations of the
Company are conducted in the United States, and, as such, are not subject to
material foreign currency exchange rate risk. Although the Company's assets
included $1,285,000 in cash, the market rate risk associated with changing
interest rates in the United States is not material
ITEM 4 - Controls and Procedures
The Company has established and maintains "disclosure controls and procedures"
(as those terms are defined in Rules 13a -15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934 (the "Exchange Act'). Christopher L. Coccio,
Chief Executive Officer (principal executive) and Stephen J. Bagley, Chief
Financial Officer (principal accounting officer) of the Company, have evaluated
the Company's disclosure controls and procedures as of August 31, 2008. Based on
this evaluation, they have concluded that the Company's disclosure controls and
procedures were effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is (1)
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and (2) accumulated and
communicated to Management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding timely disclosure.
In addition, there were no changes in the Company's internal controls over
financial reporting during the second fiscal quarter of 2009 that have
materially affected, or are reasonably likely to materially affect, internal
controls over financial reporting.
-12-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes inUnregistered Sales of Equity Securities and Use of ProceedsProceeds.
None
Item 3. Defaults onUpon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
NoneThe following matters were voted upon at the Company's annual meeting of
shareholders held on August 21, 2008:
1. The election of one (1) director of the Company to serve until
the Company's 2009 annual meeting of shareholders.
For Against
--- -------
Joseph Riemer 10,165,374 701,862
There were no broker non-votes.
2. The election of three (3) directors of the Company to serve
until the Company's 2010 annual meeting of shareholders.
For Against
--- -------
Edward J. Handler 10,200,485 666,751
Donald F. Mowbray 10,200,485 666,751
Samuel Schwartz 10,220,374 646,862
There were no broker non-votes.
Christopher L. Coccio and Philip Strasburg, who were not standing
for re-election, continued to serve as Directors following the annual
meeting.
3. The ratification of the appointment of Sherb & Co., LLP as the
Company's independent auditors for the fiscal year ending
February 28, 2009.
For 10,800,291; Against 47,525; Abstained 19,419 There
were no broker non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports
on Form 8-K
(a) Exhibits
Exhibit No. Description
3(d) Restated Certificate31.1 - 31.2 - Rule 13a - 14(a)/15d - 14(a) Certification
-13-
32.1 - 32.2 - Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of Incorporation
10(g) Lease for the Company's facilities in Milton,
NY dated September 29, 2000
(b) Reports on Form 8-K
NoneSarbanes-Oxley Act of 2002.
-14-
SIGNATURES
Pursuant toIn accordance with the requirements of the Securities Exchange Act, of 1934, the Registrantregistrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: January 16, 2001October 15, 2008
SONO-TEK CORPORATION
(Registrant)
By: /s/ JamesChristopher L. Kehoe
JamesCoccio
-------------------------
Christopher L. KehoeCoccio
Chief Executive Officer
By: /s/ Kathleen N. Martin
Kathleen N. MartinStephen J. Bagley
-------------------------
Stephen J. Bagley
Chief Financial Officer
Exhibit 3(d)
CERTIFICATE OF INCORPORATION OF
SONO-TEK CORPORATION
Under Section 402 of the business Corporation Law
IT IS HEREBY CERTIFIED THAT:
(1) The name of the proposed corporation is:
SONO-TEK CORPORATION
(2) The purpose or purposes for which this corporation is formed, are as
follows, to wit:
To engage in the business of manufacturing, designing, creating,
compounding, developing, formulating, investing, patenting, owning, acquiring,
producing, processing, constructing, storing, applying, assembling, adapting,
conducting, operating, using, preparing for market, exhibiting, distributing,
installing, buying, selling, disposing, leasing, renting, mortgaging,
exploiting, licensing, exchanging, reconstructing, repairing, importing,
exporting and generally dealing in and with household and industrial fuel
combustion systems including but not limited to all kinds of burners, furnaces,
fuel atomizers, stoves, boilers, engines, fuel delivery systems, heating
devices, lighting devices, refrigerating devices, devices for producing and
furnishing gases, heat, light, cold, power, or electricity, and all other kinds
of mechanical and electrical machines, devices, and appliances, and all kinds of
materials, supplies, accessories, equipment, devices or other things used for
any of the foregoing, or in any other way thereto relating, and any and all
other kinds of machinery, appliances, device, supplies and articles.
To acquire such property, real and personal, as may be
necessary to the conduct of such business.
The powers, rights and privileges provided in this Certificate
of Incorporation are not to be deemed to be in limitation of similar, other, or
additional powers, rights and privileges granted or permitted to a corporation
by the Business Corporation Law, it being intended that this Corporation shall
have the right to engage in such similar activities as like corporations may
lawfully engage in under the Business Corporation Law of the State of New York,
as now in effect, or as hereafter promulgated.
To do everything necessary, suitable or proper for the
accomplishment, attainment or furtherance of, to do every other act or thing
incidental to, appurtenant to, growing out of or connected with, the purposes,
objects or powers set forth in this Certificate of Incorporation, whether alone
or in association with others, to possess all the rights, powers and privileges
now or hereafter conferred by the laws of the State of New York upon a
corporation organized under the laws of the State of New York and, in general,
to carry on any of the activities and to do any of the things herein set forth
to the same extent and as fully as a natural person or partnership might or
could do; provided, that nothing herein set forth shall be construed as
authorizing the Corporation to possess any purpose, object or power, or to do
any act or thing forbidden by law to a Corporation organized under the laws of
the State of New York.
(3) The office of the Corporation is to be located in the Town of Milton,
County of Ulster, State of New York.
(4) The aggregate number of shares of all classes which the Corporation shall
have authority to issue is twenty-five million (25,000,000) common shares,
par value $0.01 per share. No holder of any share of the Corporation shall,
because of his ownership of shares, have a pre-emptive or other right to
purchase, subscribe for, or take any part of any shares or any part of any
notes, debentures, bonds, or other securities convertible into or carrying
options or warrants to purchase shares of the Corporation issued, optioned
or sold by the Corporation.
(5) The Secretary of State is designated as agent of the corporation upon whom
process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the Corporation
served upon him is c/o Sono-Tek Corporation 2012 Route 9W, Building 3
Milton, New York 12547
(6) The Corporation may, to the fullest extent permitted by Sections 721
through 726 of the Business Corporation Law of New York, indemnify any and
all directors and officers whom it shall have power to indemnify under the
said Sections from and against any and all of the expenses, liabilities or
other matters referred to in or covered by such sections, and the
indemnification provided for herein shall not be deemed exclusive of any
other rights to which the persons so indemnified may be entitled under any
By-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity by holding such office, and shall continue as a person who
has ceased to be a director or officer and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(7) No director
of the Corporation shall be personally liable to the Corporation or
shareholders for damages for any breach of duty as a director; provided
that this Article (7) shall neither eliminate nor limit liability: (a) if a
judgment or other final adjudication adverse to such director establishes
that his or her acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that he or she personally
gained in fact a financial profit or other advantage to which he or she was
not legally entitled or that his or her acts violated Section 719 of the
Business Corporation law; or (b) for any act or omission prior to the
effectiveness of this Article (7). Any repeal or any modification to the
provisions of this Article (7) shall not adversely affect any right or
protection of a director of the Corporation existing pursuant to this
Article (7) immediately prior to such repeal or modification.
(8) The business of the Corporation shall be managed under the direction of a
Board of Directors in accordance with the following:
(a) The Board shall consist of six directors, unless and until
otherwise determined by vote of a majority of the entire board of
directors (whether or not there exist any vacancies in previously
authorized directorships at the time such resolution is presented
to the Board for adoption).
(b) The directors shall be divided into two classes, designated Class
I and Class II. All classes shall be as nearly equal in number as
possible, and no class shall include less than three directors.
The terms of office of the directors initially classified shall
be as follows: at the 1989 annual meeting of shareholders, Class
I directors shall be elected for a one year term expiring at the
next annual meeting of shareholders and Class II directors for a
two year term expiring at the second succeeding annual meeting of
shareholders. At each annual meeting of shareholders after such
initial classification, directors to replace those whose terms
expire at such annual meeting shall be elected to hold office
until the second succeeding annual meeting. Each director shall
hold office until the expiration of his term and until his
successor is elected and qualified or until his earlier death,
resignation or removal.
(c) A director elected to fill a vacancy shall be elected to hold
office for a term expiring at the next meeting of shareholders at
which the election of directors is in the regular order of
business and until his successor has been elected and qualified.
(d) If the number of directors is changed, (1) any newly created
directorships or any decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly
equal in number as possible; and (2) when the number of directors
is increased by the Board and any newly created directorships are
filled by the Board, there shall be no classification of the
additional directors until the next annual meeting of
shareholders.
(e) Newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the Board for any
reason may be filled only by vote of the Board. If the number of
directors then in office is less than a quorum, such newly
created directorships and vacancies may be filled by a majority
of the directors then in office.
(f) Any director may be removed for cause by action of the Board. Any
director may also be removed for cause (but not without cause) by
the affirmative vote of the holders of at least two-thirds of the
outstanding shares entitled to vote thereon.
(g) The provisions of this Article (8) may be altered, amended or
repealed, and any provision inconsistent herewith may be adopted,
only by the affirmative vote of the holders of at least
two-thirds of the outstanding shares entitled to vote thereon.
The undersigned incorporator is of the age of eighteen years or over.
IN WITNESS WHEREOF, this certificate has been subscribed this
21st day of March, 1975 by the undersigned who affirms that the statements made
herein are true under penalties of perjury.
Exhibit 10(a)
LEASE
LEASE MADE THIS 29th DAY OF September, 2000
BETWEEN Jean K. Woodward, owner, as may be represented by William Woodward
(William Woodward Enterprises) residing at 50 Riverview Drive, Marlboro, New
York 12542-5310 herein referred to as Lessor,
AND Sono-Tek Corporation, having it's principal place of business at
2012 Route 9-W, Milton Industrial Park, Milton, New York 12547, herein referred
to as Lessee.
RECITALS:
1: Lessor is the sole owner of the premises described below and
desires to lease the premises to a suitable Lessee for
business purposes.
2: Lessee desires to lease the premises for the
purpose of conducting a business of light
manufacturing, electronics and related machinery
and equipment.
3: The parties desire to enter a lease agreement defining their rights, duties
and liabilities relating to the premises.
In consideration of the mutual covenants contained herein, the parties agree as
follows:
I. SUBJECT AND PURPOSES:
Lessor leases a portion of the building known as Phase I, Building 1,
in the Milton Industrial Park, in the County of Ulster, State of New York and
more particularly described as follows:
Approximately 4,200 square feet of space located adjacent to the SonoTek
existing facilities containing a separate electric meter, gas meter, bathroom ,
small office and one drive-in overhead door.
II. TERM AND RENT:
Lessor demises the above premises for a term of two (2) Years and two
(2) months, commencing October 1, 2000 and terminating on November 30, 2002 at
five o'clock P.M., or sooner as provided herein, at the annual rental of
Eighteen Thousand Dollars ($18,000.00) or proportioned thereof..
Such sums are payable in advance on October first for the first year
and on the anniversary date for each succeeding year. However and provided the
lessee is not otherwise in default, the lessee for convenience and with the
consent of the lessor may pay such annual rent in equal monthly installments of
OneThousand Five Hundred Dollars ($1,500.00) in advance on the first day of each
month for that month's rental, during the term of this lease. All rental
payments shall be made to Lessor at the address specified above. Lessee shall
pay the rent as specified herein and in Section Three hereof.
III. ADDITIONAL RENT:
All taxes, charges, costs, and expenses that Lessee assumes or agrees
to pay hereunder, together with all interest and penalties that may accrue
thereon in the event of the failure of Lessee to pay those items, and all other
damages, costs, expenses, and sums that Lessor may suffer or incur, or that may
become due by reason of any default of Lessee or failure by Lessee to comply
with the terms and conditions of this lease shall be deemed to be additional
rent, and, in the event of nonpayment, lessor shall have all the rights and
remedies as herein provided for failure to pay rent.
IV. UTILITIES NOT FURNISHED BY LESSOR - ENTIRE RESPONSIBILITY OF LESSEE:
Lessee shall initiate, contract for, and obtain, in its name, electric,
natural gas, and telephone utility services as required on the demised premises.
Lessee shall indemnify and hold harmless lessor from any claims
whatsoever arising out of lessee's failure to pay for utility services and/or
the charges therefor. Lessee shall pay Lessor's attorney's fees arising out of
any claims against Lessor arising out of charges for Lessee's utility services.
Except in the case of acts of negligence committed by Lessor, Lessor
shall not be liable for any personal injury or property damage resulting form
the negligent operation or faulty installation of utility services provided for
use on the demised premises, nor shall Lessor be liable for any injury or damage
suffered by lessee as a result of the failure to make necessary repairs to the
utility facilities.
Lessee shall be liable for any injury or damages to the equipment of
service lines of the utility suppliers that are located on the demised premises,
resulting from the negligent or deliberate acts of lessee, or the agents or
employees of lessee.
V. BROKERS COMMISSION:
There is no Broaker's Commission payable or due from either the Lessor
or the Lessee.
VI. IMPROVEMENTS TO BE MADE TO PREMISES:
Lessee shall make the following improvements to the premises: Install
access from the existing rental space into the new rental spacethrough a common
wall area as located and type of materials approved by the lessor.
The above improvements shall be at the direction of Sono-Tek
Corporation and completed no later than January 1, 2001. The above improvements
shall be subject to the provisions of paragraph VII.
VII: ALTERATIONS, ADDITIONS AND IMPROVEMENTS:
1. Subject to the limitation that no portion of the building on
the demised premises shall be demolished or removed by Lessee
without the prior written consent of Lessor, and , if
necessary, of any mortgagee. Lessee may at any time during the
lease term subject to the conditions set forth below and at
his own expense, make alterations, additions, or improvements
in and to the demised premisses and the building. Alterations
shall be performed in a workmanlike manner and shall not
weaken or impair the structural strength, or lessen the value,
of the building on the premises, or change the purposes for
which the building, or any pert thereof, may be used.
2. Conditions with respect to alterations, additions or improvements are as
follows:
1. Before commencement of any work all plans and specifications
shall be filed with and approved by all governmental departments
or authorities having jurisdiction and any public utility company
having an interest therein, and all work shall be done in
accordance with requirements of local regulations. The plans and
specifications of any alterations shall be submitted to the
Lessor for written approval prior to commencing work. Said
approval not to be unreasonably withheld. . The lessee shall have
the right to install one identification sign at the main entrance
to the demised premises. Such sign shall not violate local
building codes. At the end of the term of this lease the lessee
shall at the option of lessor remove such alterations as are
designated by lessor.
2. Prior to commencement of any work Lessee shall pay the amount of
any increase in premiums on insurance policies provided for
herein because of endorsements to be made covering the risk
during the course of work. 1.
3. Alterations, additions and improvements on or in the demised
premises may commence upon the signing of this agreement. All
additions and improvements that may be erected or installed prior
to or during the term, shall become part of the demised premises
and the sole property of Lessor, except that all movable trade
fixtures, and a modular Class 100 clean room if installed by
lessee shall be and remain the property of Lessee.
VIII. TAXES AND OTHER CHARGES:
Lessor shall pay and discharge when due all state, municipal and local
real estate taxes, inheritance, succession and , assessments, levies and other
charges, general and special, ordinary and extraordinary, of whatever name,
nature and kind that are or may be during the term hereof or any renewal,
beginning with the fiscal year 2000, levied, assessed, imposed or charged on the
land or the premises hereby demised or on the (building or buildings) and
improvements now thereon or hereafter to be built or made thereon, and all of
which may be levied, assessed, imposed or charged on or against the leasehold
estate hereby created and on the reversionary estate in the demised premises
during the term hereof or any renewal.
If at any time during the term of this lease, the present method of
taxation or assessment should be changed so that the whole or any part of the
taxes, assessments, levies or charges now levied, assessed or imposed on the
real estate hereby demised and improvements thereon, shall be transferred to the
rentals received from such real estate, lessee shall pay such proportionate
share of taxes and assessments levied and assessed on such rentals as shall
proportionately relieve the taxes and assessments on such real estate, it being
the intent of the parties hereto that lessor shall receive the rents reserved
herein with deduction of taxes (except gift, estate, inheritance, succession and
income taxes on the interest of lessor), assessments levies or charges in
respect to the real estate and improvements thereon, but that lessee shall not
be obligated to pay full taxes and assessments on such real estate and
improvements and also on such rentals.
IX. REPAIRS:
Lessee shall, at all times during the lease and at his own cost and
expense, repair, replace and maintain in good, safe and substantial condition,
all buildings and any improvements, additions, and alterations on the demised
premises, and shall use all reasonable precaution to prevent waste, damage or
injury to the demised premises. It is intended that this clause refers to
non-structural repairs, unless structural repairs are necessitated by the
conduct of lessee, its agents or assigns. In such case, lessee shall be
responsible for structural repairs.
Lessor shall maintain the building exterior, lawn and landscaping.
Lessor shall be responsible for snow removal, and grounds cleaning. Lessor shall
replace all shrubs to the property which have died.
Lessee shall remove snow and debris from walkways and in front of
doors.. Lessee shall be responsible for office cleaning, window cleaning, refuse
removal, maintenance of light fixtures, bi-annual service of heating and air
condition equipment, and to maintain all plumbing fixtures against leaks and
water wasting.
X. SECURITY DEPOSIT:
Lessee shall deposit No Money with lessor upon the signing here of for
the purposes of a security deposit.
XI. INSURANCE:
1. In the term of the lease and for any further time that Lessee
shall hold the demised premises, Lessee shall obtain and maintain
at his expense the following types and mounts of insurance:
Personal Injury and Property Damage Insurance. Insurance against
liability for bodily injury and property damage in the sum of Two
Million Dollars ($2,000,000.00) per claimant and in the sum of
Five Million Dollars ($5,000,000.00) per occurrence.
2. All insurance provided by Lessee as required by this section
shall be carried in favor of Lessor and Lessee as their
respective interests may appear, and in the case of insurance
against damage to the demised premises by fire and other
casualty, shall provide that loss, if any, shall be adjusted with
and be payable to Lessor. If required by Lessor, any insurance
against fire or other casualty shall provide that loss shall be
payable to the holder under a standard mortgage clause. Rent
insurance and the proceeds are hereby assigned to lessor to be
held by Lessor as security for the payment of the rent and any
additional rent hereunder until restoration of the premises. All
insurance shall be written with responsible companies that Lessor
shall approve, and the policies shall be held by lessor, or when
appropriate, by the holder of any mortgage in which case copies
of the policies or certificates of insurance shall be delivered
by Lessee to Lessor. All policies shall require 30 days notice by
registered mail to Lessor of any cancellation or change affecting
any interest of Lessor.
XII. UNLAWFUL OR DANGEROUS ACTIVITY:
Lessee shall neither use nor occupy the demised premises or any part
thereof for any unlawful, disreputable or ultra hazardous business purpose nor
operate or conduct his business in a manner constituting a nuisance of any kind.
Lessee shall immediately, on discovery of any unlawful, disreputable or ultra
hazardous use, take action to halt such activity and keep such premises
environmentally clean and safe.
XIII. DEFAULT OR BREACH:
Each of the following events shall constitute a default or breach of
this lease by Lessee:
1. If Lessee, or any successor or assignee of Lessee while in
possession, shall file a petition in bankruptcy or insolvency
or for reorganization under any bankruptcy act, or shall
voluntarily take advantage of any such act by answer or
otherwise, or shall make an assignment fo the benefit of
creditors.
2. If involuntary proceedings under any bankruptcy law or
insolvency act shall be institute against Lessee, or if a
receiver or trustee shall be appointed of all or substantially
all of the property of Lessee, and such proceedings shall not
be dismissed or the receivership or trusteeship vacated within
20 days after the institution or appointment.
3. If Lessee shall fail to pay Lessor any rent owed or additional
rent when the rent shall become due within five days after
written notice of such failure to lessee at the address above
given. Lessee shall pay as additional rent the sum of $300.00.
If such rent is not received on or before the 1st day of the
month and lessor sends such written notice of default. Lessor
shall extend to lessee, a five (5) day grace period relative
to such rent payment.
4. If lessee shall fail to perform or comply with any of the
conditions of this lease and if the nonperformance shall
continue for a period of 10 days after notice thereof by
Lessor to Lessee or, if the performance cannot be reasonably
had within the 10 day period, Lessee shall not in good faith
have commenced performance within the 10 day period and shall
not diligently proceed to completion of performance.
5. If this lease or the estate of Lessee hereunder shall be
transferred to or shall pass to or devolve on any other person
or party, except in the manner herein permitted.
6. If Lessee fails to take possession of the demised premises on
the term commencement date, or within 10 days after notice
that the demised premises are available for occupancy, if the
term commencement date is not fixed herein or shall be
deferred as herein provided.
XIV. EFFECT OF DEFAULT:
In the event of any default hereunder, as set forth in Section I, the
rights of Lessor shall be as follows:
1. Lessor shall have the right to cancel and terminate this
lease, as well as all of the right, title and interest of
lessee hereunder, by giving to lessee not less than 10 days
notice of the cancellation and termination. On expiration of
the time fixed in the notice; this lease and the right, title
and interest of lessee hereunder, shall terminate in the same
manner and with the same force and effect, except as to
lessee's liability, as if the date fixed in the notice of
cancellation and termination were the end of the term
cancellation and termination were the end of the term herein
originally determined.
2. Lessor may elect, but shall not be obligated to make any
payment required by lessee herein or comply with any
agreement, term or condition required hereby to be performed
by Lessee, and the lessor shall have the right to enter the
demised premises for the purpose of correcting or remedying
any such default and to remain until the default has been
corrected or remedied, but any expenditure for the correction
by lessor shall not be deemed to waive or release the default
of lessee or the right of lessor to take any action as may be
other wise permissible hereunder in the case of any default.
3. Lessor may re-enter the premises immediately and remove the
property and personnel of lessee, and store the property in a
public warehouse or at a place selected by lessor, at the
expense of lessee. After re-entry lessor may terminate the
lease on giving 10 days written notice of termination to
lessee. Without the notice, re-entry will not terminate the
lease. On termination, the lessor may recover from lessee all
damages proximately resulting from the breach, including the
costs recovering the premises, and the present worth of the
balance of this lease over the present worth of the reasonable
rental value of the premises for the remainder of the lease
term, which sum shall be immediately due lessor from lessee.
4. After re-entry, lessor may relet the premises or any part
thereof for any term without terminating the lease, at the
rent and on the terms as lessor may choose. Lessor may make
alterations and repairs to the premises. The duties and
liabilities of the parties if the premises are relet as
provided herein shall be as follows:
a. In addition to lessee's liability to lessor for
breach of the lease, lessee shall be liable for all expenses
of the reletting, for the alterations and repairs made, and
for the difference between the rent received by lessor under
the new lease agreement and the rent installments that are due
for the same period under this lease.
b. Lessor shall have the right, but shall not be
required, to apply the rent received from the reletting for
the premises (1) to reduce the indebtedness of lessee to
lessor under the lease, not including indebtedness for rent,
(2) to expenses of the reletting and alterations and repairs
made, (3) to rent due under this lease, or (4) to payment of
future rent under this lease as it becomes due.
If the new lessee does not pay a rent installment
promptly to lessor, and the rent installment has been credited
in advance of payment to the indebtedness of lessee other than
rent, or if rentals from the new lessee have been otherwise
applied by Lessor as provided for herein and during any rent
installment period are less than the rent payable for the
corresponding installment period under this lease, lessee
shall pay lessor the deficiency, separately for each rent
installment deficiency period, and before the end of that
period. Lessor may at any time after a reletting terminate the
lease for the breach on which lessor had based the re-entry
and subsequently relet the premises.
5. After re-entry, lessor may procure the appointment of a
receiver to take possession and collect rents and profits of
the business of lessee, and, if necessary to collect the rents
and profits. The receiver may take possession of the personal
property used in the business of lessee, including inventory,
trade fixtures, and furnishings, and use them in the business
without compensating lessee. Proceedings for appointment of a
receiver by lessor, or the appointment of a receiver, shall
not terminate and forfeit this lease unless lessor has given
written notice of termination to lessee as provided herein.
XV. CONDEMNATION:
Rights and duties in the event of condemnation are as follows:
1. If the whole of the demised premises shall be taken or
condemned by any public, or quasi-public use or purpose, this
lease shall cease and terminate as of the date on which title
shall vest thereby in that authority, and the rent reserved
hereunder shall be apportioned and paid up to that date.
2 .If only a portion of the demised premises shall be taken or
condemned, this lease and the terms hereof shall not cease of
terminate, but the rent payable after the date on which lessee
shall be required to surrender possession of such portion
shall be reduced in proportion to the decreased use suffered
by lessee as the parties may agree or as shall be determined
by arbitration.
3. In the event of any taking or condemnation in whole or in
part, the entire resulting award of consequential damages
shall belong to lessor without any deduction therefrom for the
value of the unexpired term of this lease or for any other
estate or interest in the demised premises now or later vested
in lessee. Lessee assigns to lessor all his right, title and
interest in any and all such awards. If a separate award is
made for moving expenses, business interruption and fixtures
then such award of moving expenses, business interruption and
fixtures shall belong to the lessee.
4. In the event of a partial taking, lessor shall promptly
proceed to restore the remainder of the building on the
demised premises to a self-contained architectural unit.
5. In case of any governmental action not resulting in the taking
or condemnation of any portion of the demised premises but
creating a right to compensation therefor, or if less than a
fee title to all or any portion of the demised premises shall
be taken or condemned by any governmental authority for
temporary use of occupancy, this lease shall continue in full
force and effect without reduction or abatement of rent, and
the rights of the parties shall be unaffected by the other
provisions of this section, but shall be governed by
applicable law.
XVI. DESTRUCTION OF PREMISES:
In the event of a partial destruction of the premises (not
caused by lessee and/or its' agents and/or independent
contractors) by fire or other cause for which lessee has
provided insurance payable to lessor under paragraph XIII or
condemnation during the term, lessor shall forth with repair
the same, provided the repairs can be made within 30 days of
receipt of such insurance or governmental authorities. Any
partial destruction shall neither annul nor void this lease.
If the repairs cannot be made in the specified time, lessor
may, at lessor's option, make repairs within a reasonable
time, this lease continuing in full force and effect and the
rent to be proportionately rebated. In the event that lessor
does not elect to make repairs that cannot be made in the
specified time, or those repairs cannot be made under the laws
and regulations of the applicable governmental authorities,
this lease may be terminated at the option of either party.
Should the building in which the demised premises are situated
be destroyed as set forth herein or condemned to the extent of
not less than 75 percent (75%) of the replacement cost
thereof, this lease shall be terminated.
XVII. SUBORDINATION:
This lease and all rights of lessee hereunder shall be subject
and subordinate to the lien of any and all mortgages that may now or
hereafter affect the demised premises, or any part thereof, and to any
and all renewals, modifications or extensions of any such mortgages.
Lessee shall on demand execute, acknowledge and deliver to lessor,
without expense to lessor, any and all instruments that may be
necessary or proper to subordinate this lease and all rights therein to
the lien of any such mortgage or mortgages and each renewal,
modification or extension, and if lessee shall fail at any time to
execute, acknowledge and deliver any such subordination instrument,
lessor in addition to any other remedies available in consequence
thereof, may execute, acknowledge and deliver the same as lessee's
attorney in fact and in lessee's name. Lessee hereby irrevocably makes,
constitutes and appoints lessor, its successors and assigns, his
attorney in fact for that purpose.
Lessor hereby covenants and warrants that, subject to Section
XVIII, he is owner of the demised premises and that lessee, on payment
of the rents herein provided for and the performance of the provisions
hereof on its part to be performed, shall and may peacefully possess
and enjoy the demised premises during the term hereof without any
interruption or disturbance.
XVIII. ACCESS TO PREMISES; SIGNS POSTED BY LESSOR:
Lessee shall permit lessor or its agents to enter the demised
premises at all reasonable hours to inspect the premises or make
repairs that lessee may neglect or refuse to make in accordance with
the provisions of this lease, and also to show the premises to
prospective buyers. At any time within one year prior to expiration of
the term, lessor may show the premises to persons prior to expiration
of the term, permit the usual notices of "For Rent" and "For Sale" to
be place on the demised premises and to remain thereon without
hindrance and molestation.
XIX. EASEMENTS, AGREEMENTS OR ENCUMBRANCES:
The parties shall be bound by all existing easements,
agreements and encumbrances of record relating to the demised premises,
and lessor shall not be liable to lessee for any damages resulting from
any action taken by a holder of an interest pursuant to the rights of
that holder thereunder.
XX. LIABILITY OF LESSOR:
Lessee shall be in exclusive control and possession of the
demised premises, and lessor (except for acts of negligence of lessor)
shall not be liable for any injury or damages to any property or to any
person on or about the demised premises nor for any injury to any
property of lessee. The provisions herein permitting lessor to enter
and inspect the demised premises are made to insure that lessee is in
compliance with the terms and conditions hereof and makes repairs that
lessee has failed to make. Lessor shall not be liable to lessee for any
entry on the premises for inspection purposes (except for acts of
negligence of Lessor).
XXI. RENT ABATEMENT:
No abatement, diminution or reduction of rent shall be claimed
or allowed to lessee or any person claiming under him under any
circumstances, whether for inconvenience, discomfort, interruption of
business or otherwise, arising from and during the restoration of the
demised premises after the destruction or damage thereof by fire or
other cause or the taking or condemnation of a portion only of the
demised premises.
XXII. STORAGE OF TOXIC MATERIALS, EXPLOSIVES AND FLAMMABLES PROHIBITED:
Lessee shall not, at anytime whatsoever, keep for use on the
demised premises any toxic materials, explosives or inflammable
substances.
XXIII. REPRESENTATIONS BY LESSOR:
At the commencement of the term lessee shall accept the
buildings and improvements and any equipment in their existing
condition and state of repair and lessee agrees that no
representations, statements or warranties, express or implied, have
been made by or on behalf of lessor in respect thereto except as
contained in the provisions of this lease.
XXIV. WAIVERS:
The failure of lessor to insist on a strict performance of any
of the terms and conditions hereof shall be deemed a waiver of the
rights or remedies that lessor may have regarding that specific
instance only, and shall not be deemed a waiver of any subsequent
breach or default in any terms and conditions.
XXV. NOTICE:
All notices to be given with respect to this lease shall be in
writing. Each notice shall be sent by registered or certified mail,
postage prepaid and return receipt requested, to the party to be
notified at the address set forth herein or at such other address as
either party may from time to time designate in writing.
Every notice shall be deemed to have been given at the time it
shall be deposited in the United States mails in the manner prescribed
herein. Nothing contained herein shall be construed to preclude
personal service of a summons or other legal process.
XXVI. ASSIGNMENT, MORTGAGE OR SUBLEASE:
Neither lessee nor his successors or assigns shall assign,
mortgage, pledge or encumber this lease or sublet the demised premises
in whole or in part, or permit the premises to be used or occupied by
others, nor shall this lease be assigned or transferred by operation of
law, without the prior consent in writing of lessor in each instance.
Exception to this would be legal subsidiaries of lessee. After two
years such consent is not to be unreasonably withheld. If this lease is
assigned or transferred, or if all or any part of the demised premises
is sublet or occupied by anybody other than lessee, lessor may, after
default by lessee, collect rent from the assignee, transferee,
subtenant, or occupant, and apply the net amount collected to the rent
reserved herein, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any agreement or condition
hereof , or the acceptance of the assignee, transferee, subtenant or
occupant as lessee. Lessee shall continue to be liable hereunder in
accordance with the terms and conditions of this lease and shall not be
released from the performance of the terms and conditions hereof. The
consent by lessor to an assignment, mortgage, pledge or transfer shall
not be construed to relieve lessee from obtaining the express written
consent of lessor to any future transfer of interest.
XXVII. OPTION TO RENEW:
Lessor grants to lessee an option to renew this lease for a period of
Three (3) years after expiration of the term of this lease. The rental rate
shall be increased an amount equal to the Consumer Price Index (CPI) as noted
for New York and area, each year of the renewal. All other terms and condition
of this renewal lease to be the same as those herein. To exercise this option,
lessee must give lessor written notice of the intention to do so at least six
(6) months before this lease expires.
XXVIII. SURRENDER OF POSSESSION:
Lessee shall, on the last day of the term, or on earlier
termination and forfeiture of the lease, peaceably and quietly
surrender and deliver the demised premises to lessor free of
subtenancies, including all buildings, additions and improvements
constructed or placed thereon by lessee, except moveable trade
fixtures, all in good condition and repair subject to reasonable wear
and tear (except to the extent provided for under paragraph XI, and XVI
herein. Any trade fixtures or personal property not used in connection
with the operation of the demised premises and belonging to Lessee, if
not removed at the termination of default, and if lessor shall so
elect, shall be deemed abandoned and become the property of lessor
without any payment or offset therefor. Lessor may remove such fixtures
or property from the demised premises and store them at the risk and
expense of lessee if lessor shall not so elect. Lessee shall repair and
restore all damage to the demised premises caused by the removal of
equipment, trade fixtures and personal property.
XXIX. REMEDIES OF LESSOR:
A. In the event of a breach or a threatened breach by lessee of any of the
terms or conditions hereof, lessor shall have the right of injunction to
restrain lessee and the right to invoke any remedy allowed by law or in
equity, as if the specific remedies of indemnity or reimbursements were not
provided herein.
B. The rights and remedies given to lessor in this lease are distinct,
separate and cumulative and no one of them, whether or not exercised by
lessor, shall be deemed to be in exclusion of any of the others herein, by
law, or by equity provided.
C. In all cases hereunder, and in any suit, action or proceeding of any kind
between the parties, it shall be presumptive evidence of the fact of the
existence of a charge being due if lessor shall produce a bill, notice or
certificate of any public official entitled to give that notice to the
effect that such charge appears of record on the books in his office and
has not been paid.
D. No receipt of money by lessor from lessee after default or cancellation of
this lease in any lawful manner shall (1) reinstate, continue or extend the
term or affect any notice given to lessee, (2) operated as a waiver of the
right of lessor to enforce the payment of rent and additional rent then due
or falling due, or (3) operated as a waiver of the right of lessor to
recover possession of the demised premises by proper suit, action,
proceeding or other remedy. After (1) service of notice of termination and
forfeiture as herein provided and the expiration of the time specified
therein (2) the commencement of any suit, action, proceeding or other
remedy, or (3) final order or judgement for possession of the monies due,
without in any manner affecting such notice, order or judgement. Any and
all such monies so collected shall be deemed to be payment on account of
the use and occupation of the demised premises or at the election of
lessor, on account of the liability of lessee hereunder.
XXX. TOTAL AGREEMENT; APPLICABLE TO SUCCESSORS:
This lease contains the entire agreement between the parties
and cannot be changed to terminated except by a written instrument
subsequently executed by the parties hereto. This lease and the terms
and conditions hereof apply to and are binding on the heirs, legal
representatives, successors and assigns of both parties.
XXXI. INDEMNIFICATION - LIABILITIES AND LOSSES:
Lessee shall, at all times prior to the termination of this
lease and to the delivery to a lessor possession of the demised
premises and all improvements thereon, indemnify lessor against all
liability, loss, cost, damage or expense sustained by lessor, including
attorney's fees and other expenses of litigation arising prior to
termination of the lease term and delivery to lessor of possession of
the premises:
1. On account of or through the use of the demised premises or improvements or
any part thereof or by any other reason for any purpose inconsistent with
the provisions of this lease.
2. Arising out of, or directly or indirectly due to, any failure of lessee in
any respect promptly and faithfully to satisfy his obligations under this
lease.
3. Arising out of, or directly or indirectly due to, any accident or other
occurrence causing injury to any person or persons or property resulting
from the use of the demised premises and improvements or any part thereof.
4. For which the demised premises and improvements or any part thereof or the
lessor as owner thereof or interested therein may hereafter without fault
by lessor become liable, and especially, but not exclusively, any such
liability, loss, cost, damage or expense that may arise under any statute,
ordinance or regulation except such requirements as to which compliance is
related to the improvements on the demised premises (other than
improvements made by Lessee) and are not caused by use and occupancy of
lessee. It is not intended by this clause that Lessee shall be responsible
for liabilities imposed by the acts of others committed prior to the date
of this lease.
Lessee also shall, at all times prior to termination of the
lease term and delivery to lessor of possession of the premises,
indemnify lessor against all liens and charges of any and every nature
that may at any time be established against the premises or any
improvements thereon or any part thereof as a consequence, direct or
indirect, of any act or omission of lessee or as a consequence, direct
or indirect, of the existence of lessee's interest under this lease.
XXXII. NOTICE BY LESSEE OF LITIGATION - PAYMENT OF ATTORNEY'S FEES AND COSTS:
Within five days after lessee has knowledge of any material
litigation or other proceeding that shall be instituted against lessee,
against the demised premises to secure or recover possession thereof,
or that may affect the title to or the interest of lessor in the
demised premises, lessee shall give written notice thereof to lessor.
Lessee shall pay all reasonable attorney's fees and costs on
behalf of lessor if (a) lessor institutes litigation against lessee for
a breach of the terms and conditions of this lease, (b) lessor
institutes litigation against lessee for an unlawful detainer of the
demised premises, or (c) lessor is made a part to litigation against
lessee instituted by a third party, relating to the demised premises,
wherein lessor is not at fault. The reasonable attorney's fees and
costs incurred by lessor herein shall be paid by lessee whether
litigation is prosecuted to judgement or not.
The payment of all attorney's fees and court costs required
hereby shall be made to lessor as additional rental and shall be due in
full on the next regular date for a rental payment. This additional
rental shall be subject to an interest charge of eighteen (18%) per
cent per annum, and lessor may enforce the payment by using any remedy
available at law or under this lease of the collection of past due
rent.
XXXIII. APPLICABLE LAW:
This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this lease in
the State of New York the day and year first above written.
/s/ Jean K. Woodward
Jean K. Woodward, Lessor
By: /s/ James L. Kehoe
Sono-Tek Corp, Lessee
/s/ Kathleen N. Martin, Witness-15-