SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 1996May 31, 1997
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 Employer
incorporation or organization) Identification No.)
2012 Rt. 9W, Bldg. 3, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (914) 795-2020
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
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 6,July 11, 1997
----- ---------------- --------------------- -----------------
Common Stock, par 4,374,387
value $.01 per share 4,204,913
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Balance Sheets - November 30, 1996May 31, 1997 (Unaudited) and February 29, 199628, 1997 1
Statements of Operations - Nine Months and Three Months Ended November 30,May 31, 1997
and 1996 and 1995 (Unaudited) 2
Statements of Cash Flows - NineThree Months Ended November 30,May 31, 1997
and 1996
and 1995 (Unaudited) 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 5-65 - 6
Item 3 - Quantative and Qualitative Disclosures about Market Risk - Not
Applicable
Part II - Other Information 7
Signatures 8
SONO-TEK CORPORATION
BALANCE SHEETS
November 30May 31 February 29
1996 199628
1997 1997
ASSETS Unaudited
--------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 37,44515,054 $ 69,033107,746
Accounts receivable (net of allowance for doubtful accounts
of $31,850$38,814 at November 30May 31 and $25,000$35,814 at February 29) 653,070 462,11528) 615,887 525,750
Inventories (Note C) 465,435 477,381447,230 469,241
Prepaid expenses and other current assets 20,608 29,834
------------ ------------18,607 33,441
--------------- ---------------
Total Current Assets 1,176,558 1,038,3631,096,778 1,136,178
Equipment, furnishings and leasehold improvements (less
accumulated depreciation of $346,612 at May 31 and
amortization of $407,289
at November 30 and $368,087$339,829 at February 29 ) 65,633 95,86128) 49,791 56,574
Patents, patents pending and copyrights (less amortization
of $120,530$117,875 at November 30May 31 and $114,372$116,318 at February 29) 54,430 59,17628) 51,242 52,799
Other assets 6,317 6,317
------------ --------------------------- ---------------
T O T A L $ 1,302,9381,204,128 $ 1,199,717
============ ============1,251,868
=============== ===============
LIABILITIES
Current maturities of long term debt $ 722,48296,430 $ 128,77994,370
Accounts payable 295,201 233,810234,091 267,673
Accrued expenses 345,013 362,963
------------ ------------(Note E) 283,815 354,381
--------------- ---------------
Total Current Liabilities 1,362,696 725,552614,336 716,424
--------------- ---------------
Long term debt, less current maturities 63,984 657,865550,567 576,056
Non-current rent payable 1,856 10,217
------------ ------------1,998 666
--------------- ---------------
Total Liabilities 1,428,536 1,393,634
------------ ------------
SHAREHOLDERS'1,166,901 1,293,146
--------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - $.01 par value: (Note E)
Authorized - 12,000,000 shares
Issued - 4,374,387 at May 31 and 4,204,913 share 42,049at February 28 43,744 42,049
Additional paid-in capital 3,758,1283,824,220 3,758,128
Deficit (3,925,776) (3,994,094)
------------ ------------(3,830,737) (3,841,455)
--------------- ---------------
Total Shareholders' Deficiency (125,599) (193,917)
------------ ------------Stockholders' Equity (Deficiency) 37,227 (41,278)
--------------- ---------------
T O T A L $ 1,302,9381,204,128 $ 1,199,717
============ ============1,251,868
=============== ===============
1
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
----------------------- ------------------------
November 30 November 30
Unaudited Unaudited
1996 1995 1996 1995
NET SALES $2,313,592 $2,086,235 $ 811,894 $ 736,727
COST OF GOODS SOLD 1,151,813 890,991 411,897 322,973
---------- ---------- ---------- ----------
Gross Profit 1,161,779 1,195,244 399,997 413,754
---------- ---------- ---------- ----------
OPERATING EXPENSES
Research and product development costs 276,458 294,951 91,828 98,154
Marketing and selling expenses 485,808 476,256 177,577 149,689
General and administrative costs 283,762 286,800 92,104 94,155
---------- ---------- ---------- ----------
Total Operating Expenses 1,046,028 1,058,007 361,509 341,998
---------- ---------- ---------- ----------
OPERATING INCOME 115,751 137,237 38,488 71,756
INTEREST EXPENSE 47,514 50,670 15,256 17,650
INTEREST AND OTHER INCOME 80 33,032 61 99
---------- ---------- ---------- ----------
NET INCOME $ 68,317 $ 119,599 $ 23,293 $ 54,205
========== ========== ========== ==========
INCOME PER COMMON SHARE (NOTE D) $ 0.02 $ 0.03Three Months Ended
--------------------------
May 31
Unaudited
1997 1996
---- ----
NET SALES $ 761,743 $ 751,637
COST OF GOODS SOLD 383,657 379,613
---------- ----------
Gross Profit 378,086 372,024
---------- ----------
OPERATING EXPENSES
Research and product development costs 87,268 87,593
Marketing and selling expenses 172,851 159,174
General and administrative costs 94,169 87,795
---------- ----------
Total Operating Expenses 354,288 334,563
---------- ----------
OPERATING INCOME 23,798 37,461
INTEREST EXPENSE 13,080 16,319
INTEREST AND OTHER INCOME 0 15
---------- ----------
NET INCOME $ 10,718 $ 21,157
========== ==========
INCOME PER COMMON SHARE (NOTE D) $ 0.00 $ 0.01 $ 0.01
========== ==========
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK USED TO COMPUTE
EARNINGS PER SHARE 4,261,404 4,204,913 4,204,913 4,204,913 4,204,913
2
SONO-TEK CORPORATION
Statements of Cash FlOWSFlows
For SixThree Months Ended November 30May 31
1997 1996
1995
Unaudited
---------- -----------------------------------
Cash flows from operating activities:
Net income $ 68,31710,718 $ 119,599
---------- ----------21,157
----------- -----------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 45,360 46,7558,340 15,504
Allowance for doubtful accounts 6,850 (20,750)3,000 1,500
(Increase) decrease in:
Accounts receivable (197,805) (32,827)(93,138) (631)
Inventories 11,946 (2,305)22,011 (64,347)
Prepaid expenses and other current assets 9,226 27,89114,834 9,672
Increase (decrease) in:
Accounts payable & accrued expenses 43,441 (34,820)(Note E) (36,360) (2,441)
Noncurrent rent payable (8,362) (8,362)1,332 (2,788)
Notes and obligations payable - professional fees (2,500) (9,500)(4,000) (500)
Notes and obligations payable - lease termination (14,123) (16,302)
---------- ----------0 (5,208)
----------- -----------
Total adjustments (105,968) (50,220)
---------- ----------(83,981) (49,239)
----------- -----------
Net cash provided byused in operating activities (37,651) 69,379
---------- ----------(73,263) (28,082)
----------- -----------
Cash flows from investing activities:
Fixed asset, patent and copyright acquisition costs (10,384) (10,653)0 (5,616)
Cash flows from financing activities:
Proceeds from short term loan 72,000 0
Payments of capitalized leases (1,751) (5,429)
Proceeds from sale of common stock 0 25,000(1,305)
Repayments of note payable - bank (53,801) (39,181)
---------- ----------(19,429) (17,544)
----------- -----------
Net cash used in financing activities 16,448 (19,610)
---------- ----------(19,429) (18,849)
----------- -----------
Net Increase (decrease)decrease in cash and cash equivalents (31,588) 39,116(92,692) (52,547)
Cash and cash equivalents:
Beginning of period 107,746 69,033
67,804
---------- --------------------- -----------
End of period $ 37,44515,054 $ 106,920
========== ==========16,486
=========== ===========
Supplemental disclosure:
Interest paid $ 45,7653,071 $ 22,52520,399
Income taxes paid $ 0 $ 0
Non-cash exchange of accrued interest
for common stock (Note E) $ 67,787 $ 0
3
SONO-TEK CORPORATION
Notes to Financial Statements
November 30, 1996May 31, 1997
NOTE A: The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial statements
prepared in conformity with generally accepted accounting principles. Such
disclosures were included with the financial statements of the Company at
February 29, 1996,28, 1997, included in its report on Form 10-K. Such statements should
be read in conjunction with the data herein.
NOTE B: The financial information reflects all adjustments which, in the opinion
of management, are necessary for a fair presentation of the results for the
interim periods. The results for the interim periods are not necessarily
indicative of the results to be expected for the year.
NOTE C: Inventory at November 30, 1996May 31, 1997 is comprised of:
Finished goods $ 91,779$107,335
Work in process 101,704102,862
Raw materials and subassemblies 271,952
---------237,033
--------
Total $ 465,435$447,230
========
NOTE D: Income per share is based on the weighted average number of shares
outstanding during each period. The computation does not include the effect of
outstanding stock options or conversion of the subordinated promissory notes
since their inclusion would not be either
not material or anti-dilutive.material.
NOTE E: In April 1997 the holders of $530,000 of Subordinated Convertible Notes
entered into an agreement with the Company (the "Third Note Amendment
Agreement") whereby the holders agreed to (1) accept 169,474 shares of the
Company's Common Stock as payment for $67,787 of interest due as of February 15,
1997; (2) Waive the default as to nonpayment of interest until March 1, 1998;
(3) extend the due date of the note from August 15, 1997 until August 15, 2000;
(4) reduce the interest rate from 1/2% below prime to 1% below prime.
4
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The Company's sales increased $227,357$10,106 to $2,313,592$761,743 for the ninethree months
ended November 30, 1996May 31, 1997 as compared to $2,086,235$751,637 for the ninethree months ended November 30, 1995.May 31,
1996. The increase was primarily a result of increased sales of the Company's SonoFlux Systems.product line.
Sales of this productthese products increased approximately $304,000,$113,000 while sales of the
Company's Nozzle Systems decreased approximately $77,000.$103,000. The Company believes
the increase in sales of the SonoFlux System is a result of its efforts to
provide the circuit board assembly industry with equipment that has a reputation
for reliable and cost-effective performance. Due to the nature of the market for
Nozzle Systems, it is not uncommon for the Company to experience significant
fluctuations in sales from quarter to quarter.
The Company's gross profit increased $6,062 from $372,024 for the three
months ended May 31, 1996 to $378,086 for the three months ended May 31, 1997.
The increase was a result of a decrease in the raw materials portion of cost of
goods sold. Raw materials consumed were higher during the three months ended May
31, 1996 as a result of the disposal of obsolete stock associated with earlier
models of the SonoFlux System and higher materials cost associated with the sale
of a custom Nozzle System that required several unique components.
Marketing and selling costs increased $13,677 from $159,174 for the three
months ended May 31, 1996 to $172,851 for the three months ended May 31, 1997.
The increase was primarily a result of an increase in commissions paid to
outside sales representatives. Such commissions are paid on sales of SonoFlux
units and related equipment which, as noted above, increased significantly over
the prior year.
General and administrative costs increased $6,374 from $87,795 for the
three months ended May 31, 1996 to $94,169 for the three months ended May 31,
1997. During the three months ended May 31, 1996 the Company realized an expense
reduction of approximately $4,000 as a result of a customer order cancellation
charge. In addition, compensation costs increased approximately $2,000 during
the three months ended May 31, 1997.
Interest expense decreased $3,239 from $16,319 for the three months ended May
31, 1996 to $13,080 for the three months ended May 31, 1997. The decrease in
interest expense is primarily a result of the increasing maturity of the
Company's loan with its bank. As such loan matures, the amount of each fixed
monthly payment which pertains to interest declines as the amount applied to
principal increases.
5
For the three months ended November 30, 1996 the Company's sales
increased $75,167 to $811,894 as compared to sales of $736,727 for the three
months ended November 30, 1995. During this period sales of the Company's
SonoFlux Systems increased approximately $145,740 and sales of the Company's
Nozzle Systems decreased approximately $70,573 as compared to the three month
period ended November 30, 1995. The increase in sales of the Company's SonoFlux
Systems is believed to be the result of increased acceptance by the electronics
industry of the Company's newest version of the SonoFlux, the "9500". The
decrease in sales of nozzle systems can be attributed to a decrease in sales to
customers in the semiconductor and medical supply industry. Sales to customers
in these industries are normally sporadic. The Company is not aware of any other
factors that may have contributed to the decline in orders.
The Company's gross profit decreased $33,465 from $1,195,244 for the nine
month period ended November 30, 1995 to $1,161,779 for the nine month period
ended November 30, 1996, and decreased $13,757 from $413,754 for the three
months ended November 30, 1995 to $399,997 for the three months ended November
30, 1996. As a percent of sales, gross profit decreased from 57% for the nine
months ended November 30, 1995 to 50% for the nine months ended November 30,
1996, and decreased from 56% for the three months ended November 30, 1995 to 49%
for the three months ended November 30, 1996. For both the nine and three month
periods the decrease in gross profit percentage is attributed to an increase in
the cost of materials, an increase in discounted sales to OEM's and a cumulative
reduction of the reserve for warranty costs taken during both the nine and three
month periods ended November 30, 1995 which resulted in an increase in gross
profit for those periods.
Research and product development costs decreased $18,493 from $294,951 for
the nine months ended November 30, 1995 to $276,458 for the nine months ended
November 30, 1996 and decreased $6,326 from $98,154 for the three months ended
November 30, 1995 to $91,828 for the three months ended November 30, 1996. The
decrease for both the nine and three month periods was primarily a result of
decreased consulting costs associated with the development of the "SonoFlux
9500".
Marketing and selling costs increased $9,552 from $476,256 for the nine
months ended November 30, 1995 to $485,808 for the nine months ended November
30, 1996 and increased $27,888 from $149,689 for the three month period ended
November 30, 1995 to $177,577 for the three month period ended November 30,
1996. The increase for both the nine and three month periods was primarily a
5
result of an increase in advertising and product marketing costs.
Interest and other income decreased $32,952 from $33,032 for the nine month
period ended November 30, 1995 to $80 for the nine months ended November 30,
1996. During the nine month period ended November 30, 1995May 31, 1997, the Company had
received funding from SEMATECH for work performed under the terms of a joint
development agreement. SEMATECH is a consortium of U.S. semiconductor
manufacturers and has provided the Company with funds for the development of a
photoresist application system,earned $10,718 or
"Wafer Coating System." Although Sono-Tek
successfully developed a system that we believe is capable of reducing the
consumption of Photoresist by a factor of four, parallel advances in the
industry have achieved reductions in the neighborhood of a factor of two without
requiring significant capital investment and the expense associated with
qualification testing. Although we have not been successful in locating a
semiconductor manufacturer that is interested at this time, we are continuing to
pursue the market potential of this accomplishment. For the nine months ended
November 30, 1996 the Company had earnings of $68,317 or $0.02$.00 per share as compared to earnings of $119,599 or $.03 per share for the nine months ended
November 30, 1995. For the three months ended November 30, 1996, the Company had
earnings of $23,293 or $.01 per share as compared to earnings of $54,205$21,157 or $.01 per share for the
three months ended November 30, 1995.May 31, 1996. The decrease in earnings for both the ninewas primarily a result
of higher commissions and three month periods resulted primarily from an increase in
materials costs, and a decrease in other income from SEMATECH.administrative costs.
Liquidity and Capital Resources
- -------------------------------
In OctoberThe Company's working capital increased $62,688 to $482,442 at May 31,
1997 as compared to working capital of $419,754 at February 28, 1997 and November the
Company experiencedstockholders' position improved $78,505 from a cash shortage asdeficit of $41,278 on February
28, 1997 to an equity position of $37,227 on May 31, 1997. The increase in
working capital and equity was a result of delayed payments from certain customers. During this periodrestructured debt and profitable
operations. On April 30, 1997 the Company reached an agreement with the holders
of time$530,000 of Subordinated Convertible Notes whereby they agreed to, among
other things, accept shares of the Company's ChairmanCommon Stock as payment for the
total amount of interest due as of February 28, 1997 and extend the Company's CEO loanedterm of the
Notes until August 2000.
The improvement in working capital has allowed the Company a total of
$72,000.to make steady
progress in its efforts to reduce outstanding debt. The Company anticipateshas improved its
position with many of its trade vendors, however, payments remain in arrears
with many others.
Although there can be no assurances, management believes that these loansworking
capital generated by continuing operations will be repaid by February 28,
1997. The loans are by their terms payable on demand and bear interest at a rate
of 10 1/4 % which is equalsufficient to the prime rate plus 2%.
On August 15, 1997 the Company's Convertible Secured Subordinated Notes
mature. As a result,support the
Company's working capital decreased $519,567 to a
working capital deficiency of $186,138 at November 30, 1996. This compares to
working capital of $312,811 at February 29, 1996.
The Company will experience substantial difficulties in meeting these
obligations unless the level of profitability improves substantially overneeds for the next ninetwelve months or unless the Noteholders agree to extend the repayment terms
of this debt. There can be no assurance that such extensions can be negotiated
or that such extensions will bebased on terms as favorable to the Company as those
presently in effect.anticipated
sales levels.
6
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On April 30, 1997 the Company sold 169,474 shares of its
Common Stock. The shares were issued in a private placement to
holders of convertible subordinated notes in payment of
interest on notes in the aggregate sum of $67,787 due as of
February 15, 1997. No underwriter was involved in the
transaction.
Item 4. Submission of Matters to a Vote of Security Holders
None.None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
4.1 Promissory Note of James L. Kehoe dated October 30, 1996 in
the amount of $20,000.00
4.2 Promissory Note of Samuel Schwartz dated October 30, 1996
in the amount of $20,000.00
4.3 Promissory Note of James L. Kehoe dated November 22, 1996
in the amount of $32,000.00
27. Financial Data Schedule - EDGAR filing only
(b) Reports on Form 8-K
One report on Form 8-K was filed dated October 30, 1996 describing a
change, under Items 4 and 7, in the Company's certifying accountant.None
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January 10,July 11, 1997
SONO-TEK CORPORATION
By: /s/ James L. Kehoe
--------------------------------------------
James L. Kehoe
Chief Executive Officer
By: /s/ J. Duncan Urquhart
-------------------------------------------------
J. Duncan Urquhart
Treasurer & Chief Financial Officer
8