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, 1997May 31, 1998
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.Route. 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___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 12,July 9, 1998
--------- ---------------------- ------------
Common Stock, par value $.01 per share 4,374,387
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Balance Sheets - November 30, 1997May 31, 1998 (Unaudited) and February 28, 19971998 1
Statements of Operations - Nine Months and Three Months Ended November 30,May 31, 1998
and 1997 and 1996 (Unaudited) 2
Statements of Cash Flows - NineThree Months Ended November 30,May 31, 1998
and 1997
and 1996 (Unaudited) 3
Notes to Financial Statements 4 - 5
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 56 - 67
Item 3-Quantitative3 - Quantitative and Qualitative Disclosures Aboutabout Market Risk-NotRisk -
Not Applicable -
Part II - Other Information 7
Signatures 8
SONO-TEK CORPORATION
BALANCE SHEETS
ASSETS
November 30May 31, February 28,
1997 1997
ASSETS1998 1998
Unaudited
------------------------------------ -----------
CURRENT ASSETS:Current Assets
Cash and cash equivalents $ 21,00421,553 $ 107,746113,759
Accounts receivable (net(less allowance of allowance for doubtful accounts
of $44,814$4,000 and $1,000
at November 30May 31 and $35,814 at February 28) 677,880 525,75028, respectively) 456,066 810,560
Inventories (Note C) 515,619 469,241788,281 615,459
Prepaid expenses and other current assets 18,424 33,441
----------- -----------44,282 15,780
---------- ----------
Total Current Assets 1,232,927 1,136,178current assets 1,310,182 1,555,558
Equipment furnishings and leasehold improvementsfurnishings (less accumulated depreciation and
of $360,325$378,254 and $369,398 at November 30May 31 and $339,829 at February 28) 46,406 56,57428,
respectively) 113,160 122,016
Patents, patents pending and copyrights (less accumulated
amortization of $120,989$73,558 and $123,930 at November 30May 31 and
$116,318 at February 28) 48,128 52,79928, respectively) 43,472 45,187
Other assets 6,317 6,317
----------- -----------
T O T A L $ 1,333,778 $ 1,251,868
=========== ===========5,917 5,917
---------- ----------
TOTAL ASSETS $1,472,731 $1,728,678
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt $ 80,69731,738 $ 94,37055,438
Revolving Line of Credit 50,000 50,000
Accounts payable 252,616 267,673362,793 405,009
Accrued expenses (Note E) 279,859 354,381
----------- -----------262,201 353,776
---------- ----------
Total Current Liabilities 613,172 716,424
----------- -----------current liabilities 706,732 864,223
---------- ----------
Long term debt, less current maturities 530,000 576,056
Non-current577,815 577,815
Noncurrent rent payable 6,660 666
----------- -----------8,331 8,083
---------- ----------
Total Liabilities 1,149,832 1,293,146
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)liabilities 1,292,878 1,450,121
---------- ----------
Stockholders' Equity
Common stock, - $.01 par value:
Authorized -value; 12,000,000 shares Issued -authorized,
4,374,387 outstanding at November 30May 31 and 4,204,913
at February 28 (Note E) 43,744 42,04943,744
Additional paid-in capital 3,824,220 3,758,128
Deficit (3,684,018) (3,841,455)
----------- -----------3,824,221 3,824,221
Accumulated deficit (3,688,112) (3,589,408)
---------- ----------
Total Stockholders' Equity (Deficiency) 183,946 (41,278)
----------- -----------
T O T A L $ 1,333,778 $ 1,251,868
=========== ===========stockholders' equity 179,853 278,557
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,472,731 $1,728,678
========== ==========
See Notesnotes to Financial Statements
1financial statements.
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended ----------------------------- -----------------------------
November 30 November 30May 31,
Unaudited
Unaudited1998 1997
1996 1997 1996---- ----
NET SALESNet Sales $ 2,588,626746,042 $ 2,313,592 $ 1,013,198 $ 811,894
COST OF GOODS SOLD 1,270,194 1,151,813 493,803 411,897
----------- ----------- ----------- ----------761,743
Cost of Goods Sold 416,491 383,657
--------- ---------
Gross Profit 1,318,432 1,161,779 519,395 399,997
----------- ----------- ----------- ----------
OPERATING EXPENSES329,551 378,086
--------- ---------
Operating Expenses
Research and product development costs 272,521 276,458 100,928 91,828134,198 87,268
Marketing and selling expenses 559,207 485,808 219,759 177,577166,262 172,851
General and administrative costs 292,104 283,762 101,193 92,104
----------- ----------- ----------- ----------115,303 94,169
--------- ---------
Total Operating Expenses 1,123,832 1,046,028 421,880 361,509
----------- ----------- ----------- ----------
OPERATING INCOME 194,600 115,751 97,516 38,488
INTEREST EXPENSE 37,164 47,514 11,900 15,256
INTEREST AND OTHER INCOME415,763 354,288
--------- ---------
Operating (Loss) Income (86,212) 23,798
Interest Expense (13,601) (13,080)
Interest and Other Income 1,109 0
80--------- ---------
(Loss) Income Before Income Taxes (98,704) 10,718
Income Tax Expense (Note D) 0 61
----------- ----------- ----------- ----------
NET INCOME0
--------- ---------
(Loss) Net Income $ 157,436(98,704) $ 68,317 $ 85,616 $ 23,293
=========== =========== =========== ==========
INCOME PER COMMON SHARE (NOTE D) $ 0.04 $ 0.02 $ 0.02 $ 0.01
=========== =========== =========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK USED TO COMPUTE
EARNINGS PER SHARE 4,336,795 4,204,91310,718
========= =========
Basic Earnings Per Share $(0.02) $0.00
======= =====
Diluted Earnings Per Share $(0.02) $0.00
======= =====
Weighted Average Shares - Basic 4,374,387 4,204,9134,261,404
========= =========
Weighted Average Shares - Diluted 4,861,063 4,562,617
========= =========
See Notesnotes to Financial Statements
2financial statements.
SONO-TEK CORPORATION
Statements of Cash Flows
For NineSTATEMENTS OF CASH FLOWS
Three Months Ended November 30
May 31,
Unaudited
1998 1997
1996
Unaudited
----------------------------- ----
Cash flows from operating activities:CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(Loss) Income $(98,704) $ 157,436 $ 68,317
--------- ----------10,718
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Depreciation and amortization 25,167 45,36010,571 8,340
Provision for doubtful accounts 9,000 6,8503,000 3,000
(Increase) decrease in:
Accounts receivable (161,130) (197,805)349,693 (93,138)
Inventories (46,378) 11,946(172,822) 22,011
Prepaid expenses and other current assets 15,017 9,226(26,701) 14,834
Increase (decrease) in:
Accounts payable &and accrued expenses (Note E) (21,791) 26,818
Noncurrent(133,791) (36,360)
Non-current rent payable 5,994 (8,362)
--------- ----------
Total adjustments (174,133) (105,968)
--------- ----------248 1,332
-------- --------
Net cash usedCash Used in operating activities (16,695) (37,651)
--------- ----------
Cash flows from investing activities:
Fixed asset, patentOperating Activities (68,506) (69,263)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Notes and copyright acquisition costs (10,328) (10,384)
Cash flows from financing activities:
Proceeds farom short term loanobligations payable - professional fees 0 72,000
Payments of capitalized leases 0 (1,751)(4,000)
Repayments of note payable-bank (59,729) (53,801)
--------- ----------payable, bank (23,700) (19,429)
-------- --------
Net cash usedCash Used in financing activities (59,729) 16,448
---------- ----------
Net decrease in cash and cash equivalents (86,742) (31,588)
Cash and cash equivalents:Financing Activities (23,700) (23,429)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (92,206) (92,692)
CASH AND CASH EQUIVALENTS
Beginning of period 113,759 107,746
69,033
--------- ------------------ --------
End of period $ 21,00421,553 $ 37,445
========= ==========
Supplemental disclosure:15,054
======== ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 27,0073,802 $ 45,765
Income taxes paid $ 0 $ 03,071
======== ========
Non-cash exchange of accrued interest
for common stock (Note E)0 $ 67,787
$ 0= ========
See Notesnotes to Financial Statements
3financial statements.
SONO-TEK CORPORATION
Notes to Financial Statements
November 30, 1997May 31, 1998
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 28, 1997,1998, 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: InventoryInventories at November 30, 1997 isMay 31, 1998 are comprised of:
Finished goods $111,487
Work in process 109,249
Raw materials and subassemblies 315,883
-------
Subtotal 536,619
Reserve for obsolete items (21,000)
-------
Net inventory $515,619
Finished goods $173,542
Work in process 165,504
Raw materials and subassemblies 449,235
--------
Net inventories $788,281
========
NOTE D: IncomeThe Company has a net deferred tax asset, therefore no income tax
expense is recorded for the three months ending May 31, 1998 and May 31, 1997.
At February 28, 1998, the Company had available operating loss carryforwards of
approximately $3,208,000 for income tax purposes.
NOTE E: On March 3, 1997, the FASB issued SFAS No. 128 "Earnings per Share".
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application was not
permitted. Restatement of all prior-period earnings per share ("EPS") data
presented is required when SFAS 128 is implemented. The Company adopted SFAS No.
128 for the year ended February 28, 1998 and EPS data is provided in the
financial statements for all periods presented based on the weighted averagerequirements of this
statement.
Basic EPS is computed by dividing net income by the weighted-average number of
common shares outstanding during eachfor the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Stock options granted but not yet
exercised under the Company's stock option plans are included for Diluted EPS
calculations under the treasury stock method. The computation does not include the effect of
outstanding stock options or conversion of theconvertible secured
subordinated promissory notes since their inclusion would be eitherand related warrants are antidilutive and
therefore are not material or anti-dilutive.
NOTE E: In April 1997considered for the holdersDiluted EPS calculations.
The computation of $530,000basic and diluted earnings per share are set forth on
the following table:
May 31, May 31,
1998 1997
Numerator-
Numerator for basic and diluted earnings
per share - net (loss) income $(98,704) $10,718
========= =======
Denominator:
Denominator for basic earnings per share -
weighted average shares 4,374,387 4,261,404
Effects of dilutive securities:
Stock options for employees
and outside consultants 486,676 301,213
--------- ---------
Denominator for diluted earnings per share 4,861,063* 4,562,617*
========= =========
*The effect of Subordinated Convertible Notes
entered into an agreement withconsidering the Company (the "Thirdconvertible secured subordinated promissory
notes and related warrants are antidilutive and therefore not considered
for the diluted earnings per share calculations.
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;
and (4) reduce the interest rate from 1/2% below prime to 1% below prime.
NOTE F: SUBSEQUENT EVENTS
On August 1, 1997,June 26, 1998, the Board of Directors of the Company granted options to
acquire 200,000147,500 shares of Common Stock to an officerqualified employees of the Company, at
the fair market value of $.37$.60 per share under the 1993 Stock Incentive Plan, which
are immediately vested and are exercisable at any time for a period of ten years
from the date of grant.
NOTE G: Events subsequent to November 30, 1997:
The Company took possession of a piece of production equipment for a 30 day
trial and evaluation period, valued at $70,130. It is anticipated that at
the completion of the evaluation period, the Company will purchase this
equipment. A bank has approved a $57,000 term loan to finance the
acquistion of the equipment to be paid back over a five year period at the
prime rate plus 2%.
As of January 12, 1998 a bank has approved a $150,000 line of credit for
the Company,however, no advances have been made under the line. In
addition, as of January 12, 1998, the line of credit will be due on demand,
and bears interest at the prime rate plus 2%. In addition, the principal
balance has to be repaid in full for a 30 day consecutive period annually
with interest paid monthly.
These loans will be collateralized by all the assets of the Company.
4Plan.
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Federal Securities Laws. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: 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; and ability to enforce
patents.
Results of Operations
For the ninethree months ended November 30, 1997,May 31, 1998, the Company's sales increased
$275,034decreased $15,701
to $2,588,626$746,042 as compared to $2,313,592$761,743 for the ninethree months ended November 30, 1996.May 31, 1997. The
increase in salesdecrease was primarily a result of an increase
of approximately $430,000a decrease in sales of the Company's SonoFlux System. TheNozzle
Systems. Due to the nature of the market for Nozzle Systems, it is not uncommon
for the Company believes the increaseto experience significant fluctuations in sales of the SonoFlux System is a result of its effortsfrom quarter to
provide the circuit board assembly industry with equipment that has a
reputation for reliable and cost effective performance. Also during this period,
the Company introduced a Web-Coating System which is designed to coat moving
webs of material (such as paper, glass, fabric etc). Initial shipments of this
system resulted in $69,655 in sales. Sales of thequarter.
The Company's Nozzle Systemsgross profit decreased approximately $178,000 during the nine month period ending November
30, 1997.
For the three months ended November 30, 1997 the Company's sales increased
$201,304 to $1,013,198 as compared to sales of $811,894$48,535 from $378,086 for the three months
ended November 30, 1996. During this three month period, sales of the SonoFlux
Systems increased approximately $234,000 and sales of the Company's Nozzle
Systems decreased by $98,000.
The Company's gross profit increased $156,653 from $1,161,779 for the nine
month period ended November 30, 1996May 31, 1997 to $1,318,432 for the nine month period
ended November 30,1997, and increased $119,398 from $399,997$329,551 for the three months ended November 30, 1996 to $519,395 for the three months ended November
30, 1997. For both the three and nine month periods the increase in gross profit
is attributed to an increase in sales of the Company's products.
Research and product development costs decreased $3,937 from $276,458 for
the nine months ended November 30, 1996 to $272,521 for the nine months ended
November 30, 1997 and increased $9,100 from $91,828 for the three months ended
November 30, 1996 to $100,928 for the three months ended November 30, 1997.May 31, 1998. The
increase for the three month period is a result of increased consulting costs
related to the new product development of a 24" spray fluxer.
Marketing and selling costs increased $73,399 from $485,808 for the nine
months ended November 30, 1996 to $559,207 for the nine months ended November
30, 1997 and increased $42,182 from $177,577 for the three months ended November
30, 1996 to $219,759 for the three months ended November 30, 1997. The increase
for both the three and nine month periods is primarily asdecrease was a result of an increase in commissionscost of goods sold relative to sales due
an increase in costs for personnel, depreciation, supplies and installations of
the Company's SonoFlux systems.
Research and product development costs increased $46,930 from $87,268 for the
salethree months ended May 31, 1997 to $134,198 for the three months ended May 31,
1998. The increase was due to an increase in engineering supplies purchased for
new product development and travel related to that development. Personnel costs
also increased by $34,000 for the three month period as a result of SonoFlux Systemsincreased
staffing.
Marketing and advertising costs.selling costs decreased $6,589 from $172,851 for the three months
ended May 31, 1997 to $166,262 for the three months ended May 31, 1998. The
decrease was primarily due to a reduction of one person on the sales staff.
General and administrative costs increased $9,089$21,134 from $92,104 for the
three month period ended November 30, 1996 to $101,193 for the three month
period ended November 30, 1997. For the nine month period ended November 30,
1997, general and administrative costs increased $8,342 to $292,104 from
$283,762 for the nine month period ended November 30, 1996. Such costs increased
primarily as a result of higher compensation costs.
Interest expense decreased $10,350 from $47,514 for the nine month period
ended November 30, 1996 to $37,164 for the nine months ended November 30, 1997
and decreased $3,356 from $15,256 for the three month period ended November 30,
1996 to $11,900$94,169 for the three
months ended November 30, 1997.May 31, 1997 to $115,303 for the three months ended May 31, 1998.
The decreaseincrease was a result of increased compensation costs, professional fees and
travel costs.
Interest expense increased $521 from $13,080 for the three months ended May 31,
1997 to $13,601 for the three months ended May 31, 1998. The increase in
interest expense is the result of two new loans, with the increasing maturitybank at the end of the
Company's loan
with its bank. As such loan matures,last fiscal year, for the amountpurchase of each fixed monthly payment
which pertains to interest declines as the amount applied to principal
increases. The decrease is alsoproduction equipment and a resultline of the lowering of the interest rate by
1/2% on the Subordinated Convertible Note, by the noteholders.credit.
For the ninethree months ended November 30, 1997May 31, 1998, the Company had earnings of
$157,436lost $98,704 or $0.04($.02) per
share as compared to earnings of $68,317$10,718 or $0.02 per
share for the nine months ended November 30, 1996. For the three months ended
November 30, 1997, the Company had earnings of $85,616 or $.02 per share as
compared to earnings of $23,293 or $.01$.00 per share for the three months
ended November 30, 1996.May 31, 1997. The increasedecrease in earnings for both the ninewas primarily a result of a
decrease in gross profit from lower sales and three month
periods resulted primarily from an increase in sales of the Company's products.
5
higher research and administrative
costs.
Liquidity and Capital Resources
The Company's working capital increased $200,001 to $619,756 at November
30, 1997 as compared to working capital of $419,754decreased $87,885 from $691,335 at February 28,
1997.1998 to $603,450 at May 31, 1998. The increasestockholders' equity decreased $98,704
from $278,557 on February 28, 1998 to $179,853 on May 31, 1998. The decrease in
working capital and stockholders' equity was primarily a result of profitable operations and
restructured debt. On April 30, 1997 the Company reached an agreement with the
holders of $530,000 of Subordinated Convertible Notes (the "Notes") whereby they
agreed to, among other things, accept shares of the Company's Common Stock as
paymentoperating
loss for the total amount of interest due as of February 28, 1997 and extend
the term of the Notes until August 2000.
During the next fiscal quarter, the Company plans on purchasing a piece of
production equipment valued at $70,130. A bank has approved a five year loan of
$57,000, bearing an interest rate at the prime rate plus 2%, to purchase the
equipment. Also during this time, the Company plans on obtaining a $150,000 line
of credit with a bank. A bank has approved the line of credit for the Company,
which will be due on demand and bear an interest rate at the prime rate plus 2%.
The improvement in working capital has allowed the Company to make steady
progress in its efforts to reduce outstanding debt. The Company has improved its
position with many of its trade vendors, however, payments remain in arrears
with others.three months ended May 31, 1998.
Although there can be no assurances, management believes that working capital
generated by continuing operations will be sufficient to support the Company's
working capital needs for the next twelve months based on anticipated sales
levels.
6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27. Financial Data Schedule - EDGAR filing only
(b) Reports on Form 8-K
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 12,July 15, 1998
SONO-TEK CORPORATION
(Registrant)
/s/ James L. Kehoe
By: ____________________________________
James L. Kehoe
Chief Executive Officer
/s/ Kathleen N. Martin
By: ____________________________________
Kathleen N. Martin
Treasurer & Chief Financial Officer
8