SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 2001
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, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (845) 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 July 12, 2001
Common Stock, par value $.01 per share 9,092,354
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Consolidated Financial Statements: 1 - 3
Consolidated Balance Sheets - May 31, 2001 (Unaudited) and
February 28, 2001 1
Consolidated Statements of Operations - Three Months Ended
May 31, 2001 and 2000 (Unaudited) 2
Consolidated Statements of Cash Flows - Three Months Ended
May 31, 2001 and 2000 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
Item 3 - Quantitative and Qualitative Disclosure
About Market Risk 12
Part II - Other Information 12 - 13
Signatures 14
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, February 28,
2001 2001
Current Assets Unaudited Audited
Cash and cash equivalents $ 148,62 $ 3,232
Accounts receivable (less allowance of $29,769
and $116,581 at May 31 and February 28,
respectively) 565,497 593,605
Inventories (Note 4) 698,348 796,696
Prepaid expenses and other current assets 88,738 97,093
--------- ---------
Total current assets 1,501,212 1,490,626
Equipment, furnishings and leasehold
improvements (less accumulated depreciation
of $511,007 and $508,928 at May 31 and
February 28, respectively) 186,383 209,675
Intangible assets, net:
Patents and patents pending (Note 1) 24,277 25,640
Deferred financing fees 23,683 25,459
Total intangible assets 47,960 51,099
Net assets of discontinued operations (Note 3) - 452,462
Net investment in affiliate 8,051 8,068
Other assets 7,417 100
---------- ----------
TOTAL ASSETS $1,751,023 $2,212,030
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $610,755 $841,267
Accrued expenses 356,945 369,386
Revolving Line of Credit 350,000 350,000
Short term loans-related parties (Notes 6) 286,084 459,605
Current maturities of long term debt 22,138 21,777
Current maturities of subordinated
mezzanine debt (Note 7) 188,896 76,390
--------- ---------
Total current liabilities 1,814,818 2,118,425
Subordinated mezzanine debt 529,109 411,547
Long term debt, less current maturities 37,629 43,311
Subordinated convertible loans 150,000 150,000
Estimated future costs of discontinued
operations (Note 3) 500,126 -
--------- --------
Total liabilities 3,031,682 2,723,283
Commitments and Contingencies - -
Put Warrants (Note 7) 174,778 94,111
Stockholders' Equity
Common stock, $.01 par value;
25,000,000 shares authorized,
9,092,354 shares issued and outstanding
at May 31 and February 28, respectively 90,924 90,924
Additional paid-in capital 6,007,037 6,007,037
Accumulated deficit (7,553,398) (6,703,325)
---------- ----------
Total stockholders' deficiency (1,455,437) (605,364)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $1,751,023 $2,212,030
========== ==========
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended May 31,
Unaudited
2001 2000
Net Sales $704,285 $967,005
Cost of Goods Sold 320,180 432,987
-------- --------
Gross Profit 384,105 534,018
Operating Expenses
Research and product development costs 85,536 104,283
Marketing and selling expenses 178,144 201,107
General and administrative costs 137,359 116,315
------- -------
Total Operating Expenses 401,039 421,705
------- -------
Operating (Loss) Income (16,934) 112,313
Interest Expense (43,429) (116,424)
Loss from Affiliate (9,858) (34,004)
Interest and Other Income 1,472 1,607
------- -------
Loss from Continuing Operations
Before Income Taxes (68,749) (36,508)
Income Tax Expense 0 0
-------- -------
Loss from continuing operations (68,749) (36,508)
Loss from discontinued operations (781,324) (227,221)
------- -------
Net Loss $(850,073) $(263,729)
========= =========
Basic and Diluted Loss Per Share
Loss from continuing operations $(0.01) $(0.00)
Loss from discontinued operations $(0.08) $(0.03)
------ ------
Net loss $(0.09) $(0.03)
====== ======
Weighted Average Shares - Basic and Diluted 9,092,354 8,953,156
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended May 31,
Unaudited
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(850,073) $(263,779)
Adjustments to reconcile net loss to net cash provided by (used in)operating
activities:
Non-cash charge for issuance of warrants 0 75,831
Imputed interest expense on subordinated
mezzanine debt 10,735 5,436
Loss on equity investment (8,052) 1,394
Depreciation and amortization 20,278 16,656
Provision for doubtful accounts (86,812) 3,000
(Increase) decrease in:
Accounts receivable 114,920 86,806
Inventories 98,348 4,376
Prepaid expenses and other current assets 9,107 (4,831)
Increase (decrease) in:
Accounts payable and accrued expenses (242,952) (41,044)
-------- --------
Net Cash Used In Continuing Operations (934,501) (116,105)
Net Cash Provided By Discontinued Operations 1,042,668 447,160
--------- -------
Net Cash Provided By Operating Activities 108,167 331,055
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Sale (Purchase) of equipment and furnishings 6,153 (73,796)
Net Cash Provided By (Used In) ----- -------
Investing Activities 6,153 (73,796)
----- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 0 15,693
Proceeds from bank loan for production
equipment 0 45,359
Proceeds from subordinated mezzanine debt 300,000 0
Proceeds from exercise of warrants 0 55,692
Proceeds from stock options 0 1,602
Repayments of short term borrowings (173,521) (126,000)
Repayments of subordinated mezzanine debt 0 (100,000)
Repayments of note payable and equipment loans (5,322) (2,671)
-------- -------
Net Cash Provided By(Used In) Continuing
Operations 121,157 (110,325)
Net Cash Used In Discontinued Operations (90,080) (75,889
------- --------
Net Cash Provided By (Used In) Financing Activities 31,077 (186,214)
------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 145,397 71,045
CASH AND CASH EQUIVALENTS
Beginning of period 3,232 6,131
-------- -------
End of period $148,629 $77,176
======== =======
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 43,197 $ 40,554
========= =========
See notes to consolidated financial statements.
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
Three Months Ended May 31, 2001 and 2000
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements of Sono-Tek
Corporation, a New York Corporation (the "Company"), include the accounts of the
Company and its wholly owned subsidiary, Sono-Tek Cleaning Systems, Inc., a New
Jersey Corporation ("SCS"), which the Company acquired on August 3, 1999 (the
"Acquisition"). On April 23, 2001, the Company adopted a plan to discontinue the
operations of the cleaning and drying systems segment, which includes SCS and
Serec. These operations were discontinued and were classified as discontinued
operations. All significant intercompany accounts and transactions are
eliminated in consolidation.
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 28, 2001, and included in
its report on Form 10-K. Such statements should be read in conjunction with the
data herein.
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 presented. The results for such interim periods are not necessarily
indicative of the results to be expected for the year.
Patent and Patent Pending Costs - Cost of patent applications are deferred and
charged to operations overseventeen 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 $87,409 and $86,056 at May 31, 2001
and February 28, 2001, respectively.
Computation of Loss Per Share - There are no reconciling items in the
computation of loss per share, as all items are antidilutive.
Reclassifications - Certain February 28, 2001 balances have been reclassified to
conform with the current period presentation.
NOTE 2: FINANCIAL CONSIDERATIONS AND MANAGEMENT'S PLANS
Both the Company and its wholly owned subsidiary, SCS, incurred losses in Fiscal
Year 2000 and 2001. These losses led to an increase in the Company's debt and
negative cash flow. During Fiscal Year 2001, the Company increased its borrowing
from a bank, an investment banker, and officers and directors of the Company. At
February 28, 2001, the Company was late on its payments to various vendors and
in default on its subordinated mezzanine debt with Norwood Venture Corp.
("Norwood") for failure to make interest payments when due. The Company
subsequently paid the interest and the default was cured. In addition, during
the three months ended May 31, 2001, SCS was in default on a bank note for
failure to make interest and principal payments when due. This default was cured
in July 2001 when SCS brought all its payments up to date.
During Fiscal Year 2001, the Company received additional cash from the sale of
common stock and the exercise of warrants. These influxes of cash were not able
to provide the Company with adequate amounts to pay its debts. The Company
continues to have difficulty paying vendors and purchasing necessary raw
materials.
During the quarter ended May 31, 2001, the Company took actions to limit its
losses and reduce negative cash flow. The spraying systems segment was downsized
to reflect the decline in market demand, and the sales force was refocused to
increase nozzle sales instead of fluxer sales. The cleaning and drying segment,
represented by SCS, terminated production of capital equipment. By decreasing
operating costs and terminating thirty-two employees, the Company anticipates
positive cash flow beginning in the second quarter of Fiscal Year 2002. It is
anticipated that this income will be sufficient to cover current operating
costs, and will permit partial payments to vendors and payment of the required
principal payments on all debt. During the first quarter of Fiscal Year 2002,
the Company received additional financing from Norwood, directors, an officer
and an affiliate of the Company.
At present, the Company may not have access to adequate funds to meet its
operating and financial needs and to repay its past due vendor obligations,
creditors may take legal action for the repayment of past due indebtedness, and
the Company may not be able to restructure its past due obligations.
In order to decrease its losses, the Company adopted a plan to discontinue
operations of cleaning and drying systems segment during the first quarter of
Fiscal 2002 (see Note 3). The Company is refocusing on the sales of ultrasonic
nozzles and attempting to increase sales through diversifying the product line
while decreasing the reliance on the electronics industry. Although the results
of these actions cannot be predicted, the Company believes that these steps are
appropriate and will help the Company return to profitability in Fiscal Year
2002.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's continuation as
a going concern is dependent upon its ability to generate sufficient cash flow
to meet its obligations on a timely basis, to obtain additional financing and
refinancing as may be required, and to timely dispose or sell off assets related
to its discontinued operating segment.
NOTE 3: DISCONTINUED OPERATIONS
In order to decrease its losses, on April 23, 2001, the Company adopted a plan
to discontinue the operations of cleaning and drying systems segment. We
anticipate that the orderly liquidation of the disposed assets and liabilities
will be completed within the fiscal year ending February 28, 2002.
The accompanying statements of operations have been reclassified so that the
results for the cleaning and drying systems segment are classified as
discontinued operations for all periods presented. The assets and liabilities of
the discontinued operations have been reclassified in the May 31, 2001 and
balance sheet as "net assets of discontinued operations" and "estimated future
costs of discontinued operations". The statements of cash flows and related
notes to the consolidated financial statements have also been reclassified to
conform to the discontinued operations presentation.
Summary operating results of the discontinued operations for each fiscal quarter
are as follows:
May 31, May 31,
2001 2000
Revenues $891,665 $1,006,028
Expenses 1,672,989 1,233,249
--------- ----------
Loss from discontinued operations $(781,324) $(227,221)
========= =========
The Company wrote off goodwill in the amount of $477,377 during the three month
period ended May 31, 2001. This goodwill is related to the acquisition of its
discontinued operations and was deemed to be impaired as the Company estimated
that it would not likely realize positive future cash flows from the residual
assets and uncompleted orders of this business. Additionally the Company
reserved $131,058 against inventory of the discontinued operations due to net
realizable value. The Company does not expect that there will be any additional
estimated future costs of discontinuance for the orderly liquidation of the
disposed assets and liabilities.
A summary of the net assets of the discontinued operations is as follows:
May 31, February 28,
2001 2001
Assets
Cash $22,328 $183
Accounts Receivable, net 262,859 551,028
Inventory, net 133,382 631,970
Prepaid Expenses 10,851 783
------- ---------
Total current assets 429,420 1,183,963
Goodwill 10,000 487,377
Equipment and furnishings, net 81,388 87,935
-------- ----------
Total assets $520,808 $1,759,276
======== ==========
Liabilities
Current Liabilities
Notes payable $156,595 $238,917
Accounts payable 514,599 603,146
Accrued expenses 247,386 239,200
Customer deposits 67,500 182,940
-------- --------
Total current liabilities 986,081 1,326,524
Long term debt 34,853 42,611
-------- ---------
Total liabilities 1,020,934 1,306,814
--------- ---------
Net (liabilities) assets $(500,126) $452,462
========= ========
NOTE 4: INVENTORIES
Inventories at May 31, 2001 are comprised of:
Finished goods $224,284
Work in process 92,232
Consignment 9,037
Raw materials and subassemblies 587,076
-------
Total 912,629
Less: Allowance (214,281)
--------
Net inventories $698,348
========
NOTE 5: LONG-TERM EQUITY INVESTMENT - NET
The Company has a 49% ownership interest in PNR America, LLC, a Delaware limited
liability company. During the three month period ended May 31, 2001, PNR America
incurred a loss of $20,119 and the Company recorded its share of this loss in
the amount of $9,858. The Company is currently negotiating the sale of its share
of equity and the resolution of expenditure items that were spent on behalf of
PNR America. Shared rent, utilities and other minimal costs are being recorded
on the Company's books pending final resolution of negotiations.
NOTE 6: RELATED PARTY TRANSACTIONS
Short term loans - related parties - From time to time the Company has required
short term loans to meet its cash requirements. All of these loans have been
provided by officers and directors of the Company, at the fixed rate of prime
plus 2% at the date of the loans (9.75% to 11.50% at May 31, 2001). During the
three month period ended May 31, 2001, a total of $173,521 plus interest was
repaid to these individuals. Accrued interest on these short term loans was
$39,568 and $37,075 at May 31, 2001 and February 28, 2001, respectively. During
the three month period ended May 31, 2001 and 2000, interest expense relating to
these loans was $5,099 and $4,766, respectively
On April 30, 2001, in order to induce the advance of the additional $300,000 by
Norwood, certain of the Company's directors, an officer and an affiliate of the
Company participated in the amount of $216,750 in the additional subordinated
mezzanine financing (see Note 7).
NOTE 7: SUBORDINATED MEZZANINE DEBT
On April 30, 2001, Norwood amended the Norwood Note and Warrant Purchase
Agreement to increase the Note to $850,000 and the Warrant shares to 2,077,777.
The monthly principal payments to commence in October 2001 are increased to
$23,612 per month accordingly, and the balance sheet reflects this monthly rate
in reporting the related current maturities. The additional 733,333 Warrant
shares are valued at $80,667 which is accounted for as a discount and is being
imputed as additional interest expense over the term of the loan.
Certain of the Company's directors, an officer and an affiliate are participants
with Norwood in its subordinated mezzanine financing (see Note 6).
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:
- - the Company's access to adequate funds to meet the Company's operating and
financial needs and to repay its past due debt, and the Company's ability to
continue as a going concern if it is unable to access adequate financing;
- - the possibility that the Company's creditors may take legal action for the
repayment of past due indebtedness and the ability of the Company to continue
as a going concern if any such action is taken;
- - the Company's ability to restructure its debt;
- - the possibility of additional impairment write downs of assets;
- - the Company's ability to respond to competition in its markets;
- - general economic conditions in the Company's markets;
- - the risk that the Company's analyses of these risks could be incorrect
and/or the strategies developed to address them could be unsuccessful; and
- - various other factors discussed in the Annual Report on Form 10-K.
The Company undertakes no obligation to update publicly any forward-looking
statement.
Liquidity and Capital Resources
The continuing operations of Sono-Tek reflect good operating margins and the
Company has reduced its payroll and operating expenses during the quarter ended
May 31, 2001 in order to provide positive cash flow from continuing operations.
This was accomplished by downsizing the spraying systems business through
layoffs, salary reductions, and cutbacks in employee benefits. The Company
expects to save additional costs by changing outside professionals and other
service providers.
The Company's working capital deficiency decreased $314,193 from a working
capital deficiency of $627,799 at February 28, 2001 to $313,606 at May 31, 2001.
The decrease in working capital deficiency was a result of an increases in cash
of $145,000 and short term mezzanine debt of $113,000, decreases in accounts
receivable of $98,000 that was offset by decreases in related party loans of
$146,000 and accounts payable and accrued expenses of $270,000. The
stockholders' deficiency increased $850,073 from $605,364 at February 28, 2001
to $1,455,437 at May 31, 2001. The decrease in stockholders' equity was the
result of the loss of $850,073 for the three months ended May 31, 2001.
Accounts receivable at May 31, 2001 decreased 114,920 or 16% from February 28,
2001 due to sales levels in that were 27% lower in the three months ended May
31, 2001 as compared to the three months ended February 28, 2001. The allowance
for doubtful accounts was reduced $82,097 from February 28, 2001 due to
collection of one foreign customer whose payment was remitted during June of
this fiscal year.
Inventory decreased $94,348 or 12% as the result of reduced purchasing in the
three months ended May 31, 2001. This reduction was based upon the order level
for the Company's principal product, solder flux application products
("fluxers") during the three months ended May 31, 2001. This reduction in the
sale of fluxers was due to the slowdown in the manufacture of printed circuit
boards.
Accounts payable decreased $230,512 as compared to February 28,2001 due to the
reduced purchasing activity noted above and payments made to vendors during the
three months ended May 31, 2001.
On April 30, 2001, the Company amended its agreement with Norwood pursuant to
which the Company increased its five year loan in the principal amount of
$300,000 of which $216,750 was loaned by certain of the Company's directors, an
officer and an affiliate of the Company. The terms of the loan require interest
payments only through September 2002 followed by monthly payments of $23,612
plus interest through September 30, 2004. The Company was also required to grant
a warrant to purchase 733,333 shares of the Company's common stock at an
exercise price of $0.10 per share, which can be put to the Company. Such
warrants were valued at $80,667, which is accounted for as a discount and will
be imputed as additional interest expense over the term of the loan. The Company
currently has a $350,000 line 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 James Kehoe, former Chief Executive Officer of the Company
and is subject to certain priority liens on SCS assets. As of May 31, 2001 the
outstanding balance was $350,000. Subsequent to May 31, 2001, the Company paid
$6,000 in principal to the bank in order to comply with terms of the loan.
Due to the consolidated Company losses incurred during Fiscal Years 2001, 2000
and 1999, the Company was required to borrow on a short term basis from officers
and directors of the Company. During the three month period ended May 31, 2001
$173,521 plus interest was repaid. As of May 31, 2001, the balance owed the
officers and directors was $286,084 plus accrued interest of $39,568.
During the first quarter of Fiscal Year 2002, SCS received a default notice
regarding its bank loan. This default was cured in July 2001 when SCS brought
all its payments up to date. Due to the limited operations of SCS, the cash
generated may not be sufficient to complete the monthly principal and interest
payments through January 2002, when the loan matures.
It is anticipated that future cash flows may not allow the Company to repay its
current debt and trade creditors in a timely manner. During the first quarter of
Fiscal Year 2002, the Company discontinued the production of capital equipment
in the cleaning and drying systems segment and began to focus on its original
product lines, specifically the sales of ultrasonic nozzles. Although there can
be no assurances, management believes that by taking these steps the Company
will be able to return to profitability in the remaining quarters of Fiscal Year
2002. Results of Continuing Operations
For the three months ended May 31, 2001, the Company's
sales decreased $262,720 to $704,285 as compared to $967,005 for the three
months ended May 31, 2000. The decrease was a result of a decrease in fluxer
sales of $305,000 offset by an increase in MCS and specials of $35,000.
The Company's gross profit decreased $148,913 to $384,105 for the three months
ended May 31, 2001 from $534,018 for the three months ended May 31, 2000. The
decrease was primarily a result of decreased sales of the Company's products
that were offset by the related material costs and labor. The gross profit
margin was 55% of sales for the three months ended May 31, 2001 and 2000.
Research and product development costs decreased $18,747 to $85,536 for the
three months ended May 31, 2001 from $104,283 for the three months ended May 31,
2000. The decrease was a result of decreased compensation and fringe benefits
due to a smaller engineering staff.
Marketing and selling costs decreased $22,963 to $178,144 for the three months
ended May 31, 2001 from $201,107 for the three months ended May 31, 2000. The
decrease was a result of decreases in trade show of $24,000 and professional
fees of $8,000 that were offset by increases in personnel costs and travel of
$11,000.
General and administrative costs increased $21,044 to $137,359 for the three
months ended May 31, 2001 from $116,315 for the three months ended May 31, 2000.
The increase was primarily attributable to increased personnel costs of $4,000
which resulted from the hiring of a new CEO in May 2001, increased travel
expense of $7,000 due to final trip reports submitted by the prior CEO,
increased banks and credit card fees of $4,000 which resulted from late fees and
interest on Company and individual credit cards used for Company purchases
offset by reduced consulting expense of $5,000.
Interest expense decreased $72,995 to $43,429 for the three months ended May 31,
2001 from $116,424 for the three months ended May 31, 2000. The decrease is
primarily due to a non-recurring, non-cash charge of $64,033 reflecting the
value of warrants issued in the quarter ended May 31, 2000.
The Company's net loss before discontinued operations increased $32,241 from a
loss of $36,508 or $(0.00) per share for the three months ended May 31, 2000 to
a loss of $68,749 or $(0.01) per share for the three months ended May 31, 2001.
Results of Discontinued Operations
The Company's loss from discontinued operations increased by $554,103 from a
loss of $227,221 for the three months ended May 31, 2000 to a loss of $781,324
for the three months ended May 31, 2001. At February 28, 2001 the discontinued
operation had residual goodwill of $477,377. This goodwill was based on the
residual profits on the open contracts at February 28, 2001, the assumed value
of the residual spares business, and the value that was assumed could be
realized from the sale of the business. During the quarter ended May 31, 2001,
one major customer canceled the balance of his order, it was determined that the
business could not be sold and the value of the spares business was deemed to
be overstated. Accordingly, the goodwill was considered impaired and was written
off. The increase in the loss was due to theimpairment of goodwill of $477,377,
an increase in the inventory raw material obsolescence reserve of $39,246, a
reserve of $89,812 for work in process inventory, plusthe lack of sales to
support the necessary amount of overhead.
SONO-TEK CORPORATION
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's results of operations would
approximate $1,000 for the quarter ended May 31, 2001.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds.
On April 30, 2001, the Company issued 733,333 Warrant shares to Norwood Venture
Corporation as part of the increase in the Norwood Note and Warrant Purchase
Agreement. The above issuance of warrants was made in reliance on exemptions
from registration provided under Section 4(2) of the Securities Act of 1933, as
amended.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On May 30, 2001, the Company filed a Current Report on Form 8-K
announcing the resignation of James L. Kehoe as CEO of the Company, the
appointment of Dr. Christopher L. Coccio as CEO and President, the Company's
adoption of a plan to discontinue the operations of its cleaning systems
operating segment, the Company's preliminary agreement with the majority
shareholder of PNR America to purchase the Company's interest in PNR America,
and certain short term financing obtained by the Company.
On July 6, 2001, the Company filed a Current Report on Form 8-K announcing that
the Company had engaged Radin, Glass & Co., LLP to audit the Company's February
28, 2002 financial statements, and filed as an exhibit to such Current Report a
letter from Deloitte & Touche LLP confirming the cessation of the Company's
client-auditor relationship with Deloitte & Touche LLP.
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 17, 2002
SONO-TEK CORPORATION
(Registrant)
/s/ Christopher L. Coccio
By: ____________________________________
Christopher L. Coccio
Chief Executive Officer and President