SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 2002
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 June 26, 2002
Common Stock, par value $.01 per share 9,105,422
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Consolidated Financial Statements: 1 - 3
Consolidated Balance Sheets - May 31, 2002 (Unaudited) and
February 28, 2002 1
Consolidated Statements of Operations - Three Months Ended
May 31, 2002 and 2001 (Unaudited) 2
Consolidated Statements of Cash Flows - Three Months Ended
May 31, 2002 and 2001 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 5
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 - 8
Item 3 - Quantitative and Qualitative Disclosure About Market Risk 9
Part II - Other Information 9
Signatures 10
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, February 28,
2002 2002
Current Assets Unaudited Audited
Cash and cash equivalents $ 327,329 $ 453,215
Accounts receivable (less
allowance of $32,455 and $25,000
at May 31 and February 28, respectively) 412,661 380,092
Inventories (Note 2) 726,780 768,711
Prepaid expenses and other current assets 49,011 68,395
--------- ----------
Total current assets 1,515,781 1,670,413
--------- ----------
Equipment, furnishings and
leasehold improvements (less accumulated
depreciation of $589,717 and $573,547
at May 31 and February 28, respectively) 132,020 141,509
Intangible assets, net:
Patents and patents pending (Note 1) 36,513 20,187
Deferred financing fees 16,579 18,355
------------- -------------
Total intangible assets 53,092 38,542
Other assets 7,792 7,667
------------- --------------
TOTAL ASSETS $1,708,685 $1,858,130
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $201,127 $280,548
Accrued expenses 286,265 257,968
Revolving Line of Credit 312,000 344,000
Current maturities of long term
loans-related parties (Notes 3) 87,203 87,203
Current maturities of long term debt 19,218 22,686
Current maturities of subordinated
mezzanine debt (Note 4) 188,896 118,060
Current maturities of subordinated
convertible loans 85,601 60,0000
Total current liabilities 1,180,310 1,170,465
Subordinated mezzanine debt 592,140 643,813
Long term debt, less current maturities 257,952 282,020
Subordinated convertible loans 64,399 90,000
Other long-term liabilities 100,158 98,759
Estimated future costs of
discontinued operations 74,631 167,404
----------- ---------
Total liabilities 2,269,590 2,452,461
--------- ---------
Commitments and Contingencies - -
Put Warrants (Note 4) 188,223 188,223
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 91,055 91,055
Additional paid-in capital 6,016,107 6,016,107
Accumulated deficit (6,856,290) (6,889,716)
----------- -----------
Total stockholders' deficiency (749,128) (782,554)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $1,708,685 $1,858,130
========== ==========
See notes to consolidated financialstatements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended May 31,
Unaudited
2002 2001
Net Sales $780,858 $704,285
Cost of Goods Sold 374,844 320,180
-------- ---------
Gross Profit 406,013 384,105
-------- ---------
Operating Expenses
Research and product development costs 54,242 85,536
Marketing and selling expenses 149,482 178,144
General and administrative costs 135,476 137,359
-------- ---------
Total Operating Expenses 339,200 401,039
-------- ---------
Operating (Loss) Income 66,814 (16,934)
Interest Expense (57,968) (43,429)
Loss from Affiliate - (9,858)
Interest and Other Income 24,580 1,472
--------- --------
Income (Loss) from Continuing Operations
Before Income Taxes 33,426 (68,749)
Income Tax Expense 0 0
-------- ---------
Income (Loss) from continuing operations 33,426 (68,749)
Loss from discontinued operations - (781,324)
------- ---------
Net Income (Loss) $33,426 $(850,073)
======= ==========
Basic Earnings (Loss) Per Share (Note 5)-
Earnings (Loss) from continuing operations $0.00 $(0.01)
Loss from discontinued operations $0.00 $(0.08)
===== =======
Net Earnings (loss) per share $0.00 $(0.09)
===== =======
Diluted Earnings (Loss) Per Share (Note 5)-
Earnings (Loss) from continuing operations $0.00 $(0.01)
Loss from discontinued operations $0.00 $(0.08)
===== =======
Net Earnings (loss) per share $0.00 $(0.09)
===== =======
Weighted Average Shares - Basic 9,105,422 9,092,354
========= =========
Weighted Average Shares - Diluted 10,819,772 9,092,354
========== =========
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended May 31,
Unaudited
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit (Loss) $33,426 $(850,073)
Adjustments to reconcile net
loss to net cash provided by (used in)
operating activities:
Loss from discontinued operations 0 781,324
Imputed interest expense on
subordinated mezzanine debt 19,163 10,735
Loss on equity investment 0 (8,052)
Depreciation and amortization 19,106 20,278
Provision for doubtful accounts 7,455 (86,812)
(Increase) decrease in:
Accounts receivable (40,024) 114,920
Inventories 41,931 98,348
Prepaid expenses and other current assets 19,384 9,107
Increase (decrease) in:
Accounts payable and accrued expenses (51,125) (242,952)
-------- -----------
Net Cash Provided By (Used In)
Continuing Operations 49,316 (153,177)
Net Cash (Used In) Provided By
Discontinued Operations (92,772) 261,344
-------- --------
Net Cash (Used In) Provided By
Operating Activities (43,456) 108,167
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
(Purchase) Sale of equipment and furnishings (6,683) 6,153
Patent costs (17,485) 0
Other 1,275 0
-------- ---------
Net Cash (Used In) Provided By
Investing Activities (22,893) 6,153
-------- ------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from subordinated mezzanine debt 0 300,000
Repayments of short term borrowings (32,000) (173,521)
Repayments of note payable and equipment loans (27,537) (5,322)
--------- ----------
Net Cash (Used In) Provided By
Continuing Operations (59,537) 121,157
Net Cash Used In
Discontinued Operations 0 (90,080)
------------ ---------
Net Cash (Used In) Provided By
Financing Activities (59,537) 31,077
--------- ------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (125,886) 145,397
CASH AND CASH EQUIVALENTS
Beginning of period 453,215 3,232
--------- ---------
End of period $327,329 $ 148,629
======== =========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 36,855 $ 29,762
========= =========
See notes to consolidated financial statements.
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
Three Months Ended May 31, 2002 and 2001
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, 2002, and included in
its report on Form 10-KSB. 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 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 $62,296 and $61,138 at May 31, 2002
and February 28, 2002, respectively. During the three months ended May 31, 2002,
the Company incurred $17,485 of costs related to the documentation and filing
fees for a new patent.
NOTE 2: INVENTORIES
Inventories at May 31, 2002 are comprised of:
Finished goods $415,271
Work in process 101,425
Consignment 5,437
Raw materials and subassemblies 415,441
---------
Total 937,574
Less: Allowance (210,794)
--------
Net inventories $726,780
========
NOTE 3: RELATED PARTY TRANSACTIONS
Short term loans - related parties - At Fiscal Year End 2002, loans from
directors and former officers in the amount of $286,084 plus accrued interest of
$62,728 were formalized into four-year notes bearing interest at 5% on the
unpaid balance. Repayments of these notes commenced on March 31, 2002. During
the quarter ended May 31, 2002, $4,269 of interest and $21,801 of principal were
repaid on these notes.
Certain of the Company's directors, an officer and an affiliate are participants
with Norwood in its subordinated mezzanine financing (see Note 4).
NOTE 4: 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 $23,612 per month
and the balance sheet reflects this monthly rate in reporting the related
current maturities. The additional Warrant shares are valued at $188,223 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 3).
NOTE 5: EARNINGS (LOSS) PER SHARE
The denominator for the calculation of diluted earnings per share at May 31,
2002 is calculated as follows:
Denominator for basic earnings per share 9,105,422
Dilutive effect of warrants 1,653,015
Dilutive effect of stock options 61,334
Denominator for dilutive earnings per share 10, 819,772
===========
There are no reconciling items in the computation of loss per share for the
three months ended May 31, 2001, as all items are antidilutive.
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 ability to respond to competition in its markets;
- - general economic conditions in the Company's markets; and
- - various other factors discussed in the Annual Report on Form 10-KSB.
The Company undertakes no obligation to update publicly any forward-looking
statement.
Liquidity and Capital Resources
The Company's working capital decreased $164,477 from a working capital of
$499,948 at February 28, 2002 to $260,840 at May 31, 2002. The decrease in
working capital was a result of a decrease in cash of $126,000, an increase in
the current maturities of debt of $93,000, a decrease in inventory of $42,000, a
decrease in prepaid expenses of $19,000, an increase in accrued expenses of
$28,000 that was offset by increases in accounts receivable of $33,000, decrease
in accounts payable of $79,000 and repayments of short term borrowings of
$32,000. The stockholders' deficiency decreased $33,426 from $782,554 at
February 28, 2002 to $749,128 at May 31, 2002. The decrease in stockholders'
deficiency was the result of the net profit of $33,426 for the three months
ended May 31, 2002.
Accounts receivable at May 31, 2002 increased $32,569 or 9% from February 28,
2002 due to higher sales levels in the last month of current fiscal period.
Inventory decreased $41,931 or 5% as the result of reduced purchasing in the
three months ended May 31, 2002. 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, 2002. This reduction in the
sale of fluxers was due to the slowdown in the manufacture of printed circuit
boards.
Accounts payable decreased $79,421 as compared to February 28, 2002 due to the
reduced purchasing activity noted above and payments made to vendors during the
three months ended May 31, 2002.
Accrued expenses increased $28,297 principally due to an increase in accrued
payroll expenses of $22,000 and an increase in accrued professional fees of
$7,000.
The estimated future costs of discontinued operations were reduced $92,772 due
to obligations paid or settled in the three months ended May 31, 2002.
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 the former Chief Executive Officer of the
Company. As of May 31, 2002 the outstanding balance was $312,000.
Results of Continuing Operations
For the three months ended May 31, 2002, the Company's sales increased $76,573
to $780,858 as compared to $704,858 for the three months ended May 31, 2001. The
increase was a result of an increase in nozzle sales of $57,000, an increase in
fluxer sales of $58,000, an increase in cleaning system spare part sales of
$22,000, offset by a decrease in sales of other products of $60,000.
The Company's gross profit increased $21,908 to $406,013 for the three months
ended May 31, 2002 from $384,105 for the three months ended May 31, 2001. The
increase was primarily a result of increased sales of the Company's products.
The gross profit margin was 52% of sales for the three months ended May 31, 2002
as compared to 54.5% of sales for the three months ended May 31, 2001. The
change in margin occurred as the result of the changing mix of products in each
period..
Research and product development costs decreased $31,294 to $54,242 for the
three months ended May 31, 2002 from $85,536 for the three months ended May 31,
2001. The decrease was a result of decreased compensation and fringe benefits
due to a smaller engineering staff.
Marketing and selling costs decreased $28,662 to $149,482 for the three months
ended May 31, 2002 from $178,144 for the three months ended May 31, 2001. The
decrease was a result of decreases in commissions of $22,000, personnel costs
and travel of $17,000, professional fees of $3,000 that were offset by increases
in trade shows and advertising of $15,000.
General and administrative costs decreased $2,220 to $135,476 for the three
months ended May 31, 2002 from $137,359 for the three months ended May 31, 2001.
Interest expense increased $14,539 to $57,968 for the three months ended May 31,
2002 from $43,429 for the three months ended May 31, 2001. The increase is
primarily due to increased interest and amortization on the Norwood loans of
$22,000 offset by reduced interest of $7,000 on related party and bank loans.
Interest and other income increased $23,108 to $24,580 for the three months
ended May 31, 2002 from $1,472 for the three months ended May 31, 2001. The
increase is primarily due to settlements of $17,000 with former vendors and
sales representatives, and a reduction of the accrual for future rent expense of
$6,000.
The Company's profit from continuing operations increased $102,175 from a loss
of $68,749 or $(0.01) per share for the three months ended May 31, 2001 to a
profit of $33,426 or $0.003 per share for the three months ended May 31, 2002.
Results of Discontinued Operations
The Company discontinued its cleaning and drying segment during the quarter
ended May 31, 2001. The Company's loss from discontinued operations was $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 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 the impairment 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, plus the lack of sales to
support the necessary amount of overhead. All major accounts of this operation
were resolved during fiscal year ended February 28, 2002, accordingly, there was
no impact of discontinued operations on the three months ended May 31, 2002.
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
28, 2002, the negative effect on the Company's results of operations would
approximate $1,000 for the quarter ended May 31, 2002.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds.
None
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
None
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: June 26, 2002
SONO-TEK CORPORATION
(Registrant)
/s/ Christopher L. Coccio
By: ____________________________________
Christopher L. Coccio
Chief Executive Officer and President