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: August 31, 2003
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 small business issuer 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)
Issuer's telephone no., including area code: (845) 795-2020
Indicate by check mark whether the small business issuer (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
small business issuer 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 October 7, 2003
Common Stock, par value $.01 per share 9,200,161
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Consolidated Financial Statements: 1 - 3
Consolidated Balance Sheets - August 31, 2003 (Unaudited) and
February 28, 2003 1
Consolidated Statements of Operations - Six Months
and Three Months Ended August 31, 2003 and 2002 (Unaudited) 2
Consolidated Statements of Cash Flows - Six Months
and Three Months Ended August 31, 2003 and 2002 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10 - 13
Item 3 - Controls and Procedures 14
Part II - Other Information 14 - 15
Signatures and Certifications 16 - 19
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31, February 28,
2003 2003
Current Assets Unaudited Audited
Cash and cash equivalents $ 175,809 $ 265,658
Accounts receivable (less allowance of
$9,046 and $13,675
at August 31 and February 28, respectively) 433,682 375,040
Inventories 861,412 794,666
Prepaid expenses and other current assets 21,177 56,023
--------- --------
Total current assets 1,492,080 1,491,387
--------- ---------
Equipment, furnishings and leasehold
improvements (less accumulated depreciation
of $657,972 and $638,341 at August 31 and
February 28, respectively) 69,521 84,878
Intangible assets, net:
Patents and patents pending 27,063 29,520
Deferred financing fees 7,699 11,251
--------- ---------
Total intangible assets 34,762 40,771
Other assets 6,541 6,541
--------- ---------
TOTAL ASSETS $1,602,904 $1,623,577
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $165,065 $149,920
Accrued expenses 202,744 244,286
Line of Credit 312,000 312,000
Current maturities of long term
loans-related parties 73,774 63,924
Current maturities of long term debt 9,072 9,072
Current maturities of subordinated
mezzanine debt 141,672 141,672
Current maturities of subordinated loans 18,000 43,428
--------- ---------
Total current liabilities 922,327 964,302
Subordinated mezzanine debt 708,328 690,722
Long term debt, less current maturities 223,434 250,033
Subordinated loans 114,174 100,674
Other long-term liabilities 69,076 69,076
--------- ---------
Total liabilities 2,037,339 2,074,807
--------- ---------
Commitments and Contingencies - -
Put Warrants 188,223 188,223
Stockholders' Equity
Common stock, $.01 par value;
25,000,000 shares authorized,
9,200,161 shares issued and outstanding
at August 31 and February 28, respectively 92,002 92,002
Additional paid-in capital 6,037,305 6,037,305
Accumulated deficit (6,751,965) (6,768,760)
---------- ----------
Total stockholders' deficiency (622,658) (639,453)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $1,602,904 $1,623,577
========== ==========
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended Three Months Ended
August 31, August 31,
Unaudited Unaudited
2003 2002 2003 2002
---------------------- --------------------
Net Sales $1,449,257 $1,485,991 $690,735 $705,133
Cost of Goods Sold 601,074 686,758 281,556 311,913
--------- --------- -------- --------
Gross Profit 848,183 799,233 409,178 393,220
--------- --------- -------- --------
Operating Expenses
Research and product development costs 182,829 163,171 89,572 108,930
Marketing and selling expenses 287,970 283,042 138,712 133,559
General and administrative costs 275,129 288,118 139,422 152,642
-------- ------- ------- --------
Total Operating Expenses 745,928 734,331 367,706 395,131
------- ------- ------- -------
Operating Income (Loss) 102,255 64,902 41,472 (1,911)
Interest Expense (92,205) (115,328) (41,495) (57,361)
Interest and Other Income 7,855 86,827 6,882 62,247
------- ------- ------- --------
Income from Operations Before
Income Taxes 17,905 36,401 6,859 2,975
Income Tax Expense 1,110 0 1,110 0
------- ------- -------- --------
Net Income $ 16,795 $ 36,401 $5,749 $2,975
======== ======== ====== ======
Basic Earnings Per Share $0.00 $0.00 $0.00 $0.00
===== ===== ===== =====
Diluted Earnings Per Share $0.00 $0.00 $0.00 $0.00
===== ===== ===== =====
Weighted Average Shares - Basic 9,200,161 9,105,422 9,200,161 9,105,422
========= ========= ========= =========
Weighted Average Shares - Diluted 10,242,454 10,454,318 10,302,258 10,291,966
========== ========== ========== ==========
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended August 31,
Unaudited
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 16,795 $ 36,401
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Deprec1iation and amortization 25,638 38,238
Imputed interest expense 17,608 37,467
Provision for doubtful accounts (4,629) 8,825
Decrease (Increase) in:
Accounts receivable (54,013) (53,190)
Inventories (66,746) 24,951
Prepaid expenses and other
current assets 34,846 37,077
Decrease in:
Accounts payable and
accrued expenses (26,397) (112,409)
-------- --------
Net Cash Provided by (Used In)
Continuing Operations (56,898) 17,360
Net Cash (Used In)
Discontinued Operations 0 (167,403)
--------- ---------
Net Cash (Used In) Operating Activities (56,898) (150,043)
-------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Patent Application Costs 0 (10,701)
Purchase of equipment and furnishings (4,274) (8,159)
Deposits 0 (375)
-------- --------
Net Cash Used In Investing Activities (4,274) (19,235)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments of loans - related parties (12,213) (43,602)
Repayments of note payable and equipment loans (4,536) (36,257)
Repayments of subordinated loans (11,928) 0
Other Long-term liabilities paid 0 (3,695)
------- -------
Net Cash Used In Financing Activities (28,677) (83,554)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (89,849) (252,732)
CASH AND CASH EQUIVALENTS
Beginning of period 265,658 453,215
------- --------
End of period $175,809 $200,383
======== ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $68,675 $88,973
======= =======
See notes to consolidated financial statements.
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
Six Months Ended August 31, 2003 and 2002
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"), that the Company acquired on August 3, 1999. SCS is
a non-operating entity. 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, 2003, 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.
Stock-Based Employee Compensation - The Company accounts for stock-based
compensation plans utilizing the provisions of Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and the
Financial Accounting Statement of Financial Accounting Standards No. 123 and No.
148 (SFAS 123 and SFAS 148), "Accounting for Stock-Based Compensation". Under
SFAS 123, the Company will continue to apply the provisions of APB 25 to its
stock-based employee compensation arrangements, and is only required to
supplement its financial statements with additional pro-forma disclosures. The
Company has elected to provide the related pro-forma disclosures utilizing an
intrinsic value method of accounting for such stock based compensation.
The estimated fair value of options granted during Fiscal Year 2003 was $.22 per
share and the estimated fair value of options granted during the six months
ended August 31, 2003 was $.20 per share. The Company applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
the 1993 Plan. Had compensation cost for the Company's stock option plan been
determined based on the intrinsic value at the option grant dates for awards in
accordance with the accounting provisions of SFAS 123, the Company's net income
and basic and diluted earnings per share for the three and six month periods
ended August 31, 2003 and 2002 would have been changed to the pro forma amounts
indicated below:
Six Months Ended Three Months Ended
August 31, August 31,
2003 2002 2003 2002
---- ---- ---- ----
Net Profit:
As reported $16,795 $36,401 $5,749 $2,975
Deduct:
Total stock based
employee compensation
under intrinsic value based
method for all
awards, net of tax effects 3,955 19,916 1,998 10,138
------- ------ ----- ------
Pro forma $12,840 $16,485 $3,412 $(7,163)
======= ======= ====== ========
Basic and diluted earnings per share:
As reported $0.00 $0.00 $0.00 $0.00
Pro forma $0.00 $0.00 $0.00 $0.00
At the August 21, 2003 Annual Meeting of Shareholders, the Company adopted a new
Stock Incentive Plan (the"2003 Plan"). Under this plan, up to 1,500,000 stock
options can be granted until 2013. To date, no options have been granted or
issued under this plan.
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 that 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 $68,226 and $65,770 at August 31,
2003 and February 28, 2003, respectively.
Accounting for Financial Instruments - In May 2003, the FASB issued Statements
of Financial Accounting Standards No. 150 ("SFAS No. 150") "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 established standards for how an issuer classifies and
measures in its statement of financial position certain financial instruments
with characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This SFAS is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. It is to be
implemented by reporting the cumulative effect of a change in accounting
principle for financial instruments created before the issuance date of SFAS No.
150 and still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of SFAS No. 150 has required the
Company to have additional disclosures regarding the Put Warrants and did not
have a material effect on the financial statements. The Company adopted SFAS No.
150 in the three months ended May 31, 2003.
NOTE 2: INVENTORIES
Inventories at August 31, 2003 are comprised of:
Finished goods $396,059
Work in process 336,671
Consignment 3,342
Raw materials and subassemblies 351,041
---------
Total 1,087,113
Less: Allowance (225,794)
--------
Net inventories $861,319
========
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. Payments
of $80,179 of principal and interest due in the period from August 31, 2002 to
August 31, 2003 have been deferred in order to maintain the Company's liquidity.
Certain of the Company's directors, an officer and an affiliate are participants
with Norwood Venture Corporation ("Norwood") in its subordinated mezzanine
financing.
NOTE 4: SUBORDINATED MEZZANINE DEBT
On September 30, 1999, the Company entered into a 12%, $450,000 Note and Warrant
Purchase Agreement (the "Agreement") with Norwood less a proportionate equity
share of the greatest of three different valuations of the Company upon exercise
of the Put Warrants. On December 22, 2000, Norwood amended the Agreement to
increase the note to $550,000. On April 30, 2001, Norwood amended the Agreement
to increase the note by $300,000 to $850,000 and the warrant shares to
2,077,777. The Norwood Note (the "Note"), as amended, requires interest payments
through September 2002, followed by monthly principal payments of $23,612 and
interest through September 2005. Certain assets of the Company collateralize the
Note. The Note, among other things, restricts the payment of dividends. The
monthly principal payments to commence in October 2001 were $23,612 per month
and have been deferred until March 2004.
In addition, the original Note was issued with a detachable stock purchase
warrant (the "Put Warrants") to purchase 1,100,000 shares of the Company's
common stock at an exercise price of $.30 per share, the fair market value of
the Company's common stock on September 30, 1999. The fair market value, as
determined by an independent appraisal, of the Put Warrants was determined to be
$0.07 per share, and is accounted for as a discount to the Norwood and will be
amortized over the life of the principal repayment term of the Agreement. In
connection with the amendments, dated December 22, 2000 and April 30, 2001,an
additional 244,444 and 733,333 warrant shares were granted at an exercise price
of $0.30 and $.10 per share, respectively. In connection with an amendment to
the Agreement in October 2001, the exercise price of certain of the warrants was
reduced from $.30 to $.15 per share. This resulted in an increase in the value
of the warrants of $13,445, which is accounted as a discount to the loan and is
being imputed as additional interest over the term of the loan. The aggregate
exercise price of the Put Warrants is $275,000 for the purchase of 2,077,777
shares of common stock
The Put Warrant holders may, commencing after the delivery of the February 28,
2006 audited financial statements and terminating one year thereafter, require
the Company to purchase such warrants at a price equal to the result calculated
by subtracting the aggregate exercise of the warrants to the extent remaining
from the product of the greatest of;
a) the fair market value of the Company as determined by an independent
appraiser as at the end of the Company's fiscal year end February 28, 2006 (the
"Company's 2006 Fiscal Year"),
b) five times EBITDA for the Company's 2006 Fiscal Year or, if higher, average
EBITDA for such year and the fiscal year of the Company immediately prior to
such year, or
c) the book value of the Company as at the end of the Company's 2006 Fiscal
Year,
multiplied by the fraction of (the "Put Fraction") the numerator of which is the
total number of shares of common stock, the Put Warrant holders would own upon
such exercise of the warrants and the denominator would be the total number of
common shares outstanding upon the exercise of all equity rights to acquire
common stock.
If the value of the Company, based upon its fair value computed using its Fiscal
Year 2006 results, is required to pay the Put under the warrants, warrant
holders will have to pay up to $275,000 for the warrants. These warrants are
exercisable for the purchase of up to 2,077,777 shares of common stock.
NOTE 5: DEFERRAL OF PAYMENTS
The Company, in order to conserve its cash assets, has agreements to defer
payment of certain of its obligations at August 31, 2003. Such deferrals were:
Current maturities of subordinated mezzanine debt $259,732
Current maturities of long-term loans - related parties 68,877
Current maturities of subordinated loans 54,921
Incentive compensation 21,680
Interest 11,303
----------
Total $416,513
NOTE 6: STOCK OPTIONS AND WARRANTS
Stock Options - Under the 1993 Stock Incentive Plan, as amended ("1993 Plan"),
options can be granted to officers, directors, consultants and employees of the
Company and its subsidiaries to purchase up to 1,500,000 of the Company's common
shares. Options granted under the 1993 Plan expire on various dates through
2013.
The shareholders approved the 2003 Stock Incentive Plan ("2003 Plan") ant the
August 21, 2003 meeting of shareholders. Under this plan, options can be granted
to officers, directors, consultants and employees of the Company and its
subsidiaries to purchase up to 1,500,000 of the Company's common shares. To
date, there have been no options granted under this plan.
Under both the 1993 and 2003 Stock Incentive Plans, option prices must be at
least 100% of the fair market value of the common stock at time of grant. For
qualified employees, except under certain circumstances specified in the plans
or unless otherwise specified at the discretion of the Board of Directors, no
option may be exercised prior to one year after date of grant, with the balance
becoming exercisable in cumulative installments over a three year period during
the term of the option, and terminate at a stipulated period of time after an
employee's termination of employment.
Under the 1993 Plan, during Fiscal Year 2003, the Company granted options for
405,000 shares exercisable at between $0.15 per share and $0.30 per share to
qualified employees and 40,000 shares exercisable at $0.37 to directors of the
Company. The Company granted options for 20,000 shares in the six month period
ended August 31, 2003.
Warrants - There were no warrants issued during Fiscal 2004 and 2003. 370,175
warrants issued in 1999 in conjunction with the retirement of subordinated debt
expired in Fiscal 2003.
NOTE 7: EARNINGS PER SHARE
The denominator for the calculation of diluted earnings per share at August 31,
2003 and 2002 are calculated as follows:
August 31, 2003 August 31, 2002
Denominator for basic earnings per share 9,200,161 9,105,422
Dilutive effect of warrants 931,944 1,313,888
Dilutive effect of stock options 110,349 35,008
---------- ---------
Denominator for dilutive earnings per share 10,242,454 10,454,318
========== ==========
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
- - Ability to continue to obtain deferral of principal payments from its note
holders.
The Company undertakes no obligation to update publicly any forward-looking
statement.
Liquidity and Capital Resources
The Company's working capital increased $42,668 from a working capital of
$527,085 at February 28, 2003 to $569,753 at August 31, 2003. The increase in
working capital was a result of an increase in accounts receivable of $59,000,
an increase in inventory of $67,000 a decrease in accounts payable of $42,000
and a decrease in the current maturities of debt of $25,000 that was offset by
decreases in cash of $90,000, prepaid expenses of $35,000 and increases in
accounts payable of $15,000 and the current portion of short term loans to
related parties of $10,000. The stockholders' deficiency decreased $16,795 from
$639,453 at February 28, 2003 to $622,657 at August 31, 2003. The decrease in
stockholders' deficiency was the result of the net profit of $16,795 for the six
months ended August 31, 2003.
Accounts receivable at August 31, 2003 increased $58,642 or 16% from February
28, 2003 due to higher sales levels in the last month of this quarter as
compared to the last month of the fourth quarter of the prior fiscal year.
Inventory increased $66,746 or 8% as the result of lower than anticipated sales
in the current quarter. The increase was principally due to an increase in raw
materials inventory as the result of newly introduced products.
Accounts payable and accrued expenses decreased $26,398 or 7% as compared to
February 28, 2003 due to payments made to vendors during the three months ended
August 31, 2003.
The Company currently has a $350,000 line of credit with a bank, in the form of
a demand note. 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 August 31, 2003 and February 28, 2003
the outstanding balance was $312,000. New borrowings are presently precluded
under this note.
Results of Operations
For the six months ended August 31, 2003, the Company's sales decreased $36,734
to $1,449,257 as compared to $1,485,991 for the six months ended August 31,
2002. The decrease was a result of a decrease in sales of specialty spraying
systems of $97,000, a decrease in cleaning system spare part sales of $21,000,
partially offset by an increase in fluxer sales of $68,000 and nozzle sales of
$13,000.
For the three months ended August 31, 2003, the Company's sales decreased
$14,399 to $690,735 as compared to $705,134 for the three months ended August
31, 2002. The decrease was a result of a decrease in sales of specialty spraying
systems of $91,000, a decrease in cleaning system spare part sales of $18,000,
partially offset by an increase in fluxer sales of $59,000 and nozzle sales of
$34,000.
The Company's gross profit increased $48,950 to $848,183 for the six months
ended August 31, 2003 from $799,233 for the six months ended August 31, 2002.
The gross profit margin was 58.5% of sales for the six months ended August 31,
2003 as compared to 53.8% of sales for the six months ended August 31, 2002. The
change in margin occurred as the result of the changing mix of products in each
period.
The Company's gross profit increased $15,959 to $409,179 for the three months
ended August 31, 2003 from $393,220 for the three months ended August 31, 2002.
The gross profit margin was 59.2% of sales for the three months ended August 31,
2003 as compared to 55.8% of sales for the three months ended August 31, 2002.
The change in margin occurred as the result of the changing mix of products in
each period.
Research and product development costs increased $19,659 to $182,829 for the six
months ended August 31, 2003 from $163,170 for the six months ended August 31,
2002. Research and product development costs of $39,000 incurred in the six
months ended August 31, 2002 were used to manufacture saleable inventory items,
and accordingly, were recorded in inventory. During the six months ended August
31, 2003 research and development personnel were not utilized for manufacturing.
Research and product development costs decreased $19,356 to $89,572 for the
three months ended August 31, 2003 from $108,928 for the three months ended
August 31, 2002. The decrease was due to less engineering materials purchased
this year.
Marketing and selling costs increased $7,930 and $5,163 for the respective six
and three month periods ended August 31, 2003 as compared to the same periods
ended August 31, 2002. The increases were due principally to increased
commissions and advertising costs partially offset by reduced labor and fringe
benefit costs.
General and administrative costs decreased $12,989 and $13,209 for the
respective six and three month periods ended August 31, 2003 as compared to the
same periods ended August 31, 2002. The decrease was due principally to reduced
legal, consulting and payroll costs.
Interest expense decreased $24,123 to $92,205 for the six months ended August
31, 2003 from $115,328 for the six months ended August 31, 2002. Interest
expense decreased $15,866 to $41,495 for the three months ended August 31, 2003
from $57,361 for the three months ended August 31, 2002. The decrease is
primarily due to reduced interest and amortization on the Norwood loans and
reduced interest on related party and bank loans.
Interest and other income decreased $78,972 for the six months ended August 31,
2003 as compared to the six months ended August 31, 2002 and $55,365 for the
three months period ended August 31, 2003 as compared to the three month period
ended August 31, 2002. The decreases are primarily due to settlements with
former vendors and sales representatives, and a reduction of the accrual for
future rent expense recorded in the prior year's periods.
The Company's net income was $16,795 and $5,749 for the six and three month
periods ended August 31, 2003 as compared to $36,401 and $2,975 for the six and
three month periods ended August 31, 2002.
Critical Accounting Policies
The discussion and analysis of the Company's financial condition and results of
operations are based upon the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the Company to make estimates and judgments that affect the reported amount of
assets and liabilities, revenues and expenses, and related disclosure on
contingent assets and liabilities at the date of the financial statements.
Actual results may differ from these estimates under different assumptions and
conditions.
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and may potentially result in
materially different results under different assumptions and conditions. The
Company believes that critical accounting policies are limited to the one
described below. For a detailed discussion on the application of this and other
accounting policies see note 3 to the Company's consolidated financial
statements included in Form 10-KSB for the year ended February 28, 2003.
Accounting for Income Taxes
As part of the process of preparing the Company's consolidated financial
statements, the Company is required to estimate its income taxes. Management
judgment is required in determining the provision on its deferred tax asset. The
Company recorded a valuation reserve for the full deferred tax asset from the
net operating losses carried forward due to the Company not demonstrating
consistent profitable operations. In the event that actual results differ from
these estimates or the Company adjusts these estimates in future periods, the
Company may need to adjust such valuation reserve recorded.
Impact of New Accounting Pronouncements
In May 2003, the FASB issued Statements of Financial Accounting Standards No.
150 ("SFAS No. 150"), "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity". SFAS No. 150 established
standards for how an issuer classifies and measures in its statement of
financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of the
issuer. This SFAS is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. It is to be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance date of SFAS No. 150 and still
existing at the beginning of the interim period of adoption. Restatement is not
permitted. The adoption of SFAS No. 150 has required the Company to have
additional disclosures regarding the Put Warrants and did not have a material
effect on the financial statements. The Company adopted SFAS No.
150 in the three months ended May 31, 2003.
SONO-TEK CORPORATION
CONTROLS AND PROCEDURES
The Company has established and maintains "disclosure controls and procedures"
(as those terms are defined in Rules 13a -14(c) and 15d- 14(c) under the
Securities and Exchange Act of 1934 (the "Exchange Act'). Christopher L. Coccio,
Chief Executive Officer and President (principal executive and accounting
officer) of the Company, has evaluated the Company's disclosure controls and
procedures as of August 31, 2003. Based on his evaluation, Dr. Coccio has
concluded that the Company's disclosure controls and procedures are effective to
ensure that the information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by SEC rules and
forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls after August 31, 2003.
There were no significant deficiencies or material weaknesses, and therefore
there were no corrective actions taken.
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
The following matters were voted upon at the Company's annual meeting of
shareholders held on August 21, 2003.
1. The election of two (2) directors of the Company to serve until the Company's
2005 annual meeting of shareholders.
For Against
Harvey L. Berger 6,930,335 74,141
Christopher L. Coccio 6,787,745 216,731
There were no broker non-votes.
2. The election of one (1) director of the Company to serve until the Company's
2004 annual meeting of shareholders.
For Against
Donald F. Mowbray 6,787,970 216,506
There were no broker non-votes.
2. Approval of the 2003 Stock Incentive Plan and authorizing 1,500,000 common
shares for issuance thereunder.
For 3,900,480; Against 276,639; Abstained 326,377
There were 2,500,980 broker non votes.
3. Ratify the appointment of Radin Glass & Co. as the Company's independent
auditors for the fiscal year ended February 29, 2004.
For 6,857,009; Against 44,901; Abstained 102,566
There were no broker non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31 - Rule 13a - 14(a)/15d - 14(a) Certification
32 - Certification Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on June 19, 2003 relating to the
resignation of an outside director.
The Company filed a report on Form 8-K on July 22, 2003 relating to a
press release on the results of operations for the quarter ended May 31, 2003.
The Company filed a report on Form 8-K on July 23, 2003 relating to a press
release on the results of operations for the year ended February 28, 2003.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: October 7, 2003
SONO-TEK CORPORATION
(Registrant)
/s/ Christopher L. Coccio
By: ____________________________________
Christopher L. Coccio
Chief Executive Officer and President
(principal executive and accounting officer)
Exhibit 31
RULE 13a-14/15d - 14(a) CERTIFICATION
I, Christopher L. Coccio, Chief Executive Officer and President (principal
executive and accounting officer), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Sono-Tek Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstance under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for the periods presented in this quarterly
report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d - 15(e) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) for the small business issuer and I have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under my supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to me by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under my supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report my conclusions about the
effectiveness of disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business
issuer's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors:
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
controls over financial reporting.
Date: October 7, 2003
/s/ Christopher L. Coccio
Christopher L. Coccio
Chief Executive Officer and President
(principal executive and accounting officer)
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sono-Tek Corporation on Form 10QSB
for the period ended August 31, 2003 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"). I, Christopher L. Coccio, Chief
Executive Officer and President (principal executive and accounting officer) of
the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) and 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: October 7, 2003
/s/ Christopher L. Coccio
Christopher L. Coccio
Chief Executive Officer and President
(principal executive and accounting officer)