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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-16035
SONO-TEK CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1568099
------------------------------ ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2012 Rt. 9W, Bldg. 3, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (914) 795-2020
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X___ NO _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding as of
Class January 12, 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, 1997 (Unaudited) and February 28, 1997 1
Statements of Operations - Nine Months and Three Months Ended
November 30, 1997 and 1996 (Unaudited) 2
Statements of Cash Flows - Nine Months Ended November 30, 1997
and 1996 (Unaudited) 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 6
Item 3-Quantitative and Qualitative Disclosures About Market
Risk-Not Applicable -
Part II - Other Information 7
Signatures 8
SONO-TEK CORPORATION
BALANCE SHEETS
November 30 February 28
1997 1997
ASSETS Unaudited
--------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 21,004 $ 107,746
Accounts receivable (net of allowance for doubtful accounts
of $44,814 at November 30 and $35,814 at February 28) 677,880 525,750
Inventories (Note C) 515,619 469,241
Prepaid expenses and other current assets 18,424 33,441
----------- -----------
Total Current Assets 1,232,927 1,136,178
Equipment, furnishings and leasehold improvements (less
accumulated depreciation of $360,325 at November 30 and
$339,829 at February 28) 46,406 56,574
Patents, patents pending and copyrights (less amortization
of $120,989 at November 30 and $116,318 at February 28) 48,128 52,799
Other assets 6,317 6,317
----------- -----------
T O T A L $ 1,333,778 $ 1,251,868
=========== ===========
LIABILITIES
Current maturities of long term debt $ 80,697 $ 94,370
Accounts payable 252,616 267,673
Accrued expenses (Note E) 279,859 354,381
----------- -----------
Total Current Liabilities 613,172 716,424
----------- -----------
Long term debt, less current maturities 530,000 576,056
Non-current rent payable 6,660 666
----------- -----------
Total Liabilities 1,149,832 1,293,146
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - $.01 par value:
Authorized - 12,000,000 shares
Issued - 4,374,387 at November 30 and 4,204,913
at February 28 (Note E) 43,744 42,049
Additional paid-in capital 3,824,220 3,758,128
Deficit (3,684,018) (3,841,455)
----------- -----------
Total Stockholders' Equity (Deficiency) 183,946 (41,278)
----------- -----------
T O T A L $ 1,333,778 $ 1,251,868
=========== ===========
See Notes to Financial Statements
1
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
----------------------------- -----------------------------
November 30 November 30
Unaudited Unaudited
1997 1996 1997 1996
NET SALES $ 2,588,626 $ 2,313,592 $ 1,013,198 $ 811,894
COST OF GOODS SOLD 1,270,194 1,151,813 493,803 411,897
----------- ----------- ----------- ----------
Gross Profit 1,318,432 1,161,779 519,395 399,997
----------- ----------- ----------- ----------
OPERATING EXPENSES
Research and product development costs 272,521 276,458 100,928 91,828
Marketing and selling expenses 559,207 485,808 219,759 177,577
General and administrative costs 292,104 283,762 101,193 92,104
----------- ----------- ----------- ----------
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 INCOME 0 80 0 61
----------- ----------- ----------- ----------
NET INCOME $ 157,436 $ 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 4,204,913 4,374,387 4,204,913
See Notes to Financial Statements
2
SONO-TEK CORPORATION
Statements of Cash Flows
For Nine Months Ended November 30
1997 1996
Unaudited
-------------------------
Cash flows from operating activities:
Net income $ 157,436 $ 68,317
--------- ----------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 25,167 45,360
Provision for doubtful accounts 9,000 6,850
(Increase) decrease in:
Accounts receivable (161,130) (197,805)
Inventories (46,378) 11,946
Prepaid expenses and other current assets 15,017 9,226
Increase (decrease) in:
Accounts payable & accrued expenses (Note E) (21,791) 26,818
Noncurrent rent payable 5,994 (8,362)
--------- ----------
Total adjustments (174,133) (105,968)
--------- ----------
Net cash used in operating activities (16,695) (37,651)
--------- ----------
Cash flows from investing activities:
Fixed asset, patent and copyright acquisition costs (10,328) (10,384)
Cash flows from financing activities:
Proceeds farom short term loan 0 72,000
Payments of capitalized leases 0 (1,751)
Repayments of note payable-bank (59,729) (53,801)
--------- ----------
Net cash used in financing activities (59,729) 16,448
---------- ----------
Net decrease in cash and cash equivalents (86,742) (31,588)
Cash and cash equivalents:
Beginning of period 107,746 69,033
--------- ----------
End of period $ 21,004 $ 37,445
========= ==========
Supplemental disclosure:
Interest paid $ 27,007 $ 45,765
Income taxes paid $ 0 $ 0
Non-cash exchange of accrued interest
for common stock (Note E) $ 67,787 $ 0
See Notes to Financial Statements
3
SONO-TEK CORPORATION
Notes to Financial Statements
November 30, 1997
NOTE A: The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial statements
prepared in conformity with generally accepted accounting principles. Such
disclosures were included with the financial statements of the Company at
February 28, 1997, included in its report on Form 10-K. Such statements should
be read in conjunction with the data herein.
NOTE B: The financial information reflects all adjustments which, in the opinion
of management, are necessary for a fair presentation of the results for the
interim periods. The results for the interim periods are not necessarily
indicative of the results to be expected for the year.
NOTE C: Inventory at November 30, 1997 is 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
NOTE D: Income per share is based on the weighted average number of shares
outstanding during each period. The computation does not include the effect of
outstanding stock options or conversion of the subordinated promissory notes
since their inclusion would be either not material or anti-dilutive.
NOTE E: In April 1997 the holders of $530,000 of Subordinated Convertible Notes
entered into an agreement with the Company (the "Third Note Amendment
Agreement") whereby the holders agreed to (1) accept 169,474 shares of the
Company's Common Stock as payment for $67,787 of interest due as of February 15,
1997; (2) waive the default as to nonpayment of interest until March 1, 1998;
(3) extend the due date of the note from August 15, 1997 until August 15, 2000;
and (4) reduce the interest rate from 1/2% below prime to 1% below prime.
NOTE F: On August 1, 1997, the Board of Directors of the Company granted options
to acquire 200,000 shares of Common Stock, to an officer of the Company, at the
fair market value of $.37 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.
4
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
For the nine months ended November 30, 1997, the Company's sales increased
$275,034 to $2,588,626 as compared to $2,313,592 for the nine months ended
November 30, 1996. The increase in sales was primarily a result of an increase
of approximately $430,000 in sales of the Company's SonoFlux System. The Company
believes the increase in sales of the SonoFlux System is a result of its efforts
to provide the circuit board assembly industry with equipment that has a
reputation for reliable and cost effective performance. 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 the Company's Nozzle Systems
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 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, 1996 to $1,318,432 for the nine month period
ended November 30,1997, and increased $119,398 from $399,997 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. 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 as a result of an
increase in commissions for the sale of SonoFlux Systems and advertising costs.
General and administrative costs increased $9,089 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 for the three months ended November 30, 1997. The decrease in
interest expense is the result of the increasing maturity of the Company's loan
with its bank. As such loan matures, the amount of each fixed monthly payment
which pertains to interest declines as the amount applied to principal
increases. The decrease is also a result of the lowering of the interest rate by
1/2% on the Subordinated Convertible Note, by the noteholders.
For the nine months ended November 30, 1997 the Company had earnings of
$157,436 or $0.04 per share as compared to earnings of $68,317 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 per share for the three months ended
November 30, 1996. The increase in earnings for both the nine and three month
periods resulted primarily from an increase in sales of the Company's products.
5
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 $419,754 at February 28, 1997. The
increase in working capital 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
payment 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.
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, 1998
SONO-TEK CORPORATION
/s/ James L. Kehoe
By: ____________________________________
James L. Kehoe
Chief Executive Officer
/s/ Kathleen N. Martin
By: ____________________________________
Kathleen N. Martin
Treasurer & Chief Financial Officer
8