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: May 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-16035
SONO-TEK CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1568099
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2012 Route. 9W, Bldg. 3, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (914) 795-2020
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X 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 9, 1998
----- ------------
Common Stock, par value $.01 per share 4,374,387
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Balance Sheets - May 31, 1998 (Unaudited) and February 28, 1998 1
Statements of Operations - Three Months Ended May 31, 1998
and 1997 (Unaudited) 2
Statements of Cash Flows - Three Months Ended May 31, 1998
and 1997 (Unaudited) 3
Notes to Financial Statements 4 - 5
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 - 7
Item 3 - Quantitative and Qualitative Disclosures about Market Risk -
Not Applicable -
Part II - Other Information 7
Signatures 8
SONO-TEK CORPORATION
BALANCE SHEETS
ASSETS
May 31, February 28,
1998 1998
Unaudited
---------- -----------
Current Assets
Cash and cash equivalents $ 21,553 $ 113,759
Accounts receivable (less allowance of $4,000 and $1,000
at May 31 and February 28, respectively) 456,066 810,560
Inventories (Note C) 788,281 615,459
Prepaid expenses and other current assets 44,282 15,780
---------- ----------
Total current assets 1,310,182 1,555,558
Equipment and furnishings (less accumulated depreciation and
of $378,254 and $369,398 at May 31 and February 28,
respectively) 113,160 122,016
Patents, patents pending and copyrights (less accumulated
amortization of $73,558 and $123,930 at May 31 and
February 28, respectively) 43,472 45,187
Other assets 5,917 5,917
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TOTAL ASSETS $1,472,731 $1,728,678
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt $ 31,738 $ 55,438
Revolving Line of Credit 50,000 50,000
Accounts payable 362,793 405,009
Accrued expenses 262,201 353,776
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Total current liabilities 706,732 864,223
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Long term debt, less current maturities 577,815 577,815
Noncurrent rent payable 8,331 8,083
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Total liabilities 1,292,878 1,450,121
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Stockholders' Equity
Common stock, $.01 par value; 12,000,000 shares authorized,
4,374,387 outstanding at May 31 and February 28 43,744 43,744
Additional paid-in capital 3,824,221 3,824,221
Accumulated deficit (3,688,112) (3,589,408)
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Total stockholders' equity 179,853 278,557
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,472,731 $1,728,678
========== ==========
See notes to financial statements.
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended May 31,
Unaudited
1998 1997
---- ----
Net Sales $ 746,042 $ 761,743
Cost of Goods Sold 416,491 383,657
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Gross Profit 329,551 378,086
--------- ---------
Operating Expenses
Research and product development costs 134,198 87,268
Marketing and selling expenses 166,262 172,851
General and administrative costs 115,303 94,169
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Total Operating Expenses 415,763 354,288
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Operating (Loss) Income (86,212) 23,798
Interest Expense (13,601) (13,080)
Interest and Other Income 1,109 0
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(Loss) Income Before Income Taxes (98,704) 10,718
Income Tax Expense (Note D) 0 0
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(Loss) Net Income $ (98,704) $ 10,718
========= =========
Basic Earnings Per Share $(0.02) $0.00
======= =====
Diluted Earnings Per Share $(0.02) $0.00
======= =====
Weighted Average Shares - Basic 4,374,387 4,261,404
========= =========
Weighted Average Shares - Diluted 4,861,063 4,562,617
========= =========
See notes to financial statements.
SONO-TEK CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended May 31,
Unaudited
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $(98,704) $ 10,718
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Depreciation and amortization 10,571 8,340
Provision for doubtful accounts 3,000 3,000
(Increase) decrease in:
Accounts receivable 349,693 (93,138)
Inventories (172,822) 22,011
Prepaid expenses and other current assets (26,701) 14,834
Increase (decrease) in:
Accounts payable and accrued expenses (133,791) (36,360)
Non-current rent payable 248 1,332
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Net Cash Used in Operating Activities (68,506) (69,263)
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CASH FLOW FROM FINANCING ACTIVITIES:
Notes and obligations payable - professional fees 0 (4,000)
Repayments of note payable, bank (23,700) (19,429)
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Net Cash Used in Financing Activities (23,700) (23,429)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (92,206) (92,692)
CASH AND CASH EQUIVALENTS
Beginning of period 113,759 107,746
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End of period $ 21,553 $ 15,054
======== ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 3,802 $ 3,071
======== ========
Non-cash exchange of accrued interest
for common stock 0 $ 67,787
= ========
See notes to financial statements.
SONO-TEK CORPORATION
Notes to Financial Statements
May 31, 1998
NOTE A: The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial statements
prepared in conformity with generally accepted accounting principles. Such
disclosures were included with the financial statements of the Company at
February 28, 1998, included in its report on Form 10-K. Such statements should
be read in conjunction with the data herein.
NOTE B: The financial information reflects all adjustments which, in the opinion
of management, are necessary for a fair presentation of the results for the
interim periods. The results for the interim periods are not necessarily
indicative of the results to be expected for the year.
NOTE C: Inventories at May 31, 1998 are comprised of:
Finished goods $173,542
Work in process 165,504
Raw materials and subassemblies 449,235
--------
Net inventories $788,281
========
NOTE D: The Company has a net deferred tax asset, therefore no income tax
expense is recorded for the three months ending May 31, 1998 and May 31, 1997.
At February 28, 1998, the Company had available operating loss carryforwards of
approximately $3,208,000 for income tax purposes.
NOTE E: On March 3, 1997, the FASB issued SFAS No. 128 "Earnings per Share".
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application was not
permitted. Restatement of all prior-period earnings per share ("EPS") data
presented is required when SFAS 128 is implemented. The Company adopted SFAS No.
128 for the year ended February 28, 1998 and EPS data is provided in the
financial statements for all periods presented based on the requirements of this
statement.
Basic EPS is computed by dividing net income by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Stock options granted but not yet
exercised under the Company's stock option plans are included for Diluted EPS
calculations under the treasury stock method. The convertible secured
subordinated promissory notes and related warrants are antidilutive and
therefore are not considered for the Diluted EPS calculations.
The computation of basic and diluted earnings per share are set forth on
the following table:
May 31, May 31,
1998 1997
Numerator-
Numerator for basic and diluted earnings
per share - net (loss) income $(98,704) $10,718
========= =======
Denominator:
Denominator for basic earnings per share -
weighted average shares 4,374,387 4,261,404
Effects of dilutive securities:
Stock options for employees
and outside consultants 486,676 301,213
--------- ---------
Denominator for diluted earnings per share 4,861,063* 4,562,617*
========= =========
*The effect of considering the convertible secured subordinated promissory
notes and related warrants are antidilutive and therefore not considered
for the diluted earnings per share calculations.
Note F: SUBSEQUENT EVENTS
On June 26, 1998, the Board of Directors of the Company granted options to
acquire 147,500 shares of Common Stock to qualified employees of the Company, at
the fair market value of $.60 per share under the 1993 Stock Incentive Plan.
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Federal Securities Laws. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions; political, regulatory,
competitive and technological developments affecting the Company's operations or
the demand for its products; timely development and market acceptance of new
products; adequacy of financing; capacity additions; and ability to enforce
patents.
Results of Operations
For the three months ended May 31, 1998, the Company's sales decreased $15,701
to $746,042 as compared to $761,743 for the three months ended May 31, 1997. The
decrease was primarily a result of a decrease in sales of the Company's Nozzle
Systems. Due to the nature of the market for Nozzle Systems, it is not uncommon
for the Company to experience significant fluctuations in sales from quarter to
quarter.
The Company's gross profit decreased $48,535 from $378,086 for the three months
ended May 31, 1997 to $329,551 for the three months ended May 31, 1998. The
decrease was a result of an increase in cost of goods sold relative to sales due
an increase in costs for personnel, depreciation, supplies and installations of
the Company's SonoFlux systems.
Research and product development costs increased $46,930 from $87,268 for the
three months ended May 31, 1997 to $134,198 for the three months ended May 31,
1998. The increase was due to an increase in engineering supplies purchased for
new product development and travel related to that development. Personnel costs
also increased by $34,000 for the three month period as a result of increased
staffing.
Marketing and selling costs decreased $6,589 from $172,851 for the three months
ended May 31, 1997 to $166,262 for the three months ended May 31, 1998. The
decrease was primarily due to a reduction of one person on the sales staff.
General and administrative costs increased $21,134 from $94,169 for the three
months ended May 31, 1997 to $115,303 for the three months ended May 31, 1998.
The increase was a result of increased compensation costs, professional fees and
travel costs.
Interest expense increased $521 from $13,080 for the three months ended May 31,
1997 to $13,601 for the three months ended May 31, 1998. The increase in
interest expense is the result of two new loans, with the bank at the end of the
last fiscal year, for the purchase of production equipment and a line of credit.
For the three months ended May 31, 1998, the Company lost $98,704 or ($.02) per
share as compared to earnings of $10,718 or $.00 per share for the three months
ended May 31, 1997. The decrease in earnings was primarily a result of a
decrease in gross profit from lower sales and higher research and administrative
costs.
Liquidity and Capital Resources
The Company's working capital decreased $87,885 from $691,335 at February 28,
1998 to $603,450 at May 31, 1998. The stockholders' equity decreased $98,704
from $278,557 on February 28, 1998 to $179,853 on May 31, 1998. The decrease in
working capital and stockholders' equity was primarily a result of the operating
loss for the three months ended May 31, 1998.
Although there can be no assurances, management believes that working capital
generated by continuing operations will be sufficient to support the Company's
working capital needs for the next twelve months based on anticipated sales
levels.
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
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: July 15, 1998
SONO-TEK CORPORATION
(Registrant)
/s/ James L. Kehoe
By: ____________________________________
James L. Kehoe
Chief Executive Officer
/s/ Kathleen N. Martin
By: ____________________________________
Kathleen N. Martin
Treasurer & Chief Financial Officer