<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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: August 31, 1995
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 October 13, 1995
Common Stock, par value $.01 per share 4,204,913
<PAGE>
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Balance Sheets - August 31, 1995 (Unaudited) and
February 28, 1995 1
Statements of Operations - Six Months and Three Months
Ended August 31, 1995 and 1994 (Unaudited) 2
Statements of Cash Flows - Six Months Ended August 31, 1995
and 1994 (Unaudited) 3
Notes to Financial Statements 4 - 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 8
Part II - Other Information 9
Signatures 10
<PAGE>
SONO-TEK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
August 31 February 28
1995 1995
ASSETS Unaudited
-------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 47,330 $ 67,804
Accounts receivable (net of allowance for doubtful accounts
of $40,000 at August 31 and $63,000 at February 28 ) 478,398 350,185
Receivable for common stock issued 0 25,000
Inventories (Note C) 498,284 490,571
Prepaid expenses and other current assets 17,677 44,819
--------------------- ---------------------
Total Current Assets 1,041,689 978,379
Equipment, furnishings and leasehold improvements (less
accumulated depreciation and amortization of $327,753
at August 31 and $301,113 at February 28 ) 129,611 151,873
Patents, patents pending and copyrights (less amortization
of $125,481 at August 31 and $120,951 at February 28 ) 75,462 74,992
Other assets 6,317 5,917
--------------------- ---------------------
T O T A L $ 1,253,079 $ 1,211,161
===================== =====================
LIABILITIES
Current liabilities:
Current maturities of long term debt $ 132,932 $ 127,145
Accounts payable 278,387 335,242
Accrued expenses 409,341 321,953
--------------------- ---------------------
Total Current Liabilities 820,660 784,340
Long term debt, less current maturities 700,227 754,449
Non-current rent payable 15,793 21,367
--------------------- ---------------------
Total Liabilities 1,536,680 1,560,156
--------------------- ---------------------
SHAREHOLDERS' EQUITY ( DEFICIENCY )
Common stock - $.01 par value:
Authorized - 12,000,000 shares
Issued - 4,204,913 shares 42,049 42,049
Additional paid-in capital 3,758,128 3,758,128
Deficit (4,083,778) (4,149,172)
--------------------- ---------------------
Total Shareholders' Deficiency (283,601) (348,995)
--------------------- ---------------------
T O T A L $ 1,253,079 $ 1,211,161
===================== =====================
</TABLE>
1.
<PAGE>
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
--------------------------------- -----------------------------------
August 31 August 31
Unaudited Unaudited
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES $ 1,349,508 $ 1,398,681 $ 613,549 $ 684,000
COST OF GOODS SOLD 568,018 754,398 236,807 362,097
------------- ------------- -------------- -------------
Gross Profit 781,490 644,283 376,742 321,903
------------- ------------- -------------- -------------
OPERATING EXPENSES
Research and product development costs 196,797 145,071 95,791 74,298
Marketing and selling expenses 326,567 370,395 146,396 176,665
General and administrative costs 192,645 258,170 79,722 134,328
------------- ------------- -------------- -------------
Total Operating Expenses 716,009 773,636 321,909 385,291
------------- ------------- -------------- -------------
OPERATING INCOME (LOSS) 65,481 (129,353) 54,833 (63,388)
INTEREST EXPENSE 33,020 30,135 16,503 15,548
INTEREST AND OTHER INCOME 32,933 107 38 77
------------- ------------- -------------- -------------
NET INCOME (LOSS) (NOTE D) $ 65,394 $ (159,381) $ 38,368 $ (78,859)
============= ============= ============== =============
INCOME (LOSS) PER COMMON SHARE (NOTE E) $ 0.02 $ (0.04) $ 0.01 $ (0.02)
============= ============= ============== =============
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK USED TO COMPUTE
EARNINGS (LOSS) PER SHARE 4,205,000 3,872,000 4,205,000 3,872,000
</TABLE>
2.
<PAGE>
SONO-TEK CORPORATION
Statements of Cash Flows
For Six Months Ended August 31
<TABLE>
<CAPTION>
1995 1994
Unaudited
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 65,394 $ (159,381)
------------- --------------
Adjustments to reconcile the results of operations to the net cash provided by
operating activities:
Depreciation and amortization 31,170 44,320
Accounts receivable (128,213) 101,714
Inventories (7,714) (116,634)
Prepaid expenses 27,142 20,379
Other assets (400) (2,000)
Accounts payable & accrued expenses 30,532 179,860
Noncurrent rent payable (5,574) (1,785)
------------- --------------
Total adjustments (53,057) 225,854
------------- --------------
Net cash provided by operating activities 12,337 66,473
------------- --------------
Cash flows from investing activities:
Fixed asset, patent and copyright acquisition costs (9,378) (23,627)
Cash flows from financing activities:
Payments of capitalized leases (3,629) (2,093)
Proceeds from sale of common stock 25,000 0
Repayments of notes payable (44,804) (82,923)
------------- --------------
Net cash used in financing activities (23,433) (85,016)
------------- --------------
Net Increase (decrease) in cash and cash equivalents (20,474) (42,170)
Cash and cash equivalents:
Beginning of period 67,804 70,871
------------- --------------
End of period $ 47,330 $ 28,701
============= ==============
Supplemental disclosure:
Interest paid $ 15,616 $ 14,856
Income taxes paid $ 0 $ 5,338
</TABLE>
3.
<PAGE>
SONO-TEK CORPORATION
Notes to Financial Statements
August 31, 1995
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, 1995, 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 August 31, 1995 is comprised of:
Finished goods $105,940
Work in process 117,188
Raw materials and subassemblies 275,156
--------
Total $498,284
NOTE D: The Company has adopted FASB Statement no. 109 which became
effective for the Fiscal Year Ended February 28, 1994.
Accordingly, under the provision of Statement 109, the income
tax benefit of the loss for the six months ended August 31,
1994 has been offset by an increase in the valuation
allowance.
NOTE E: Income (loss) 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 F: The financial statements for fiscal 1995 have been prepared
under the assumption that the Company will continue as a going
concern. During the year ended February 1995 the Company
incurred a significant loss from operations.
At February 28, 1995 the Company had a net capital deficiency
of $348,995. The lack of sufficient working capital has
hampered the Company's ability to produce and market its
products efficiently and to make payments to its vendors and
certain noteholders in a timely fashion. Some vendors have
placed the Company's account
4.
<PAGE>
NOTE F: for collection with a collection agency.
These factors raise substantial doubt as to the Company's
ability to continue as a going concern.
The financial statements do not contain any adjustments that
might be necessary if the Company is unable to continue as a
going concern.
5.
<PAGE>
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company's sales decreased $49,173 to $1,349,508 for the six months
ended August 31, 1995 as compared to $1,398,681 for the six months ended August
31, 1994. The decrease was primarily a result of decreased sales of the
Company's SonoFlux Systems. Sales of this product decreased approximately
$251,000, while sales of the Company's Nozzle Systems increased approximately
$202,000. For the three months ended August 31, 1995 the Company's sales
decreased $70,451 to $613,549 as compared to sales of $684,000 for the three
months ended August 31, 1994. During this period sales of the Company's Nozzle
Systems inreased approximately $21,000 and sales of the Company's SonoFlux
Systems decreased approximately $92,000 as compared to the three month period
ended August 31, 1994. The decrease in sales of the Company's SonoFlux Systems
is believed to be the result of a decline in export sales as well as an increase
in competitive pressures. In response to the increase in competition the Company
introduced its newest version of SonoFlux, the "9500". This new product, which
has a lower manufacturing cost and a lower selling price is designed to be more
"user friendly" through computer controled operation. Although there can be no
assurances, the Company anticipates that this new version will appeal to a
broader segment of the market, and lead to increased sales of this product line.
The Company's gross profit increased $137,207 from $644,283 for the six
month period ended August 31, 1994 to $781,490 for the six month period ended
August 31, 1995, and increased $54,839 from $321,903 for the three months ended
August 31, 1994 to $376,742 for the three months ended August 31, 1995. As a
percent of sales, gross profit increased from 46% for the six months ended
August 31, 1994 to 58% for the six months ended August 31, 1995, and increased
from 47% for the three months ended August 31, 1994 to 61% for the three months
ended August 31, 1995. For both the six and three month periods the increase in
gross profit and gross profit percentage was primarily a result of a change in
product mix and a reduction in production overhead costs. Sales of the Company's
Nozzle Systems, which realize a higher gross margin as compared to sales of the
Company's SonoFlux Systems, comprised 39% and 40% of sales for the six and three
month periods ended August 31, 1995 as compared to 24% and 32% of sales for the
six and three month periods ended August 31, 1994. The Company's production
overhead costs decreased as a result of reduced warranty and labor costs.
Research and product development costs increased $51,726 from $145,071
for the six months ended August 31, 1994 to $196,797 for the six months ended
August 31, 1995 and increased $21,493 from $74,298 for the three months ended
August 31, 1994 to $95,791 for the three months ended August 31, 1995 The
increase was primarily a result of increased consulting and labor costs
associated with the development of the Company's newest generation of spray
fluxing system, the SonoFlux 9500.
6.
<PAGE>
Marketing and selling costs decreased $43,828 from $370,395 for the six
months ended August 31, 1994 to $326,567 for the six months ended August 31,
1995 and decreased $30,269 from $176,665 for the three months ended August 31,
1994 to $146,396 for the three months ended August 31, 1995. The decrease was
primarily as a result of a decrease in travel costs. Travel costs were higher
during the six months ended August 31, 1994 as a result of a greater number of
sales leads generated by the increased level of advertising that had followed a
period of reduced advertising activity. Additionally, during the past six months
the Company has concentrated its selling efforts to focus on North American
markets, thereby reducing the necessity for costly Far East and European travel.
General and administrative costs decreased $65,525 from $258,170 for
the six month period ended August 31, 1994 to $192,645 for the six months ended
August 31, 1995 and decreased $54,606 from $134,328 for the three months ended
August 31, 1994 to $79,722 for the three months ended August 31, 1995. The
decrease resulted primarily from a reduction in the Company's reserve for
doubtful accounts and a decrease in professional fees.
Interest and other income increased $32,826 from $107 for the six
months ended August 31, 1994 to $32,933 for the six months ended August 31,
1995. The increase is a result of funding received during the three months ended
May 31, 1995 from SEMATECH for work done by the Company under the terms of a
joint development agreement. SEMATECH is a consortium of U.S. semiconductor
manufacturers and has provided the Company with funds for the development of a
photoresist application system, or "Wafer Coating System".
For the six months ended August 31, 1995 the Company earned $65,394 or
$.02 per share as compared to a net loss of $159,381 or $.04 per share for the
six months ended August 31, 1994. For the three months ended August 31, 1995,
the Company had earnings of $38,368 or $.01 per share as compared to a net loss
of $78,859 or $.02 per share for the three months ended August 31, 1994. The
increase in earnings for both the six and three month periods resulted primarily
from an increase in sales of the Company's Nozzle Systems, a decrease in general
and administrative costs and an increase in other income from SEMATECH.
Liquidity and Capital Resources
The Company's working capital increased $26,990 to $221,029 at August
31, 1995 as compared to working capital of $194,039 at February 28, 1995. The
increase in working capital was primarily a result of profitable operations.
The Company's lack of working capital has hampered its ability to
efficiently produce and market its products, and has impeded progress toward the
development of new products. At times the Company has been unable to make
payments to its vendors and certain note holders in a timely fashion. Some
vendors have placed the Company's account for collection with a collection
agency. During Fiscal 1995 the Company failed to make three of four scheduled
interest payments to holders of the convertible secured subordinated promissory
notes issued in November 1993. The failure to make such payments constitutes an
act of default in accordance
7.
<PAGE>
with the terms of the note. In March 1995 the Company and each noteholder agreed
to an amendment whereby, among other things, the holder agreed to waive the
right of default and remedies based on the Company's failure to make interest
payments due on August 15, 1994 and thereafter through and including February
15, 1996.
The Company's Chairman, who is entitled to receive consulting
compensation from the Company at the rate of $26,000 per year has agreed that
payments to him could be deferred commencing June 1993. The amount of such
deferral at August 31, 1995 was $57,057.
These factors raise serious doubt as to the Company's ability to
continue as a going concern.
During Fiscal 1995 the Company incurred a significant loss from
operations. During this period of time the Company devoted significant
resources, including working capital to the development of two new products. The
first is a new generation of the SonoFlux System that is used in the electronics
industry for the application of flux to printed circuit boards during their
manufacture. The Company began shipping this new system to customers during the
three months ended May 31, 1995. The second new product is a Wafer Coating
System to be used in the semiconductor industry for the application of
photoresist to semiconductor wafers. The Company anticipates that the Wafer
Coating System will be available for shipment to customers during the fourth
quarter of Fiscal 1996. Management believes that these new products will lead to
broader markets and increased sales and profits quickly enough to improve its
working capital position in the short term and to restore its equity in the long
term, although there can be no assurances that these goals will be achieved.
In order to generate additional working capital, the Company, in
February 1995, sold 333,333 shares of common stock to its Chairman and a
Noteholder for the fair market value of $100,000.
As the long term debt of the Company to the bank matures on November 1,
1996 and the Convertible Secured Subordinated Notes mature on August 15, 1997,
the Company will experience substantial difficulties in meeting these
obligations unless the level of profitability improves substantially over the
next several years or unless the bank and the Noteholders agree to extend the
repayment terms of this debt. There can be no assurance that such extensions can
be negotiated or that such extensions will be on terms as favorable to the
Company as those presently in effect.
8.
<PAGE>
PART II - OTHER INFORMATION
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, 1995.
1. The election of two (2) directors of the Company to serve until the
Company's 1997 annual meeting of shareholders.
For Withheld Total
Harvey L. Berger 3,286,260 31,904 3,318,164
Stephen E. Globus 3,281,260 36,904 3,318,164
2. Ratify the appointment of Anchin, Block & Anchin as the Company's
independant auditors for the fiscal year ending February 29, 1996.
For Against Abstained Total
3,268,563 46,101 3,500 3,318,164
There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports
None
Item 10. Material Contracts
(g) Letter of agreement between the Company and J. Duncan Urquhart
Item 27. Financial Data Schedule
Edgar filing only
9.
<PAGE>
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: October 13, 1995
SONO-TEK CORPORATION
By: /s/ James L. Kehoe
--------------------------
James L. Kehoe
Chief Executive Officer
By: /s/ J.Duncan Urquhart
--------------------------
J. Duncan Urquhart
Treasurer & Chief Financial Officer
10.
DATE: August 27, 1993
TO: J. Duncan Urquhart
FROM: Sono-Tek Corporation
2012 Route 9W, Bldg. 3
Milton, NY 12547
SUBJECT: Letter of Agreement
Dear Duncan,
As you are aware, Sono-Tek Corporation ("Sono-Tek" or the "Company") has
sustained extensive losses from operations for the last several years. In order
to assure the survival of the Company, it is necessary to restructure the
Company and raise additional working capital. This has forced the Company to
implement drastic and far reaching initiatives and restructuring. Sono-Tek has
sought and received significant reductions in the amounts owed to suppliers and
creditors, as well as extended payment terms. This letter of agreement
represents the full understanding between you and Sono- Tek as of August 27,
1993.
1. Sono-Tek will continue your employment as Controller, reporting to the
CEO of the Company.
2. Your compensation will consist of a base salary and a bonus plan based
on the overall financial performance of the Company. The base salary
will be at an annual rate of $52,700 and will be paid at times
consistent with the standard payroll practice of the Company. In
addition to the base salary, you will be eligible to receive a maximum
annual bonus of $7,000. This bonus will consist of $1,250, paid
quarterly, for each quarter in which the Company earns a profit after
giving effect to all management bonuses, and a one-time payment at the
end of the year of $2,000 if the Company is profitable after giving
effect to all management bonuses. In future years, it is anticipated
that this bonus plan will be based on individual performance to the
Annual Operating Plan of the Company in addition to overall corporate
performance.
The initial payment of $2,500 for the first and second quarters will be
made to you on September 24, 1993.
3. You currently have no options to purchase shares of common stock of .
1
<PAGE>
Sono-Tek The Company has been advised by legal counsel that the 1983
Incentive Stock Option plan for key employees is flawed. In
addition, the 1,000,000 shares reserved for issuance under the Plan
is out of line with generally accepted levels.
As a result, Management will, working with legal counsel, establish a
1993 Incentive Stock Option Plan and use its best efforts to obtain
shareholder approval for that Plan at the shareholder meeting
tentatively scheduled for October, 1993. You will be issued 25,000 new
options at an exercise price of approximately $1.00 per share.
4. The Company has reserved a total of $1,016 in accrued salary, and you
hereby agree to forgive this entire amount and further agree that this
represents full and total past-due salary payable to you.
7. The level of your base salary and bonuses will be reviewed annually at
the time of the Annual Meeting of Shareholders of the Company.
SONO-TEK CORPORATION ACCEPTED AND AGREED TO:
BY: /s/ Samuel Schwartz /s/ J.Duncan Urquhart
----------------------- ----------------------
SAMUEL SCHWARTZ J. DUNCAN URQUHART
CHAIRMAN
2
