SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: February 29, 1996
Commission File Number: 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 Identification Number)
Incorporation or Organization)
2012 Route 9W, Bldg. 3, Milton, New York 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (914) 795-2020
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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. X Yes __ No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of May 17, 1996 the aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant was approximately
$2,824,000, computed by reference to the average of the bid and asked prices of
the Common Stock on said date, which average was $0.78.
The Registrant had 4,204,913 shares of Common Stock outstanding as of
May 17, 1996.
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PART I
ITEM 1 Business
(a) General Development of Business.
--------------------------------
Sono-Tek Corporation (the "Company" or "Sono-Tek") was incorporated in
New York on March 21, 1975. It was organized for the purpose of engaging in the
development, manufacture, assembly, and sale of ultrasonic liquid atomizing
units consisting of (i) a nozzle based on patented technology, and (ii) an
electrical power supply and related hardware (the "Nozzle Systems"). Nozzle
Systems atomize low-to-medium viscosity liquids used in industrial spray
processes by converting electrical energy into mechanical motion in the form of
high-frequency (ultrasonic) vibrations which break liquids into minute drops
that can be applied to surfaces at low-velocity.
Throughout the fiscal year ended February 29, 1996 ("Fiscal 1996"), the
Company continued production and sales of its established line of Nozzle System
products. The Company is continuously striving to improve the performance and
versatility of its Nozzle Systems, as well as searching for new industry
applications.
During Fiscal 1990, the Company initiated the development of the
SonoFlux System. This system was the first product of the Company that
incorporates its basic Nozzle System technology into an end-user ready machine
which can be targeted for a very specific and identifiable market segment, the
electronic circuit board assembly industry. The SonoFlux System applies a
uniform coating of flux to printed circuit boards immediately prior to the
components being soldered in place. The SonoFlux System consists of a liquid
delivery system which pumps liquid flux from a reservoir to the ultrasonic
nozzle where it is atomized (the Company's Nozzle System), a spray assembly
which shapes the atomized flux and directs it toward the bottom surface of the
printed circuit board, the necessary electronics to control and operate the
system, and an exhaust hood to capture any extraneous vapors.
After an initial period of marketing and customer evaluation during
Fiscal 1991, the Company realized its initial sales during Fiscal 1992. Sales
for the SonoFlux system have grown significantly in each subsequent year until
Fiscal 1995 when increased competition contributed to a decline in sales.
In Fiscal 1995, the Company commenced development of a new generation
of the SonoFlux System which was introduced to the market at a major electronics
trade show in February, 1995. This newest product family, the "9500", was
developed after conducting significant market research to determine customer
requirements.
This new generation of machines was designed to enable Sono-Tek to
participate in all segments of the spray fluxing market. For prospective
customers where price is the most important factor in making a purchase
decision, the entry level model of the 9500 is priced 25% lower than the
previous SonoFlux System. For that segment of the market where full factory
automation is a must, the high-end model of the SonoFlux 9500 is fully automated
and computer controlled, and is priced
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to compete favorably against other products in the market.
The 9500, in addition to being designed to satisfy the demands of the
market, is significantly easier to manufacture than its predecessor, and takes
advantage of "off-the-shelf" components wherever possible to reduce the need for
custom designed and manufactured parts.
Initial shipments of the SonoFlux 9500 began in May 1995, to customers
in the North American market. During the balance of Fiscal 1996, the SonoFlux
9500 proved to be a success in the field. The overall performance, reliability,
and ease of use have been complemented by customers. In March 1996, this new
system was made available to the international market.
(b) Financial Information about Industry Segments.
----------------------------------------------
The Company is engaged in one industry segment and line of business.
(c) Description of Business.
------------------------
Background
- ----------
The Company is engaged in the development, manufacture, and sale of
ultrasonic liquid atomizing units consisting of a nozzle based on patented
technology and an electrical power supply unit and related hardware that
atomizes low-to-medium viscosity liquids used in industrial spraying
applications.
Nozzle Systems operate on a different principle from that employed in
conventional nozzles, such as compressed gas or hydraulic nozzles ("Conventional
Nozzles"), or in other coating methods such as fill and aspiration (when a
container is filled with a substance and the excess is removed by various
methods) or batch dipping.
Nozzle Systems break the liquid stream into a spray of minute drops by
intense ultrasonic vibrations concentrated on the head of the nozzle, called the
"atomizing surface". The spray pattern depends on the shape of the atomizing
surface. The Company manufactures nozzles with atomizing surfaces that produce
spray shapes to meet individual customer specifications. In addition, nozzles
are made in different sizes and configurations to accommodate various flow rates
and to meet other requirements with respect to specific applications. Other
components of Nozzle Systems are similarly designed to meet customer
specifications.
Nozzle Systems produce a soft low-velocity spray of liquid which
results in minimal waste or loss to the surrounding environment. Conventional
nozzles tend to deliver a hard, high-velocity spray. When applying spray
coatings to surfaces using pressure nozzles, much of the often expensive and/or
hazardous material bounces off the surface and is lost into the environment.
This so-called "overspraying" not only represents increased cost to the user,
but is also a source of environmental pollution. Sono-Tek's Nozzle Systems, due
to the soft nature of the spray produced, virtually eliminate such overspray. In
addition, the Nozzle Systems are capable of spraying material
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in minute amounts on the order of one-millionth of a liter of liquid per second,
and are capable of delivering material without introducing gas into an
industrial process as do compressed gas nozzles. Ultrasonic nozzles typically
have larger passageways than Conventional Nozzles spraying material at similar
flow rates, which the Company believes makes ultrasonic nozzles more resistant
to clogging than Conventional Nozzles.
Marketing
- ---------
Overview
--------
The Company markets two basic product lines, both based on its
proprietary ultrasonic nozzle technology. The SonoFlux System accounted for
approximately 63% of the Company's sales during Fiscal 1996, 76% during Fiscal
1995, and 70% during Fiscal 1994. Nozzle Systems accounted for the remaining
37%, 24%, and 30% respectively.
The marketing and sales function of the Company is currently performed
by five people located in the Company's facilities in Milton, New York. This
organization consists of a National Sales Manager, three Sales Engineers, and an
Administrative Assistant.
The primary marketing and sales of the Company's Nozzle Systems is
through its own direct sales force. A majority of sales leads are generated via
direct mail advertising, advertisements and technical articles in trade
journals, new product releases, and participation in trade shows and seminars.
The Company markets Nozzle Systems to customers requiring specialized
applications of liquids to their products. To date, the Company's sales have
been made to end users who use Nozzle Systems in the manufacture of their own
products, to original equipment manufacturers ("OEMs") who incorporate Nozzle
Systems into their own products for resale, and to government, university, and
private research facilities who use Nozzle Systems for research projects.
The market for the SonoFlux product line is the Printed Circuit Board
(PCB) assembly industry. A majority of sales leads are generated via
advertisements and technical articles in trade journals, new product releases,
and participation in trade shows and seminars. For this product line, the
Company utilizes the services of independent Manufacturer's Representatives
("Reps") in North America to augment its direct sales force. These Rep
organizations are paid a commission on sales after the Company receives payment
from the customer. The Company currently has thirteen such Rep organizations
under contract with a total of approximately forty individuals performing direct
sales. To increase the Company's presence in foreign markets, the Company uses
Distributors in Europe and the Far East. The Company currently has fifteen such
Distributor companies under contract.
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Markets for the Company's Products
- ----------------------------------
Nozzle Systems
--------------
The Company markets Nozzle Systems to customers requiring specialized
applications of liquids to their products. Manufacturers of medical devices use
the Nozzle Systems to uniformly coat portions of their products with specific
quantities of biochemical compounds. Semiconductor manufacturers use Nozzle
Systems to apply chemicals on silicon wafers in the production of integrated
circuits. Nozzle Systems are sold for a variety of other applications including
spray drying of ceramics, lubrication, moisturization, and application of
protective coatings to float glass.
The Company works with potential customers in industries which it
believes can benefit from Nozzle Systems to meet specialized application
requirements. The Company has been concentrating its efforts on establishing its
presence in a number of different markets. (See "Product Development").
Currently, the Company's principal markets for its products are in the medical
products, semiconductor manufacturing and electronics fabrication industries.
The more significant applications of the Company's Nozzle System
products are as follows:
Medical Devices
---------------
Manufacturers of medical devices use Nozzle Systems in the processing
of tubes, trays, ampules, syringes and catheters for medical use. Blood
collection tubes used in AIDS testing and other blood work, diagnostic test kits
and artificial arteries are examples of devices that are coated using Nozzle
Systems. In Management's opinion, an advantage of Nozzle Systems over
Conventional Nozzles (which are not typically used in the foregoing medical
device applications) is that Nozzle Systems provide a low velocity spray which
deposits a minute, specific quantity of material on the medical device. In
addition, in management's opinion, an advantage of Nozzle Systems over other
methods, such as the fill and aspiration method, is that Nozzle Systems permit a
controlled and uniform application of less material than that used in other
methods of coating medical devices, resulting in less waste of material.
One customer in the medical device industry, Becton Dickinson & Co.,
accounted for approximately 9% of the Company's sales during Fiscal 1996,
approximately 5% of the Company's sales in Fiscal 1995 and approximately 10% of
the Company's sales in Fiscal 1994. This customer utilizes the Company's Nozzle
Systems for coating blood collection devices with small, controlled amounts of
various coagulating and anti-coagulating agents. The use of the Nozzle Systems
in this application is attributable to their ability to precisely meter a very
low-flow rate spray, which is a characteristic inherent to the technology.
Semiconductors
--------------
Semiconductor manufacturers that use automated wafer handling equipment
can use Nozzle Systems in the production of integrated circuits. Photosensitive
silicon wafers are sprayed with often expensive chemical developers using Nozzle
Systems. The Company believes that the primary advantage in using Nozzle Systems
in this process is that it produces results comparable to other automated wafer
handling methods with less waste of the chemical being sprayed.
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The acceptance of the Company's technology in this industry is a result
of the technology's capability of reducing the use of chemicals and providing
dimension control of deposition on silicon wafers.
Other Applications
-------------------
The Company also sells Nozzle Systems to other manufacturers, including
manufacturers of feminine personal hygiene products, computer disks, float
glass, frozen confections, and sterile packages. The Company also sells its
Nozzle Systems to customers who wish to evaluate the merits of the technology
for their specific applications. (See "Product Development").
SonoFlux System
---------------
The SonoFlux System is attractive to the electronics industry in
applications which use water soluble, water-based, or rosin fluxes because the
SonoFlux system significantly reduces the amount of flux consumed, the related
emission of these materials to the environment, and the cost of disposing of
waste flux.
The SonoFlux System applies "no-clean" flux to electronic printed
circuit boards during manufacture. The Company believes that the potential
market for this product is large because the use of "no-clean" fluxes eliminates
the conventional flux removal (cleaning) operation which uses chlorofluorocarbon
chemicals.
One of the Company's Far East distributors, WKK Electronics PTE Ltd.,
located in Singapore, accounted for approximately 2% of the Company's sales in
Fiscal 1996 and approximately 11% of the Company's sales during Fiscal 1995.
Product Development
- -------------------
For the Fiscal years ending February 29, 1996, February 28, 1995 and
February 28, 1994, the Company expended approximately $380,000, $328,000, and
$264,000 respectively on research and development costs. These expenditures were
incurred for refinement of existing Nozzle System technology, development of
Nozzle Systems to meet new or unique customer requirements, development of a new
generation of the SonoFlux System and related enhancements, and the initial
development of a photoresist application system for the semiconductor industry.
Funding totalling $32,700 and $14,176 from SEMATECH, a consortium of U.S.
semiconductor manufacturers, was provided toward the development costs of the
photoresist development system during Fiscal years 1996 and 1995, respectively.
(See "Wafer Coating System").
Management believes that the Company's long-term growth and stability
is linked to the continuous development and release of products that provide
total solutions to customer needs across a wide spectrum of industries, and
advance the utility of the Company's basic technology.
Nozzle Products
- ---------------
Since 1988, the mainstay of the Company's nozzle business has utilized
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a power supply designated as the Model PS-88. From 1988 through 1993, the
Company obtained considerable experience related to the performance of these
systems in the field. Suggestions made by several customers and an analysis of
repair records indicated that by making certain improvements and incorporating
additional features, the Company could further enhance performance, reduce
manufacturing time and parts cost, and facilitate the repair process.
The first iteration of a new power supply, designated the Model PS-93,
was designed specifically for Becton Dickinson, although the basic design
concept is ultimately planned to be incorporated across the entire product line.
The PS-93 operates on the "phase-locked loop" principle which enables the power
supply to provide a stable, frequency-locked electrical signal to the attached
ultrasonic nozzle. It also permits the user to tune the power supply to many
different types of the Company's nozzles or to any nozzle of a given type by
simple screwdriver adjustment.
The PS-93 not only facilitates the use of the Company's products,
particularly in installations where multiple Nozzle Systems are in use, but also
simplifies manufacturing and repair. For example, a PS-88 power supply and
nozzle system can, with age or excessive use, become mistuned, requiring
customers to return the entire system to the factory for repair. The PS-93 power
supply eliminates this problem since the system can be retuned by the customer
on-site in a matter of minutes. The PS-93 also features a modularized design
that makes it convenient to operate several power supplies and nozzles in a
compact space, and the capability to interface and be controlled by external
computers.
The first PS-93 power supplies were delivered to Becton Dickinson &
Co., in May 1993 as part of a rack-mount system designed to drive 10 nozzles.
During Fiscal 1995, this new power supply design was incorporated into the
SonoFlux product line, and it will replace the PS-88 for Nozzle System products
during Fiscal 1997.
SonoFlux System
- ---------------
During Fiscal 1995, significant development resources were expended to
completely redesign the SonoFlux product line. The Company conducted an industry
survey of over 1,000 users or potential users of spray fluxing systems in an
effort to determine the expectations of the market for parameters such as price,
performance, quality, and service. This industry information, together with the
experience gained by the Company in over five years of selling spray fluxing
systems, was combined with specific cost and profit objectives, to define the
overall development objectives of the SonoFlux 9500.
The SonoFlux 9500 is based on the industry proven design utilizing
Sono-Tek's patented spray assembly with a stationary ultrasonic nozzle and spray
dispersion mechanism. This well-established technology has been combined with a
flexible programmable logic controller (PLC) to provide additional features,
making the SonoFlux 9500 system a production tool capable of full automation.
The SonoFlux 9500 uses an expandable, programmable controller which
monitors and controls all system functions. Any fluxing parameter is easily
changed using an operator keypad and
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LCD display. The controller also provides visual and audible warnings for system
errors and alarms.
The unit can be programmed by a user friendly windows program from a
personal computer using an industry standard RS-232 serial interface. It has the
capacity to store up to 250 customized programs, each containing all of the
parameters selected for a specific circuit board to be processed.
Several SonoFlux 9500 models are available including units for retrofit
inside wave soldering machines, stand alone units for assembly around existing
finger or pallet conveyors, stand alone units complete with integral chain/tab
conveyors and configurations capable of operating in an inert environment.
In addition to development of the 9500, several engineering projects
were initiated and completed to satisfy specific customer needs or requests.
Wafer Coating System
- --------------------
During Fiscal 1995 and Fiscal 1996, Sono-Tek made significant progress
on a development project to significantly reduce the amount of photoresist used
in the fabrication of semiconductor wafers. Photoresist is an expensive material
that is applied to the surface of a semiconductor wafer at several stages during
processing to sensitize the surface of the wafer to ultraviolet light so that
various features can be photo-imaged.
This work was performed under a joint development agreement with
SEMATECH which required Sono-Tek to develop the necessary tools and processes to
enable existing semiconductor manufacturing equipment to be retrofitted with
Sono-Tek's patented ultrasonic spray technology. The objective of the program is
to spray a uniform coating of photoresist, using as small an amount of
photoresist as possible. Initial laboratory results indicate the Company has
achieved its goal to reduce by a factor of four the amount of photoresist used
in the semiconductor manufacturing process. A prototype wafer coating system has
been designed and the Company has plans to install it at a semiconductor
manufacturing facility for further testing and qualification during the second
quarter of Fiscal 1997.
Manufacturing
- -------------
The Company currently employs eleven persons for its manufacturing and
quality control activities. During Fiscal 1992, the Company expanded its
manufacturing capabilities in order to manufacture the SonoFlux System by
leasing additional production space in Milton, New York. In Fiscal 1994, the
Company consolidated all of its operations at its Milton facility to improve
efficiencies and reduce operating costs. The Company expended approximately
$46,000 in Fiscal 1994 to acquire manufacturing equipment and to outfit the
Milton facility to accommodate all phases of manufacturing. In Fiscal 1996,
Fiscal 1995 and Fiscal 1994, the Company expended approximately $1,000, $12,000
and $35,000 respectively to acquire manufacturing and quality control equipment,
and to upgrade electrical services at the Milton facility.
The Company's manufacturing area consists of (i) a machine shop, (ii) a
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nozzle assembly/test area, (iii) an electronics assembly area, (iv) a SonoFlux
assembly area, and (v) a receiving and shipping area. The machine shop produces
machined parts for nozzle systems, components for development projects and
custom parts to satisfy unique customer requirements. It is believed that all of
these services could be obtained at numerous local machine shops if required.
The nozzle assembly and test area assembles the machined components of
the nozzle with purchased crystals and electrodes, and after a visual inspection
and aging period, subjects the nozzle to test procedures to assess its
performance characteristics. In the electronics assembly area, assembled
electronic circuit boards, pumps, and power supplies are mounted in sheet metal
enclosures and suitably wired to provide interconnections between the individual
components and sub-assemblies. Certain electronic circuit boards are also
purchased. The circuit boards and the components that populate them are
available from a wide range of suppliers throughout the world, as are the sheet
metal components.
The SonoFlux assembly area combines the assembled modules from the
electronics assembly area, the assembled and tested ultrasonic nozzle, and
additional sheet metal and wiring to complete a finished SonoFlux system.
Other parts, including pumps used in the Nozzle Systems or the SonoFlux
System are purchased as finished units from various suppliers. All raw materials
used in the Company's products are readily available from many different
domestic suppliers.
The Company provides a limited warranty of the Nozzle Systems and
SonoFlux Systems for parts and labor for a period of one year from the date of
sale, except for certain consumable parts or moving parts of the SonoFlux System
(such as conveyors, motors, pumps, etc.) for which the warranty period is ninety
days.
The Company maintains comprehensive general liability insurance in an
amount which it believes is adequate for the nature of its operations.
Patents
- -------
The Company's present and proposed business is based in part on the
technology covered by ten United States patents held by the Company. Patent
applications based on the United States applications covering fundamental
aspects of the technology developed by the Company have been issued or are
pending in several foreign jurisdictions. Such patents expire during the period
of May 1996 through December 2007. The Company's earliest patent on its
central-bolt nozzle design, used in current product offerings, is due to expire
in October 1999. The aforementioned patent, due to expire in May 1996, is no
longer part of the Company's product line. The Company has been granted a patent
on the spray assembly portion of its SonoFlux System, which will expire in June,
2010. The Company has also filed an application for a patent covering the
photoresist spray deposition process. (See product development - "wafer coating
system"). However, there can be no assurance that the Company's existing patents
will, if challenged, be upheld, or that any such patents will afford the
necessary degree of patent protection with respect to the Nozzle Systems.
Furthermore, due to the high cost of maintaining patents in several foreign
jurisdictions, the Company determined not to maintain its patent protection in
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certain countries in which the Company believes the protection is no longer
required. During the Fiscal years ended February 29, 1996 and February 28, 1995
the Company abandoned certain patents it held in foreign countries. The book
value of such patents was approximately $13,000 and $27,000 respectively. There
can be no assurance that events will not occur which, as a result of the
Company's failure to maintain its patent protection, would have a material
adverse affect on the Company's sales in such foreign jurisdictions.
In addition, the Company may be unable, for financial or other reasons,
to enforce its rights under its patents. The Company also relies on unpatented
know-how in the production of its Nozzle Systems. Management is aware of one
other company that has developed a nozzle that operates in a manner similar to
the nozzle that is part of the Company's Nozzle Systems. This company has access
to significant financial resources. There can be no assurance, however, that
this company will not develop additional nozzle designs and thus expand the
applications of its nozzles. Moreover, technological advances have evolved in
the nozzle industry and there can be no assurance that these companies or other
entities with far greater resources and capabilities than the Company will not
develop products competitive with the Company's Nozzle System. (See
"Competition").
Competition
- -----------
Nozzle Systems are sold primarily to customers that require specific
performance characteristics which the Company believes are not attainable using
competing methods, such as Conventional Nozzles or other coating methods. At
present, management is aware of only one other company that manufactures nozzles
that operate in a manner similar to the nozzle that is part of the Company's
Nozzle Systems. This company possesses significant financial resources. (See
"Patents"). There can be no assurance, however, that other manufacturers,
including well-established companies that have substantially greater financial
and other resources than the Company, will not seek to compete with the Company
in producing specialized nozzles in the future. If such companies decide to
enter into the specialized nozzle business, there can be no assurance that the
Company will be able to successfully compete with them.
In the electronic fabrication area, the Company's SonoFlux System
competes with other companies, all of which use either Conventional Nozzles or
the ultrasonic nozzles of the Company's main competitor in the production of
specialized nozzles. Although management believes that it has competed against
such companies successfully in the past, there can be no assurance that these
results will continue. In addition, there can be no assurance that other
companies, including well-established companies that have substantially greater
financial and other resources than the Company, will not seek to compete with
the Company in the electronic assembly industry or that the Company will be able
to compete successfully with them if such companies decide to enter into that
business.
Employees
- ---------
As of May 17, 1996, the Company had 26 full-time employees.
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(d) Financial Information about Foreign and Domestic Operations
--------------------------------------------------------------
and Export Sales
----------------
Sales to foreign customers accounted for approximately $744,000 or 27%
of total revenue in Fiscal 1996, $739,000 or 30% in Fiscal 1995 and $1,324,000
or 45% in Fiscal 1994. Approximately $117,000 and $155,000 of this amount
represents sales to an affiliate of Becton Dickinson located in England in
Fiscal 1996, and Fiscal 1994, respectively. There were no sales to this customer
in Fiscal 1995.
During Fiscal 1994, the Company consolidated its distributor and OEM
network in Europe and the Far East eliminating unprofitable or nonproductive
relationships. During Fiscal 1996 the Company reduced its selling efforts in the
European and Far East markets and focused on the North American market. As a
result, the Company received orders from distributor and OEM agents in the Far
East of approximately $169,000 in Fiscal 1996, $451,000 in Fiscal 1995 and
$674,000 in Fiscal 1994. In Europe, orders received totalled approximately
$81,000, $189,000 and $421,000 during Fiscal 1996, 1995 and 1994 respectively.
During Fiscal 1992 the Company began to utilize independent sales
representatives or sales representative companies throughout North America
(including parts of Canada and Mexico) to sell SonoFlux equipment on a
commission basis and continued to do so through Fiscal 1996.
(e) Backlog
-------
The backlog for the Company's products was $150,321 as of February 29,
1996 and $145,187 as of February 28, 1995. The Company anticipates that it will
ship all of its February 29, 1996 backlog during Fiscal 1997.
ITEM 2 Properties
- ------
The Company's office, product development, manufacturing and assembly
facilities are located in one building consisting of 13,200 square feet of space
at 2012 Route 9W, Building 3, Milton, New York. The Company leases these
facilities pursuant to a lease which expires January 31, 1997. The Company has
the option at the end of the lease term to renew the lease for an additional
five year period at annual rental rates comparable to the Company's current
payments. The Company believes that this facility is adequate for its needs for
the foreseeable future.
ITEM 3 Legal Proceedings
- ------
None
ITEM 4 Submission of Matters to a Vote of Security Holders
- ------
None
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PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder
- ------ Matters.
(a) The Company's Common Stock trades in the over-the-counter market on
the OTC Bulletin Board. The following table sets forth the range of high and low
closing bid quotations for the Company's Common Stock for the periods indicated
as furnished by the National Quotations Bureau, Incorporated.
FISCAL YEAR ENDED FEBRUARY 28, FEBRUARY 29,
1995 1996
HIGH LOW HIGH LOW
First Quarter 3/4 1/8 5/8 10/32
Second Quarter 1 1/8 1/4 13/16 11/32
Third Quarter 3/4 1/16 9/16 1/4
Fourth Quarter 5/8 1/16 1 1/4 1/4
The above quotations are believed to represent inter-dealer quotations
without retail markups, markdowns or commissions and may not represent actual
transactions. The Company believes that, although limited or sporadic quotations
exist, there may not be an established public trading market for the Company's
Common Stock.
(b) As of May 17, 1996 there were 304 record holders of the Company's
Common Stock.
(c) The Company has not paid any cash dividends on its Common Stock
since its inception and intends to retain earnings, if any, for use in its
business or for other corporate purposes.
ITEM 6 Selected Financial Data1 (1)
- ------
Year Ended 02/29/96 02/28/95 02/28/94 02/28/93 02/29/92
- ---------- -------- -------- -------- -------- --------
Net Sales $2,747,891 $2,548,363 $2,943,553 $2,513,085 $2,324,049
Income (Loss)
Before Extra-
ordinary Item $ 155,078 $ (483,050) $ (41,543) $ (576,998) $ (393,292)
Net Income
(Loss) $ 155,078 $ (483,050) $ 89,009 $ (576,998) $ (393,292)
- --------
(1) Should be read in conjunction with the Financial Statements and Notes
thereto.
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Year Ended 02/29/96 02/28/95 02/28/94 02/28/93 02/29/92
- ---------- -------- -------- -------- -------- --------
Income (Loss)
Per Common Share:
Before Extra
ordinary Item $ 0.04 $ (0.12) $ (0.01) $ (0.15) $ (0.10)
Extraordinary 0.03
Item
Net Income
(Loss) $ 0.04 $ (0.12) $ 0.02 $ (0.15) $ (0.10)
Total Assets $1,199,717 $1,211,161 $1,635,715 $1,275,599 $1,305,314
Long-Term
Liabilities $ 668,082 $ 775,816 $ 866,084 $ 42,662 $ 16,387
Cash Dividends None None None None None
Weighted Average
Number of Shares
of Common Stock
Outstanding 4,204,913 3,876,146 3,872,000 3,784,000 3,754,000
ITEM 7 Management's Discussion and Analysis of Financial Condition and
- ------ Results of Operations
Capital Resources and Liquidity
-------------------------------
On February 29, 1996, the Company had working capital of $312,811 and a
capital deficiency of $193,917. This compares to working capital of $194,039 and
a capital deficiency of $348,995 on February 28, 1995. The increase in working
capital and the reduction of the Company's capital deficiency is primarily a
result of the Company' s profitable operations during Fiscal 1996.
The improvement in working capital has allowed the Company to make
steady progress in its efforts to reduce outstanding debt and, while the Company
has improved its position with many of its trade vendors, payments remain in
arrears with many others. During Fiscal 1996 the Company reduced obligations to
its suppliers, bank and other creditors by approximately $160,000. This has
improved the Company's ability to procure production materials and supplies, and
to more efficiently market its product. Additionally, the Company, in November
1995, resumed interest payments to the holders of its convertible secured
promissory notes issued in November 1993. Interest payments due to these
noteholders in May and August 1995, were not made constituting an act of default
in accordance with the terms of the note. In April 1996 the Company and each
noteholder agreed to an amendment that, among other things, waived the right of
default and
13
<PAGE>
remedies based on the Company's failure to make the interest payments due on May
15, 1995, August 15, 1995, and thereafter through and including February 15,
1997. In May 1996, the Company renegotiated the terms of its loan with the bank.
Under the original terms of the loan the Company would have been obligated to
pay the balance of approximately $135,000 on November 1, 1997. Under the new
terms of the loan, the Company will continue to make monthly payments until the
balance is paid in full.
The Company's Convertible Secured Subordinated Notes mature on August
15, 1997, and the Company may experience substantial difficulties meeting these
obligations unless the level of profitability improves substantially prior to
the maturity date of the notes or unless the noteholders agree to extend the
repayment terms of the note. 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.
During Fiscal 1996 the Company introduced to the market its 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. This
new system has been well received by the electronics industry as is evidenced by
an increase in the frequency of orders for multiple units. In addition, the
Company has realized a tenfold reduction in warranty costs as compared to
earlier generations of the SonoFlux System. If qualification testing proves
successful, the Company anticipates the introduction in Fiscal 1997 of a Wafer
Coating System to be used in the semiconductor industry for the application of
photoresist to semiconductor wafers. Although there can be no assurances,
management believes that these new products, will lead to broader markets and
continued increases in sales and profits, which will in turn allow the Company
to continue to meet its current obligations as they become due.
Results of Operations - 1996 Compared to 1995
- ---------------------------------------------
In Fiscal 1996 The Company had net earnings of $155,078 or $.04 per
share as compared to a net loss of $483,050 or $.12 per share for Fiscal 1995.
The increase in earnings was primarily a result of increased sales of the
Company's Nozzle Systems as well as a decrease in cost of goods sold, marketing
and selling expenses, and general and administrative costs.
The Company's sales increased $199,528 or 8% from $2,548,363 for Fiscal
1995 to $2,747,891 for Fiscal 1996. The increase in sales resulted primarily
from an increase in sales of the Company's Nozzle Systems. Sales of this product
increased $400,985 or 66% from $607,447 during Fiscal 1995 to $1,008,432 during
Fiscal 1996. A significant portion of the increase in sales of the Company's
Nozzle Systems is attributed to a significant customer in the medical industry.
This customer did not purchase any Nozzle Systems during Fiscal 1995. Sales to
this customer, Becton Dickinson & Co.,whose purchases are normally large and
sporadic, accounted for $237,750 or 9% of the Company's sales during Fiscal 1996
as compared to sales of $123,851 or 5% the Company's sales during Fiscal 1995.
Fiscal 1995 sales to this customer were comprised entirely of repairs to
existing Nozzle Systems. Although there can be no assurances, management
believes that Becton Dickinson will continue to remain an active customer and
may account for a significant portion of the revenues of the Company in the
future.
14
<PAGE>
Sales of the SonoFlux product line decreased $201,257 or 10% from
$1,940,716 in Fiscal 1995 to $1,739,459 in Fiscal 1996. Sales of the Company's
SonoFlux System had increased steadily since its introduction in Fiscal 1992 and
continued to increase through Fiscal 1994. In Fiscal 1995, however, the
Company's sales of SonoFlux Systems began to decline as a result of increased
competitive pressures. Although there can be no assurances, the Company believes
that its new generation of SonoFlux Systems, the "9500" will enable it to
compete more effectively in the marketplace.
The Company's gross profit increased $468,259 or 44% from $1,068,340 in
Fiscal 1995 to $1,536,599 in Fiscal 1996. The increase in gross profit is a
result of an increase in sales of the Company's products as well as a change in
product mix. Sales of Nozzle Systems, which realize a higher gross margin than
SonoFlux Systems, comprised 37% of sales in Fiscal 1996 as compared to 24% of
sales during Fiscal 1995. Additionally, the Company realized a decrease of
approximately $83,000 in warranty costs associated with its SonoFlux System. The
decrease is a result of the improved performance and reliability of the
Company's new generation of SonoFlux System, the "9500".
Research and development costs increased $51,458 or 16% from $328,484
in Fiscal 1995 to $379,942 in Fiscal 1996. The increase was a result of
increased prototype and consulting costs associated with the development of, and
enhancements to the SonoFlux 9500, as well as the new Wafer Coating System to be
used in the semiconductor industry for the application of photoresist to
semiconductor wafers.
Marketing and selling costs decreased $46,203 or 7% from $680,600 in
Fiscal 1995 to $634,397 in Fiscal 1996. The decrease was primarily a result of
decreased travel costs. Such costs decreased as a result of the Company's
decision to redirect its sales efforts from Europe and the Far East to the North
American market.
General and administrative costs decreased $142,427 or 28% from
$501,569 in Fiscal 1995 to $359,142 in Fiscal 1996. The decrease resulted
primarily from a decrease in bad debt expense. During Fiscal 1996 the Company
has substantially reduced its reserve for uncollectable accounts as a result of
the decrease in receivables represented by higher risk Far East and European
accounts. A decrease in compensation, amortization and professional fees all
contributed to the reduction in general and administrative costs.
Inflation and changing prices did not have a material effect on the
Company's operation in the Fiscal 1996, 1995, or 1994 periods.
Results of Operations - 1995 Compared to 1994
- ---------------------------------------------
In Fiscal 1995 The Company incurred a net loss of $483,050 or $.12 per
share as compared to net earnings of $89,009 or $.02 per share for Fiscal 1994.
The decrease in earnings was primarily a result of decreased sales of the
Company's products.
15
<PAGE>
The Company's sales decreased $395,190 or 13% from $2,943,553 for
Fiscal 1994 to $2,548,363 for Fiscal 1995. The decrease in sales resulted
primarily from a decrease in sales of the Company's Nozzle Systems. Sales of
this product decreased $270,998 or 31% from $878,445 in Fiscal 1994 to $607,447
during Fiscal 1995. A significant portion of the decrease in sales of the
Company's Nozzle Systems is attributed to a significant customer in the medical
industry for whom the Company filled a large order during the first quarter of
Fiscal 1994. This customer, whose purchases are normally large and sporadic, did
not purchase any Nozzle Systems during Fiscal 1995. Sales to this customer,
Becton Dickinson & Co., accounted for $123,851 or 5% of the Company's sales
during Fiscal 1995 as compared to sales of $300,175 or 10% of the Company's
sales during Fiscal 1994. Fiscal 1995 sales to this customer were comprised
entirely of repairs to existing Nozzle Systems.
Sales of the SonoFlux product line decreased $123,192 or 6% from
$2,063,908 in Fiscal 1994 to $1,940,716 in Fiscal 1995. Sales of the Company's
SonoFlux System had increased steadily since its introduction in Fiscal 1992 and
continued to increase through Fiscal 1994. In Fiscal 1995, however, the
Company's sales of SonoFlux Systems began to decline as a result of increased
competitive pressures.
The Company's gross profit decreased $512,446 or 32% from $1,580,786 in
Fiscal 1994 to $1,068,340 in Fiscal 1995. The decrease in gross profit was a
result of a decrease in sales of the Company's products as well as a change in
product mix. Sales of SonoFlux Systems, which realize a lower gross margin than
sales of the Company's Nozzle Systems, comprised 76% of sales in Fiscal 1995 as
compared to 70% of sales during Fiscal 1994.
Research and development costs increased $64,730 or 25% from $263,754
in Fiscal 1994 to $328,484 in Fiscal 1995. The increase was a result of
increased prototype and consulting costs associated with the development of the
SonoFlux 9500 Ultra, as well as the new Wafer Coating System to be used in the
semiconductor industry for the application of photoresist to semiconductor
wafers.
Marketing and selling costs increased $42,655 or 7% from $637,945 in
Fiscal 1994 to $680,600 in Fiscal 1995. The increase was primarily a result of
increased travel costs. Such costs increased as a result of the Company's
efforts to establish new business in the Far East and the need to increase its
efforts domestically to meet increased competition.
General and administrative costs decreased $115,009 or 19% from
$616,578 in Fiscal 1994 to $501,569 in Fiscal 1995. The decrease resulted
primarily from a decrease in compensation and occupancy costs. Compensation
costs decreased as a result of the absense of bonus expense in Fiscal 1995, a
reduction in personnel, and the reclassification of the salary of the Company's
President and principal engineer to research and development costs. Occupancy
costs decreased as a result of the consolidation of the Company's operations in
Milton, New York during the fourth quarter of Fiscal 1994. Prior to that time
the Company was operating out of two locations which resulted in a greater share
of these costs charged to administration.
16
<PAGE>
ITEM 8 Financial Statements and Supplementary Data
- ------
Financial information required by Item 8 is included elsewhere in this
report. (See Part IV, Item 14.)
ITEM 9 Changes in and Disagreements with Accountants on Accounting
- ------ and Financial Disclosure
None.
PART III
ITEM 10 Directors and Executive Officers of the Registrant
- -------
(a) Identification of Directors
---------------------------
Name Age Position with Company
---- --- ---------------------
Dr. Harvey L. Berger 57 President and Director
Stephen E. Globus 48 Director
James L. Kehoe 49 Chief Executive Officer
and a Director
Samuel Schwartz 76 Chairman and a Director
J. Duncan Urquhart 42 Controller, Treasurer, and a
Director
Dr. Berger has been a Director of the Company since June 1975. Mr.
Kehoe has been a Director since June 1991. Mr. Schwartz has been a Director
since August 1987. Mr. Urquhart has been a Director since September 1988 and Mr.
Globus has been a Director since August 1995.
The board of directors is divided into two classes, which were
established by the Company's shareholders at their annual meeting held on
October 19, 1989. The directors in each class serve for a term of two years, and
until their respective successors are duly elected and qualified. The terms of
the classes are staggered so that only one class of directors is elected at each
annual meeting of the Company. The terms of Messrs. Kehoe, Schwartz, and
Urquhart will be until the annual meeting to be held in 1996, and the terms of
Dr. Berger and Mr. Globus will be until 1997, and in each case until their
respective successors are elected and qualified.
(b) Identification of Executive Officers
------------------------------------
Name Age Position with the Company
---- --- -------------------------
Dr. Harvey L. Berger 57 President and a Director
James L. Kehoe 49 Chief Executive Officer
and a Director
17
<PAGE>
Samuel Schwartz 76 Chairman and a Director
J. Duncan Urquhart 42 Controller, Treasurer,
and a Director
Dr. Berger was Vice Chairman of the board from March 1981 to September
1985. He was President from November 1981 to September 1984 and again became
President in September 1985. From September 1986 to September 1988 he also
served as Treasurer. Mr. Kehoe has served as Chief Executive Officer since
August 1993. Mr. Schwartz has served as Chairman of the Board since February
1993. Mr. Urquhart has served as Treasurer since September 1988 and as
Controller since January 1988.
The foregoing officers are elected for terms of one year; or until
their successors are duly elected and qualified or until terminated by the
action of the board of directors. There are no arrangements or understandings
between any executive officer and any other persons(s) pursuant to which he was
or is to be selected as an officer.
(c) Family Relationships
--------------------
None.
(d) Business Experience
-------------------
DR. HARVEY L. BERGER has been a Director of the Company since June
1975. He was President of the Company from November 1981 to September 1984. He
has again been President of the Company since September 1985. From September
1986 to September 1988 he also served as Treasurer. He was Vice Chairman of the
Company from March 1981 to September 1985. He holds a Ph.D. in physics from
Rensselaer Polytechnic Institute and is a member of the Marist College Advisory
Board.
JAMES L. KEHOE has been a Director of the Company since June, 1991 and
Chief Executive Officer of the Company since August 1993. Prior to that, he was
President and Chief Executive Officer of Plasmaco, Inc., which he founded in
1987 and remained as President and CEO until 1993. Plasmaco is involved in the
development and manufacture of AC plasma flat panel displays. Prior to founding
Plasmaco, Mr. Kehoe was employed for twenty two years by International Business
Machines Corporation where he held a variety of engineering and management
positions.
SAMUEL SCHWARTZ has been a Director of the Company since August 1987
and Chairman of the Board since February, 1993. From 1959 to 1992 he was the
Chairman and CEO of Krystinel Corporation, a manufacturer of ceramic magnetic
components used in electronic circuitry. He received a B.CH.E. from Rensselaer
Polytechnic Institute in 1941 and a M.CH.E.
from New York University in 1948.
J. DUNCAN URQUHART has been the Controller of the Company since January
1988 and the Treasurer of the Company since September 1988. From 1976 to 1987,
Mr. Urquhart was employed by Standex International Corporation, a multi-national
18
<PAGE>
Fortune 600 company. In 1978, Standex acquired James Burn International, a
manufacturer of specialized products and machinery for the bookbinding industry
where Mr. Urquhart served as Chief Accountant, Assistant Controller and, from
1985 through 1987, as Controller. Mr. Urquhart has been a Director of the
Company since September 1988.
ITEMS 11, 12, and 13
- --------------------
The information required by these items, to the extent not incorporated
by reference from the Company's definitive proxy statement, will be contained in
an amendment to this Form 10-K which will be filed not later than 120 days after
the end of the fiscal year covered by this Form 10-K, as provided by General
Instruction G(3).
PART IV
ITEM 14 Exhibits, Financial Statement Schedules, and Reports on Form
- ------- 8-K
(a)(1) The financial statements and schedules listed in the accompanying "Index
to Financial Statements" are filed as a part of this annual report.
(2) See (a)(1) above.
(3) Exhibits
Ex. No. Description
- ------ -----------
3(a)6 Certificate of Incorporation of the Company and all amendments
thereto.
3(b)1 By-laws of the Company as amended.
4(a)6 Form of Convertible Note.
4(b)3 Form of Warrant.
4(c)3 Master Security Agreement.
4(d)3 Long term debt letter from The Bank of New York including Note
for $300,000.
4(e) The Company agrees to furnish a copy of the Notes and
obligations arising from the settlement of trade and lease
payables and the capital leases referred to in the Company's
financial statements to the Commission upon request.
4(f)8 Form of 1995 Amendment to Convertible Note.
4(g) Form of 1996 Amendment to Convertible Note
*10(a)6 Employment Agreement dated October 14, 1993 between the
Company and Dr. Harvey L. Berger.
*10(b)2 1983 Incentive Stock Option Plan as amended.
10(c)5 Lease for the Company's facilities in Milton, NY dated July
19, 1991.
19
<PAGE>
10(d)5 Amendment No. 1 to Milton, NY lease dated December 27, 1991.
10(e)6 Amendment No. 2 to Milton, NY lease dated January 22, 1992.
10(f)6 Letter of Agreement dated April 4, 1994 to cancel lease in
Poughkeepsie, NY and Promissory Note dated March 28, 1994.
*10(g)9 Letter of Agreement between the Company and J. Duncan Urquhart
*10(h)7 1993 Stock Incentive Plan as amended.
*10(i)6 Employment Agreement between the Company and James L. Kehoe
dated August 16, 1993.
*10(j)6 Consulting agreement between the Company and Samuel Schwartz
dated March 1, 1993.
27.1 Financial Data Schedule. EDGAR filing only
* Management Contract or Compensory Plan.
1 Incorporated herein by reference to the Company's Registration
Statement on Form S-18, File No. 33-10138NY, effective March 6, 1987.
2 Incorporated herein by reference to the Company's Registration
Statement on Form S-8, File No. 33-34062, effective April 16, 1990.
3 Incorporated herein by reference to the Company's Form 10-Q Quarterly
Report of the quarter ended November 30, 1993.
4 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 28, 1991.
5 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 29, 1992.
6 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 28, 1994.
7 Incorporated herein by reference to the Company's Form 10-Q quarterly
report for the quarter ended August 31, 1994.
8 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 28, 1995.
9 Incorporated herein by reference to the Company's Form 10-Q quarterly
report for the quarter ended August 31, 1995.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
20
<PAGE>
SONO-TEK CORPORATION
FORM 10-K
ITEMS 8 AND 14(d)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FOR THE YEAR ENDED FEBRUARY 29, 1996
INDEPENDENT AUDITORS' REPORTS - 1996, 1995 AND 1994
FINANCIAL STATEMENTS (ITEM 8):
Balance Sheets at February 29, 1996 and February 28, 1995
Statements of Operations
For the Years Ended February 29, 1996 and February 28, 1995 and 1994
Statements of Shareholders' Equity (Deficiency)
For the Years Ended February 29, 1996 and February 28, 1995 and 1994
Statements of Cash Flows
For the Years Ended February 29, 1996 and February 28, 1995 and 1994
Notes to the Financial Statements
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL
SCHEDULES - 1996, 1995 AND 1994
FINANCIAL STATEMENTS SCHEDULES (ITEM 14(d)
SCHEDULES INCLUDED):
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because the conditions requiring
their filing do not exist or because the required information is given in the
financial statements, including the notes.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND DIRECTORS OF
SONO-TEK CORPORATION:
We have audited the accompanying balance sheets of Sono-Tek
Corporation as of February 29, 1996 and February 28, 1995 and the related
statements of operations, shareholders' equity (deficiency) and cash flows for
each of the three years in the period ended February 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Sono-Tek Corporation
at February 29, 1996 and February 28, 1995, and the results of its operations
and its cash flows for each of the three years in the period ended February 29,
1996 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company
changed its method of accounting for income taxes during the year ended February
28, 1994.
ANCHIN, BLOCK & ANCHIN LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
April 30, 1996 except for Note 5
as to which the date is May 28, 1996
22
<PAGE>
<TABLE>
SONO-TEK CORPORATION
BALANCE SHEETS
<CAPTION>
A S S E T S - NOTE 5
February 29, February 28,
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents - Note 2 $ 69,033 $ 67,804
Accounts receivable (net of allowance for doubtful accounts
of $25,000 in 1996 and $63,000 in 1995) 462,115 350,185
Inventories - Notes 2 and 3 477,381 490,571
Receivable for common stock issued - Note 9 -- 25,000
Prepaid expenses and other current assets 29,834 44,819
----------- -----------
Total Current Assets 1,038,363 978,379
Equipment, furnishings and leasehold improvements (less
accumulated deprecation and amortization of $368,087 in
1996 and $301,113 in 1995) - Notes 2 and 4 95,861 151,873
Patents, patents pending and copyrights (less accumulated
amortization of $114,372 in 1996 and $120,951 in 1995) -
Note 2 59,176 74,992
Other assets 6,317 5,917
----------- -----------
TOTAL ASSETS $ 1,199,717 $ 1,211,161
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of long term debt - Note 5 $ 128,779 $ 127,145
Accounts payable 233,810 335,242
Accrued expenses - Note 6 362,963 321,953
----------- -----------
Total Current Liabilities 725,552 784,340
Long-term debt, less current maturities - Note 5 657,865 754,449
Noncurrent rent payable 10,217 21,367
----------- -----------
Total Liabilities 1,393,634 1,560,156
----------- -----------
COMMITMENTS - NOTE 7
SHAREHOLDERS' EQUITY (DEFICIENCY) -
NOTES 7, 9, 10 AND 11:
Common stock - $.01 par value:
Authorized - 12,000,000 shares
- 4,204,913 shares in 1996 and 1995 42,049 42,049
Additional paid-in capital 3,758,128 3,758,128
Deficit (3,994,094) (4,149,172)
----------- -----------
Total Shareholders' Deficiency (193,917) (348,995)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY) $ 1,199,717 $ 1,211,161
=========== ===========
See the accompanying Notes to the Financial Statements.
</TABLE>
23
<PAGE>
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Y e a r s E n d e d
-----------------------------------------
February 29, February 28, February 28,
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 2,747,891 $ 2,548,363 $ 2,943,553
COST OF GOODS SOLD 1,211,292 1,480,023 1,362,767
----------- ----------- -----------
GROSS PROFIT 1,536,599 1,068,340 1,580,786
----------- ----------- -----------
OPERATING EXPENSES:
Research and product development costs - Note 2 379,942 328,484 263,754
Marketing and selling expenses 634,397 680,600 637,945
General and administrative costs 359,142 501,569 616,578
Lease termination costs - Note 7 -- -- 92,668
----------- ----------- -----------
Total Operating Expenses 1,373,481 1,510,653 1,610,945
----------- ----------- -----------
OPERATING PROFIT (LOSS) 163,118 (442,313) (30,159)
INTEREST EXPENSE 68,400 63,935 37,282
INTEREST AND OTHER INCOME 60,360 23,198 4,498
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 155,078 (483,050) (62,943)
BENEFIT FROM INCOME TAXES - NOTE 8 -- -- 21,400
----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 155,078 (483,050) (41,543)
EXTRAORDINARY ITEM:
Gain on settlement of accounts and
compensation payable (less applicable
income taxes of $25,100) - Notes 7 and 13 -- -- 130,552
----------- ----------- -----------
NET INCOME (LOSS) $ 155,078 $ (483,050) $ 89,009
=========== =========== ===========
INCOME (LOSS) PER COMMON SHARE:
Before extraordinary item $ 0.04 $ (0.12) $ (0.01)
=========== =========== ===========
Extraordinary item $ -- $ -- $ 0.03
=========== =========== ===========
Net income (loss) $ 0.04 $ (0.12) $ 0.02
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING USED TO COMPUTE
EARNINGS (LOSS) PER SHARE -
NOTE 2 4,204,913 3,876,146 3,872,000
=========== =========== ==========
See the accompanying Notes to the Financial Statements.
</TABLE>
24
<PAGE>
<TABLE>
SONO-TEK CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED FEBRUARY 29, 1996 AND
FEBRUARY 28, 1995 AND 1994
<CAPTION>
Common Stock
Par Value $.01 Total
------------------------ Additional Shareholders'
Paid-In Equity
Shares Amount Capital (Deficit) (Deficiency)
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance - February 28, 1993 3,871,580 $ 38,716 $ 3,661,461 $(3,755,131) $ (54,954)
Net Income -- -- -- 89,009 89,009
----------- ----------- ----------- ----------- -----------
Balance - February 28, 1994 3,871,580 38,716 3,661,461 (3,666,122) 34,055
Net loss -- -- -- (483,050) (483,050)
Shares issued 333,333 3,333 96,667 -- 100,000
----------- ----------- ----------- ----------- -----------
Balance - February 28, 1995 4,204,913 42,049 3,758,128 (4,149,172) (348,995)
Net Income -- -- -- 155,078 155,078
----------- ----------- ----------- ----------- -----------
Balance - February 29, 1996 4,204,913 $ 42,049 $ 3,758,128 $(3,994,094) $ (193,917)
=========== =========== =========== =========== ===========
See the accompanying Notes to the Financial Statements.
</TABLE>
25
<PAGE>
SONO-TEK CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Y e a r s E n d e d
-----------------------------------
February 29, February 28, February 28,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 155,078 $(483,050) $ 89,009
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 75,197 90,087 85,843
Allowance for doubtful accounts (38,000) 18,980 24,000
Loss on disposition of fixed assets and intangibles 13,200 27,400 21,132
Gain on settlement of accounts and compensation
payable -- -- 155,652
(Increase) decrease in:
Accounts receivable (73,930) 300,435 (323,936)
Inventories 13,190 31,298 (18,975)
Prepaid expenses and other current assets 14,985 9,064 30,657
Other assets (400) (600) 1,849
Increase (decrease) in:
Accounts payable and accrued expenses (60,422) 99,415 (509,513)
Noncurrent rent payable (11,150) (3,573) (2,205)
Notes and obligations payable - professional fees (10,000) (48,000) 90,625
Notes and obligations payable - lease termination (21,407) (45,034) 89,354
--------- --------- ---------
Total adjustments (98,737) 479,472 (355,517)
--------- --------- ---------
Net Cash (Used in) Provided by
Operating Activities 56,341 (3,578) (266,508)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset, patent and copyright acquisition costs (16,569) (30,177) (123,014)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of short-term bank loans -- -- (70,000)
Payments of capitalized leases (8,827) (7,305) (3,882)
Repayments of note payable, bank (54,716) (37,007) (8,924)
Proceeds from sale of convertible notes -- -- 530,000
Proceeds from sale of common stock 25,000 75,000 --
--------- --------- ---------
Net Cash (Used in) Provided by
Financing Activities (38,543) 30,688 447,194
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,229 (3,067) 57,672
CASH AND CASH EQUIVALENTS:
Beginning of year 67,804 70,871 13,199
--------- --------- ---------
End of year $ 69,033 $ 67,804 $ 70,871
========= ========= =========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 43,742 $ 38,123 $ 35,471
Income taxes paid $ -- $ 7,505 $ 118
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Receivable for common stock issued $ -- $ 25,000 $ --
Conversion of short-term bank loan to term debt $ -- $ -- $ 300,000
See the accompanying Notes to the Financial Statements.
</TABLE>
26
<PAGE>
SONO-TEK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS:
The Company is engaged in the development, manufacture, assembly
and sale of ultrasonic liquid atomizing nozzle systems that
atomize low to medium viscosity liquids used in industrial
spraying. Sales are made in North America, Western Europe and the
Far East primarily to fabricators of medical supplies and
electronic components (See Note 12).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Inventories:
------------
Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method for raw
materials, subassemblies and work-in-progress and the specific
identification method for finished goods.
Equipment, Furnishings and Leasehold Improvements:
--------------------------------------------------
Equipment, furnishings and leasehold improvements are stated
at cost. Depreciation of equipment and furnishings is computed on
the straight-line method over their estimated useful lives of
five to ten years. Leasehold improvements are being amortized on
the straight-line method over the lesser of the life of the
underlying lease or their estimated useful lives of two to five
years.
Product Warranty:
-----------------
Expected future product warranty expense is recorded when
the product is sold.
Patent Costs and Copyrights:
----------------------------
Costs 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. Copyright costs are deferred and amortized over their
expected useful life of five years.
Research and Product Development Costs:
---------------------------------------
Research and product development costs represent engineering
and other expenditures incurred for developing new products, for
refining the Company's existing products and for developing
systems to meet unique customer specifications for potential
orders or for new industry applications. Engineering costs
directly applicable to the manufacture of existing products are
included in cost of goods sold.
27
<PAGE>
SONO-TEK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Income Taxes:
-------------
Effective March 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes". The statement requires the use of the asset and liability
approach in the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements
or tax returns. If it is more likely than not that some portion
or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
Income (Loss) Per Common Share:
-------------------------------
Income (loss) per common share is based on the weighted
average number of shares outstanding during each of the periods
presented. 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.
Cash and Cash Equivalents:
--------------------------
Cash equivalents consist of money market mutual funds and
short-term certificates of deposit with maturities of 90 days or
less.
Use of Estimates:
-----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Advertising Expense:
--------------------
The Company expenses the cost of advertising in the period
in which the advertising takes place. Advertising expense for the
years ended February 29, 1996 and February 28, 1995 and 1994 was
$94,902, $92,804 and $106,361, respectively.
Long-Lived Assets:
------------------
In March 1995, the Financial Accounting Standards Board
(FASB) issued Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses for assets held and used to be
recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the
assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed
of. The Company will adopt the Statement in the first quarter of
1997 and, based on current circumstances, does not believe the
effect of adoption will be material.
28
<PAGE>
SONO-TEK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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". In
October of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation". The Company is not
required to adopt the provisions of SFAS 123 until the year
beginning in 1996. Under SFAS 123, companies are allowed to
continue to apply the provisions of APB 25 to their stock-based
employee compensation arrangements. As such, the Company will
only be required to supplement its financial statements with
additional disclosures in the year beginning 1996.
NOTE 3 - INVENTORIES:
Inventories consist of the following:
February 29/28,
---------------------
1996 1995
Finished goods $102,688 $136,875
Work-in-process 137,800 119,432
Raw materials and subassemblies 236,893 234,264
---------- ---------
$477,381 $490,571
========== =========
NOTE 4 - EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS:
Equipment, furnishings and leasehold improvements consist of the
following:
February 29/28,
---------------------
1996 1995
Laboratory equipment $ 77,571 $ 70,179
Machinery and equipment 186,284 182,714
Furniture and fixtures 121,398 121,398
Leasehold improvements 78,695 78,695
---------- ---------
Totals 463,948 452,986
Less: Accumulated depreciation
and amortization 368,087 301,113
---------- ---------
$ 95,861 $151,873
========== =========
29
<PAGE>
SONO-TEK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 29/28,
----------------------------------
1996 1995
<S> <C> <C>
Note payable, bank, collateralized by accounts receivable,
inventory and all inventory and all other personal property of
the Company. As modified in May 1996 the note is payable in
monthly installments, including interest at 2% over the bank's
prime rate, of $6,500 through December 1, 1995, thereafter
$7,500. The weighted average interest rate during fiscal 1996
was 10.2%. The loan has been personally guaranteed by the
Company's President and a former Chairman and Chief Executive
Officer of the Company. $199,353 $254,070
Convertible secured subordinated promissory notes with
individuals, collateralized by all of the personal property
530,000 of the Company, and subordinate to the note payable to
the bank or any successor credit facility up to $1,500,000.
Payable in quarterly installments of interest at 1/2% under
the prime rate in effect on August 15 each year until maturity
on August 15, 1997. The interest rate currently in effect is
8.25%. Each $1,000 portion of these notes are convertible into
1,428 common shares of the Company and a warrant, which
expires in August 2000, to purchase an additional 1,428 shares
of common stock at $1.50 a share. These notes include $50,000
issued to the Company's Chairman of the Board. During the
fiscal years 1995 and 1996 the noteholders have waived the
default as to nonpayment of interest and have agreed to defer
the quarterly payments of interest due November 15, 1994 to
February 15, 1997 until March 1, 1997. 530,000 530,000
Notes and obligations arising from the settlement of trade and
lease payables, due in varying monthly installments. The
obligations include $22,913 at February 29, 1996 due to a
partnership partially owned by an individual who was formerly
the Company's Chairman of the Board and is believed to be a
major shareholder. 55,538 86,945
Capital leases, payable in monthly installments, currently $538,
with interest at various rates and maturing June 30, 1996.
1,753 10,579
--------- ---------
786,644 881,594
Due within one year 128,779 127,145
--------- ---------
Due after one year $657,865 $754,449
========= =========
</TABLE>
30
<PAGE>
SONO-TEK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT (CONTINUED):
Long-term debt is payable as follows:
Fiscal Years Ending,
--------------------
February 28, 1997 $128,779
February 28, 1998 605,157
February 28, 1999 52,708
--- ---- --------
$786,644
========
Management has not determined the fair value of the debt due to
the additional cost involved in obtaining an appraisal.
NOTE 6 - ACCRUED EXPENSES:
Accrued expenses consist of the following:
February 29/28,
----------------------------
1996 1995
Professional fees $ 85,198 $ 69,880
Estimated warranty costs 35,000 84,000
Accrued compensation 99,888 90,374
Accrued commissions 48,939 34,200
Accrued interest 53,427 28,769
Other accrued expenses 40,511 14,730
------ ------
$362,963 $321,953
======== ========
NOTE 7 - COMMITMENTS:
Leases:
-------
The Company leases an office and manufacturing facility
under a lease that expires in January 1997. An amendment to the
lease reduced the required payments from February 1993 through
August 1994 in exchange for 50,000 shares of restricted Sono-Tek
common stock which the company valued at $40,000. This amount was
charged to operations over the period of reduced rents. The lease
provides for a cancellation option with a cancellation payment of
$5,000, and for a five year renewal option at annual rentals
varying from $65,000 to $78,000. Future annual minimum payments
through the end of the lease term are as follows:
Fiscal Year Ending,
-------------------
February 28, 1997 $ 65,000
31
<PAGE>
SONO-TEK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS (CONTINUED):
Leases (Continued):
-------------------
Rent expense was approximately $60,000, $61,000 and
$86,000 for the years ended February 29, 1996, February 28, 1995
and February 28, 1994, respectively.
In August of 1993, the Company terminated a lease for a
premise located in Poughkeepsie, New York with a partnership
partially owned by a major shareholder and the Company's former
Chairman of the Board. The original lease, which was to expire
in October 1994, provided for annual rent payments of $64,700,
plus real estate tax escalations. In October 1992, the required
payments were reduced to $48,000 annually in exchange for 36,000
shares of restricted Sono-Tek common stock, which the Company
valued at $28,800. The unamortized value of the common stock was
charged to operations during the year ended February 28, 1994.
Upon termination of the lease, the Company agreed to a payment
of $89,780 (including past due rents) with $60,000 to be paid in
installments, including interest, over 36 months beginning in
May of 1994 (Note 5). Rent expense under this lease was
approximately $27,000 for the year ended February 28, 1994.
Employment Contracts:
---------------------
The Company previously had employment contracts with
its former Chairman of the Board and its President providing for
annual minimum compensation of $100,000 each and additional
incentive compensation based upon net profits, as defined, to
December 1995. During the years ended February 28, 1993 and
February 29, 1992, the executives agreed to defer salary
payments of approximately $8,000 and $27,000, respectively. In
July 1992, the executives agreed to reduce their salaries to an
annual rate of $50,000 each until February 28, 1993. From March
1, 1993 to May 31, 1993, the Company's President received salary
payments at an annual rate of $50,000; these payments were
increased to an annual rate of $75,000 after May 31, 1993.
Effective March 1, 1993, the Company discontinued all payments
to its former Chairman of the Board.
During the year ended February 28, 1994, these
employment contracts were canceled and the deferred salary
obligations were credited to the gain on settlement of accounts
and compensation payable (Note 13).
32
<PAGE>
SONO-TEK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES:
The annual provision for income taxes differs from amounts
computed by applying the maximum U.S. Federal income tax rate to
the pre-tax income as follows:
February 29, February 28, February 28,
1996 % 1995 % 1994 %
---- ---- ----
Computed tax at
maximum rate $ 52,700 34.0 $(164,200) (34.0) $(21,400) (34.0)
Operating loss cur-
rently not deductible -- -- 164,200 34.0 -- --
State income taxes, net
of Federal income
tax effect -- -- -- -- 2,400 3.8
Change in valuation
allowance for the
effect of operating
loss carry forwards (52,700) (34.0) -- -- (27,500) (43.7)
Amount allocated to
extraordinary item -- -- -- -- 25,100 39.9
-------- ------ --------- ------ -------- ------
Benefit for income $ -- -- $ -- -- $(21,400) (34.0)
taxes ======== ====== ========= ====== ========= ======
The net deferred tax asset is comprised of the following:
February 29/28,
-----------------------------
1996 1995
Allowance for doubtful accounts $ 10,000 $ 25,000
Accumulated depreciation 9,000 -
Noncurrent rent payable 4,000 9,000
Accrued vacation 12,000 17,000
Accrued expenses 63,000 48,000
Operating loss carryforwards 1,430,000 1,547,000
--------- ---------
Net deferred tax assets before
valuation allowance 1,528,000 1,646,000
Deferred tax asset valuation allowance (1,528,000) (1,646,000)
---------- ----------
Net Deferred Tax Asset $ - $ -
=========== ===========
The change in the valuation allowance was ($118,000), $232,000 and $1,414,000
for the years ended February 29, 1996, February 28, 1995 and February 1994,
respectively.
33
<PAGE>
SONO-TEK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (CONTINUED):
At February 29, 1996, the Company has available operating loss
carryforwards of approximately $3,574,000 for income tax
purposes which expire as follows:
2000 $ 339,000
2001 156,000
2002 231,000
2003 301,000
2004 600,000
2005 to 2010 1,947,000
----------
Total $3,574,000
==========
NOTE 9 - CAPITAL STOCK:
During the year ended February 28, 1995, the Company sold a
total of 333,333 shares of common stock to its Chairman of the
Board (166,666 shares) and to a noteholder for the fair market
value of $100,000.
In connection with the sale of convertible secured subordinated
promissory notes (Note 5), the authorized number of shares of
common stock was increased to 12,000,000 during the year ended
February 28, 1994.
NOTE 10 - STOCK OPTIONS:
Under the Company's 1983 Incentive Stock Option Plan, which
expired in May 1993, options could be granted to officers and
key employees to purchase up to 1,000,000 of the Company's
common shares at not less than their fair market value at the
date of grant. In March 1990, the Company filed a registration
statement with the Securities and Exchange Commission to allow
for the public resale of exercised options. Options to purchase
167,510 shares at $2 to $3.63 per share are outstanding at
February 28, 1995 including options as to 151,000 shares which
are exercisable, with the balance generally becoming exercisable
in cumulative installments over the remainder of their ten year
terms. During fiscal 1996 the outstanding options were
cancelled.
During the year ended February 28, 1995, the stockholders
approved the 1993 Stock Incentive Plan. Under the plan options
could be granted to officers, directors, consultants and
employees to purchase up to 750,000 of the Company's common
shares at not less than the fair market value at the date of the
grant. Options to purchase 283,500 shares at $.38 per share are
outstanding at February 29, 1996, including options as to
131,450 shares which are exercisable, with the balance becoming
exercisable in cumulative installments over a three year period
during their ten year terms.
34
<PAGE>
SONO-TEK CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS (CONTINUED):
The options under the two plans are outstanding as follows:
<TABLE>
1993 Plan 1983 Plan
Outstanding Excercisable Outstanding Excercisable
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance March 1, 1993 557,500 454,000
Cancelled - Fiscal 1994 (190,000) -
-------- --------
Balance February 28, 1994 367,500 306,500
Cancelled - Fiscal 1995 (199,990) -
Granted - Fiscal 1995 291,000 - - -
-------- -------- -------- --------
Balance February 28, 1995 291,000 50,000 167,510 151,000
Cancelled - Fiscal 1996 (60,000) - (167,510) -
Granted - Fiscal 1996 52,500 - - -
-------- -------- -------- --------
Balance February 29, 1996 283,500 131,450 - -
</TABLE>
NOTE 11 - OTHER RELATED PARTY TRANSACTIONS:
Consulting Fees:
----------------
During fiscal 1996, 1995, and 1994 the Company incurred
$78,000 ($26,000) each year in consulting fees to its Chairman
of the Board under an informal arrangement commencing March
1993. At February 29, 1996 and February 28, 1995, accounts
payable includes a liability for these fees of $69,076 and
$44,056, respectively.
NOTE 12 - SIGNIFICANT CUSTOMERS AND FOREIGN SALES:
Sales to a single customer accounted for approximately 11% and
10% of the Company's sales for the years ended February 28, 1995
and 1994. No single customer accounted for more than 10% of
sales for the year ended February 29, 1996.
Export sales to customers located outside the United States were
as follows:
Sales (Thousands)
--------------------------------------------
February 29, February 28, February 28,
1996 1995 1994
Location
--------
Western Europe $ 269 $ 178 $ 412
Far East 146 510 618
Other 329 51 294
--- --- ---
$ 744 $ 739 $1,324
===== ===== ======
NOTE 13 - EXTRAORDINARY ITEM:
During the year ended February 28, 1994, the Company came to an
agreement with a legal firm and certain employees whereby they
forgave a portion of previously recorded liabilities due them
for fees or compensation. The settlement gain on liabilities due
to Company officers and a former officer totaled $40,238.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON
SUPPLEMENTAL SCHEDULES
TO THE SHAREHOLDERS AND DIRECTORS OF
SONO-TEK CORPORATION:
In connection with our audits of the financial statements of
Sono-Tek Corporation as at February 29, 1996 and February 28, 1995 and for each
of the three years in the period ended February 29, 1996, we also audited
Schedule II for each of the three years in the period ended February 29, 1996,
included in the annual report of Sono-Tek Corporation of Form 10-K for the year
ended February 29, 1996. In our opinion, the schedule presents fairly the
information required to be set forth therein.
ANCHIN, BLOCK & ANCHIN LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
April 30, 1996
36
<PAGE>
<TABLE>
SCHEDULE II
SONO-TEK CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- ---------------------- -------- --------
Additions
----------------------
Balance Charged to Charged Balance
at Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions * of Period
----------- --------- -------- -------- ------------ ---------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C>
Year Ended February 29, 1996 $ 63,000 $ (37,596) $ 404 $ 25,000
Year Ended February 28, 1995 54,070 18,980 10,050 63,000
Year Ended February 28, 1994 72,234 30,466 48,630 54,070
* Represents write-off net of recovery, of uncollectible accounts
</TABLE>
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
Dated: May 28, 1996
Sono-Tek Corporation
(Registrant)
By: /S/ James L. Kehoe
------------------
James L.Kehoe
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/S/ Samuel Schwartz May 28, 1996
- ---------------------
Samuel Schwartz
Chairman of the Board
/S/ James L. Kehoe May 28, 1996
- ---------------------
James L. Kehoe
Chief Executive Officer
and Director
/S/ Harvey L. Berger May 28, 1996
- ---------------------
Harvey L. Berger
President and Director
/S/ J. Duncan Urquhart May 28, 1996
- ----------------------
J. Duncan Urquhart
Treasurer (principal financial
and accounting officer) and Director
May 28, 1996
- ---------------------
Stephen E. Globus
Director
38
<PAGE>
EXHIBIT INDEX
Ex. No. Description Page
- ------- ----------- ----
4(g) Form of 1996 Amendment to Convertible Note. 40
27.1 Financial Data Schedule - Edgar filing only
39
SECOND NOTE AMENDMENT AGREEMENT
Reference is made to that certain Convertible Secured Subordinated Note (the
"Note") by and between Sono-Tek Corporation ("Sono-Tek" or the "Company") and
(the "Holder") in the principal amount of $ made as of November 16, 1993 and to
the NOTE AMENDMENT AGREEMENT made as of March 23, 1995.
Whereas the Company has not paid four interest payments to Holder which were due
on November 15, 1994, February 15, 1995, May 15, 1995, and August 15, 1995 in
the amounts shown in Attachment I hereto, and
Whereas the Company made the payments due on November 15, 1995 and February 15,
1996, and the Company anticipates it will continue to be able to make the
interest payments as they become due
Whereas the failure of the Company to make said interest payments on the dates
due constitutes an act of default in accordance with the terms of the Note.
The Company and the Holder hereby agree as follows:
1. From the date hereof until March 1, 1997, the Holder agrees to waive
the right of default and will not seek any remedies against the
Company provided in the Note based on the failure of the Company to
pay, in a timely fashion, the interest payments due commencing on
August 15, 1994, and continuing through and including February 15,
1997.
2. The Company will use its best efforts to make all future interest
payments as they become due, and continue to make payments against
past due amounts and interest thereon.
3. The Company will accrue and pay to Holder no later than August 15,
1997 additional interest on all past due interest amounts at the same
rate as earned by the principal value of the Note.
April 30, 1996
Sono-Tek Corporation
James L. Kehoe
Chief Executive Officer
40
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 69,033
<SECURITIES> 0
<RECEIVABLES> 462,115
<ALLOWANCES> 25,000
<INVENTORY> 477,381
<CURRENT-ASSETS> 1,038,363
<PP&E> 95,861
<DEPRECIATION> 368,087
<TOTAL-ASSETS> 1,199,717
<CURRENT-LIABILITIES> 725,552
<BONDS> 0
0
0
<COMMON> 42,049
<OTHER-SE> 235,966
<TOTAL-LIABILITY-AND-EQUITY> 1,199,717
<SALES> 2,747,891
<TOTAL-REVENUES> 2,747,891
<CGS> 1,211,292
<TOTAL-COSTS> 1,211,292
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,400
<INCOME-PRETAX> 155,078
<INCOME-TAX> 0
<INCOME-CONTINUING> 155,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155,078
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
