SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-16035
SONO-TEK CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1568099
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2012 Rt. 9W, Bldg. 3, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (914) 795-2020
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding as of
Class October 10, 1997
----- ----------------
Common Stock, par value $.01 per share 4,374,387
<PAGE>
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Balance Sheets - August 31, 1997 (Unaudited) and February 28, 1997 1
Statements of Operations - Six Months and Three Months Ended
August 31, 1997 and 1996 (Unaudited) 2
Statements of Cash Flows - Six Months Ended August 31, 1997
and 1996 (Unaudited) 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 6
Part II - Other Information 7
Item 3 - Quantitative and Qualitative Disclosures about Market
Risk - Not Applicable -
Signatures 8
<PAGE>
SONO-TEK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
August 31 February 28
1997 1997
ASSETS Unaudited
--------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 79,684 $ 107,746
Accounts receivable (net of allowance for doubtful accounts
of $41,814 at August 31 and $35,814 at February 28) 511,082 525,750
Inventories (Note C) 534,925 469,241
Prepaid expenses and other current assets 14,774 33,441
------------- -------------
Total Current Assets 1,140,465 1,136,178
Equipment, furnishings and leasehold improvements (less
accumulated depreciation of $353,395 at August 31 and
$339,829 at February 28) 45,699 56,574
Patents, patents pending and copyrights (less amortization
of $119,432 at August 31 and $116,318 at February 28) 49,685 52,799
Other assets 6,317 6,317
------------- -------------
T O T A L 1,242,166 $ 1,251,868
============= =============
LIABILITIES
Current maturities of long term debt 94,200 $ 94,370
Accounts payable 229,245 267,673
Accrued expenses (Note E) 285,730 354,381
------------- -------------
Total Current Liabilities 609,175 716,424
------------- -------------
Long term debt, less current maturities 530,000 576,056
Non-current rent payable 4,662 666
------------- -------------
Total Liabilities 1,143,837 1,293,146
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - $.01 par value: (Note E)
Authorized - 12,000,000 shares
Issued - 4,374,387 at August 31 and 4,204,913
at February 28 43,744 42,049
Additional paid-in capital 3,824,220 3,758,128
Deficit (3,769,635) (3,841,455)
------------- -------------
Total Stockholders' Equity (Deficiency) 98,329 (41,278)
------------- -------------
T O T A L $ 1,242,166 $ 1,251,868
============= =============
</TABLE>
1
<PAGE>
<TABLE>
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Ended Three Months Ended
---------------------------- -----------------------------
August 31 August 31
Unaudited Unaudited
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 1,575,428 $ 1,501,698 $ 813,685 $ 750,061
COST OF GOODS SOLD 776,390 739,916 392,733 360,302
------------- ------------- -------------- -------------
Gross Profit 799,038 761,782 420,952 389,759
------------- ------------- -------------- -------------
OPERATING EXPENSES
Research and product development costs 171,593 184,631 84,325 97,038
Marketing and selling expenses 339,449 308,232 166,597 149,057
General and administrative costs 190,912 191,657 96,743 103,862
------------- ------------- -------------- -------------
Total Operating Expenses 701,954 684,520 347,665 349,957
------------- ------------- -------------- -------------
OPERATING INCOME 97,084 77,262 73,287 39,802
INTEREST EXPENSE 25,264 32,257 12,184 15,937
INTEREST AND OTHER INCOME 0 19 0 3
------------- ------------- -------------- -------------
NET INCOME $ 71,820 $ 45,024 $ 61,103 $ 23,868
============= ============= ============== =============
INCOME PER COMMON SHARE (NOTE D) $ 0.02 $ 0.01 $ 0.01 $ 0.01
============= ============= ============== =============
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK USED TO COMPUTE
EARNINGS PER SHARE 4,318,203 4,204,913 4,374,387 4,204,913
</TABLE>
2
<PAGE>
SONO-TEK CORPORATION
Statements of Cash Flows
For Six Months Ended August 31
1997 1996
Unaudited
----------------------
Cash flows from operating activities:
Net income $ 71,820 $ 45,024
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,680 30,072
Allowance for doubtful accounts 6,000 1,500
(Increase) decrease in:
Accounts receivable 8,667 (9,904)
Inventories (65,684) (10,673)
Prepaid expenses and other current assets 18,667 7,028
Increase (decrease) in:
Accounts payable & accrued expenses (Note E) (39,292) (29,061)
Noncurrent rent payable 3,996 (5,575)
Notes and obligations payable - professional fees (7,000) (500)
Notes and obligations payable - lease termination 0 (10,522)
--------- ---------
Total adjustments (57,966) (27,635)
--------- ---------
Net cash used in operating activities 13,854 17,389
--------- ---------
Cash flows from investing activities:
Fixed asset, patent and copyright acquisition costs (2,690) (7,986)
Cash flows from financing activities:
Payments of capitalized leases 0 (3,485)
Repayments of note payable - bank (39,226) (32,201)
--------- ---------
Net cash used in financing activities (39,226) (35,686)
--------- ---------
Net decrease in cash and cash equivalents (28,062) (26,283)
Cash and cash equivalents:
Beginning of period 107,746 69,033
--------- ---------
End of period $ 79,684 $ 42,750
========= =========
Supplemental disclosure:
Interest paid $ 5,774 $ 25,565
Income taxes paid $ 0 $ 0
Non-cash exchange of accrued interest
for common stock (Note E) $ 67,787 $ 0
3
<PAGE>
SONO-TEK CORPORATION
Notes to Financial Statements
August 31, 1997
NOTE A: The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial statements
prepared in conformity with generally accepted accounting principles. Such
disclosures were included with the financial statements of the Company at
February 28, 1997, included in its report on Form 10-K. Such statements should
be read in conjunction with the data herein.
NOTE B: The financial information reflects all adjustments which, in the opinion
of management, are necessary for a fair presentation of the results for the
interim periods. The results for the interim periods are not necessarily
indicative of the results to be expected for the year.
NOTE C: Inventory at August 31, 1997 is comprised of:
Finished goods $112,334
Work in process 133,731
Raw materials and subassemblies 288,860
--------
Total $534,925
========
NOTE D: Income per share is based on the weighted average number of shares
outstanding during each period. The computation does not include the effect of
outstanding stock options or conversion of the subordinated promissory notes
since their inclusion would be either not material or anti-dilutive.
NOTE E: In April 1997 the holders of $530,000 of Subordinated Convertible Notes
entered into an agreement with the Company (the "Third Note Amendment
Agreement") whereby the holders agreed to (1) accept 169,474 shares of the
Company's Common Stock as payment for $67,787 of interest due as of February 15,
1997; (2) waive the default as to nonpayment of interest until March 1, 1998;
(3) extend the due date of the note from August 15, 1997 until August 15, 2000;
and (4) reduce the interest rate from 1/2% below prime to 1% below prime.
4
<PAGE>
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The Company's sales increased $73,730 to $1,575,428 for the six months
ended August 31, 1997 as compared to $1,501,698 for the six months ended August
31, 1996. The increase was primarily a result of increased sales of the
Company's SonoFlux Systems. Sales of this product increased approximately
$152,000, while sales of the Company's Nozzle Systems decreased approximately
$78,000. For the three months ended August 31, 1997 the Company's sales
increased $63,624 to $813,685 as compared to sales of $750,061 for the three
months ended August 31, 1996. During this three month period sales of the
Company's SonoFlux Systems increased approximately $39,000 and sales of the
Company's Nozzle Systems increased approximately $25,000. The Company believes
the increase in sales of the SonoFlux System is a result of its efforts to
provide the circuit board assembly industry with equipment that is reliable and
cost-effective.
The Company's gross profit increased $37,256 from $761,782 for the six
month period ended August 31, 1996 to $799,038 for the six month period ended
August 31, 1997, and increased $31,193 from $389,759 for the three months ended
August 31, 1996 to $420,952 for the three months ended August 31, 1997. For both
the three and six month periods the increase in gross profit was attributed to
an increase in sales of the Company's products.
Research and product development costs decreased $13,038 from $184,631
for the six months ended August 31, 1996 to $171,593 for the six months ended
August 31, 1997 and decreased $12,713 from $97,038 for the three months ended
August 31, 1996 to $84,325 for the three months ended August 31, 1997. The
decrease for both the three and six month periods was primarily as a result of
decreased compensation and consulting costs associated with the development of
the "SonoFlux 9500".
Marketing and selling costs increased $31,217 from $308,232 for the six
months ended August 31, 1996 to $339,449 for the six months ended August 31,
1997 and increased $17,540 from $149,057 for the three months ended August 31,
1996 to $166,597 for the three months ended August 31, 1997. The increase for
the six month period ended August 31, 1997 was primarily a result of an increase
in outside commissions, compensation and advertising costs. The increase for the
three month period ended August 31, 1997 was primarily a result of increased
compensation and advertising costs.
General and administrative costs decreased $7,119 from $103,862 for the
three month period ended August 31, 1996 to $96,743 for the three month period
ended August 31, 1997. Such costs decreased primarily as a result of lower
compensation costs as well a decrease in finance charges assessed on past due
vendor accounts.
5
<PAGE>
Interest expense decreased $6,993 from $32,257 for the six month period
ended August 31, 1996 to $25,264 for the six months ended August 31, 1997 and
decreased $3,753 from $15,937 for the three month period ended August 31, 1996
to $12,184 for the three months ended August 31, 1997. The decrease in interest
expense is primarily a result of the increasing maturity of the Company's loan
with its bank. As such loan matures, the amount of each fixed monthly payment
which pertains to interest declines as the amount applied to principal
increases.
For the six months ended August 31, 1997 the Company had earnings of
$71,820 or $0.02 per share as compared to earnings of $45,024 or $0.01 per share
for the six months ended August 31, 1996. For the three months ended August 31,
1997, the Company had earnings of $61,103 or $.01 per share as compared to
earnings of $23,868 or $.01 per share for the three months ended August 31,
1996. The increase in earnings for both the six and three month periods resulted
primarily from an increase in sales of the Company's products.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital increased $111,536 to $531,290 at August
31, 1997 as compared to working capital of $419,754 at February 28, 1997. The
increase in working capital was primarily a result of profitable operations and
restructured debt. On April 30, 1997 the Company reached an agreement with the
holders of $530,000 of Subordinated Convertible Notes whereby they agreed to,
among other things, accept shares of the Company's Common Stock as payment for
the total amount of interest due as of February 28, 1997 and extend the term of
the Notes until August 2000.
The improvement in working capital has allowed the Company to make
steady progress in its efforts to reduce trade obligations and outstanding debt.
The Company has improved its position with many of its trade vendors, however,
payments remain in arrears with many others.
Although there can be no assurances, management believes that working
capital generated by continuing operations will be sufficient to support the
Company's working capital needs for the next twelve months based on anticipated
sales levels.
6
<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, 1997.
1. The election of three (2) directors of the Company to serve until the
Company's 1999 annual meeting of shareholders.
For Withheld Total
--- -------- -----
Harvey L. Berger 3,503,681 19,425 3,523,106
Stephen E. Globus 3,508,106 15,000 3,523,106
2. Ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending February 28, 1998.
For Against Abstained Total
--- ------- --------- -----
3,467,505 46,701 8,900 3,523,106
There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27. Financial Data Schedule - EDGAR filing only
(b) Reports on Form 8-K
None
7
<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 10, 1996
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
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-31-1997
<CASH> 79,684
<SECURITIES> 0
<RECEIVABLES> 511,082
<ALLOWANCES> 41,814
<INVENTORY> 534,925
<CURRENT-ASSETS> 1,140,465
<PP&E> 45,699
<DEPRECIATION> 353,395
<TOTAL-ASSETS> 1,242,166
<CURRENT-LIABILITIES> 609,175
<BONDS> 0
0
0
<COMMON> 43,744
<OTHER-SE> 54,585
<TOTAL-LIABILITY-AND-EQUITY> 1,242,166
<SALES> 1,575,428
<TOTAL-REVENUES> 1,575,428
<CGS> 776,390
<TOTAL-COSTS> 776,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,264
<INCOME-PRETAX> 71,820
<INCOME-TAX> 0
<INCOME-CONTINUING> 71,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,820
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
