SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 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 July 11, 1997
- --------------------- -----------------
Common Stock, par 4,374,387
value $.01 per share
<PAGE>
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Balance Sheets - May 31, 1997 (Unaudited) and February 28, 1997 1
Statements of Operations - Three Months Ended May 31, 1997
and 1996 (Unaudited) 2
Statements of Cash Flows - Three Months Ended May 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
Item 3 - Quantative and Qualitative Disclosures about Market Risk - Not
Applicable
Part II - Other Information 7
Signatures 8
<PAGE>
SONO-TEK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
May 31 February 28
1997 1997
ASSETS Unaudited
---------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 15,054 $ 107,746
Accounts receivable (net of allowance for doubtful accounts
of $38,814 at May 31 and $35,814 at February 28) 615,887 525,750
Inventories (Note C) 447,230 469,241
Prepaid expenses and other current assets 18,607 33,441
--------------- ---------------
Total Current Assets 1,096,778 1,136,178
Equipment, furnishings and leasehold improvements (less
accumulated depreciation of $346,612 at May 31 and
$339,829 at February 28) 49,791 56,574
Patents, patents pending and copyrights (less amortization
of $117,875 at May 31 and $116,318 at February 28) 51,242 52,799
Other assets 6,317 6,317
--------------- ---------------
T O T A L $ 1,204,128 $ 1,251,868
=============== ===============
LIABILITIES
Current maturities of long term debt $ 96,430 $ 94,370
Accounts payable 234,091 267,673
Accrued expenses (Note E) 283,815 354,381
--------------- ---------------
Total Current Liabilities 614,336 716,424
--------------- ---------------
Long term debt, less current maturities 550,567 576,056
Non-current rent payable 1,998 666
--------------- ---------------
Total Liabilities 1,166,901 1,293,146
--------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - $.01 par value: (Note E)
Authorized - 12,000,000 shares
Issued - 4,374,387 at May 31 and 4,204,913 at February 28 43,744 42,049
Additional paid-in capital 3,824,220 3,758,128
Deficit (3,830,737) (3,841,455)
--------------- ---------------
Total Stockholders' Equity (Deficiency) 37,227 (41,278)
--------------- ---------------
T O T A L $ 1,204,128 $ 1,251,868
=============== ===============
</TABLE>
1
<PAGE>
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended
--------------------------
May 31
Unaudited
1997 1996
---- ----
NET SALES $ 761,743 $ 751,637
COST OF GOODS SOLD 383,657 379,613
---------- ----------
Gross Profit 378,086 372,024
---------- ----------
OPERATING EXPENSES
Research and product development costs 87,268 87,593
Marketing and selling expenses 172,851 159,174
General and administrative costs 94,169 87,795
---------- ----------
Total Operating Expenses 354,288 334,563
---------- ----------
OPERATING INCOME 23,798 37,461
INTEREST EXPENSE 13,080 16,319
INTEREST AND OTHER INCOME 0 15
---------- ----------
NET INCOME $ 10,718 $ 21,157
========== ==========
INCOME PER COMMON SHARE (NOTE D) $ 0.00 $ 0.01
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK USED TO COMPUTE
EARNINGS PER SHARE 4,261,404 4,204,913
2
<PAGE>
SONO-TEK CORPORATION
Statements of Cash Flows
For Three Months Ended May 31
<TABLE>
<CAPTION>
1997 1996
Unaudited
-------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 10,718 $ 21,157
----------- -----------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 8,340 15,504
Allowance for doubtful accounts 3,000 1,500
(Increase) decrease in:
Accounts receivable (93,138) (631)
Inventories 22,011 (64,347)
Prepaid expenses and other current assets 14,834 9,672
Increase (decrease) in:
Accounts payable & accrued expenses (Note E) (36,360) (2,441)
Noncurrent rent payable 1,332 (2,788)
Notes and obligations payable - professional fees (4,000) (500)
Notes and obligations payable - lease termination 0 (5,208)
----------- -----------
Total adjustments (83,981) (49,239)
----------- -----------
Net cash used in operating activities (73,263) (28,082)
----------- -----------
Cash flows from investing activities:
Fixed asset, patent and copyright acquisition costs 0 (5,616)
Cash flows from financing activities:
Payments of capitalized leases 0 (1,305)
Repayments of note payable - bank (19,429) (17,544)
----------- -----------
Net cash used in financing activities (19,429) (18,849)
----------- -----------
Net decrease in cash and cash equivalents (92,692) (52,547)
Cash and cash equivalents:
Beginning of period 107,746 69,033
----------- -----------
End of period $ 15,054 $ 16,486
=========== ===========
Supplemental disclosure:
Interest paid $ 3,071 $ 20,399
Income taxes paid $ 0 $ 0
Non-cash exchange of accrued interest
for common stock (Note E) $ 67,787 $ 0
</TABLE>
3
<PAGE>
SONO-TEK CORPORATION
Notes to Financial Statements
May 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 May 31, 1997 is comprised of:
Finished goods $107,335
Work in process 102,862
Raw materials and subassemblies 237,033
--------
Total $447,230
========
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 not be material.
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;
(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 $10,106 to $761,743 for the three months
ended May 31, 1997 as compared to $751,637 for the three months ended May 31,
1996. The increase was a result of increased sales of the SonoFlux product line.
Sales of these products increased approximately $113,000 while sales of the
Company's Nozzle Systems decreased approximately $103,000. 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 has a reputation
for reliable and cost-effective performance. Due to the nature of the market for
Nozzle Systems, it is not uncommon for the Company to experience significant
fluctuations in sales from quarter to quarter.
The Company's gross profit increased $6,062 from $372,024 for the three
months ended May 31, 1996 to $378,086 for the three months ended May 31, 1997.
The increase was a result of a decrease in the raw materials portion of cost of
goods sold. Raw materials consumed were higher during the three months ended May
31, 1996 as a result of the disposal of obsolete stock associated with earlier
models of the SonoFlux System and higher materials cost associated with the sale
of a custom Nozzle System that required several unique components.
Marketing and selling costs increased $13,677 from $159,174 for the three
months ended May 31, 1996 to $172,851 for the three months ended May 31, 1997.
The increase was primarily a result of an increase in commissions paid to
outside sales representatives. Such commissions are paid on sales of SonoFlux
units and related equipment which, as noted above, increased significantly over
the prior year.
General and administrative costs increased $6,374 from $87,795 for the
three months ended May 31, 1996 to $94,169 for the three months ended May 31,
1997. During the three months ended May 31, 1996 the Company realized an expense
reduction of approximately $4,000 as a result of a customer order cancellation
charge. In addition, compensation costs increased approximately $2,000 during
the three months ended May 31, 1997.
Interest expense decreased $3,239 from $16,319 for the three months ended May
31, 1996 to $13,080 for the three months ended May 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.
5
<PAGE>
For the three months ended May 31, 1997, the Company earned $10,718 or
$.00 per share as compared to earnings of $21,157 or $.01 per share for the
three months ended May 31, 1996. The decrease in earnings was primarily a result
of higher commissions and administrative costs.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital increased $62,688 to $482,442 at May 31,
1997 as compared to working capital of $419,754 at February 28, 1997 and the
stockholders' position improved $78,505 from a deficit of $41,278 on February
28, 1997 to an equity position of $37,227 on May 31, 1997. The increase in
working capital and equity was a result of restructured debt and profitable
operations. 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 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 2. Changes in Securities
On April 30, 1997 the Company sold 169,474 shares of its
Common Stock. The shares were issued in a private placement to
holders of convertible subordinated notes in payment of
interest on notes in the aggregate sum of $67,787 due as of
February 15, 1997. No underwriter was involved in the
transaction.
Item 4. Submission of Matters to a Vote of Security Holders
None
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: July 11, 1997
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> 3-mos
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> MAY-31-1997
<CASH> 15,054
<SECURITIES> 0
<RECEIVABLES> 615,887
<ALLOWANCES> 38,814
<INVENTORY> 447,230
<CURRENT-ASSETS> 1,096,778
<PP&E> 49,791
<DEPRECIATION> 346,612
<TOTAL-ASSETS> 1,204,128
<CURRENT-LIABILITIES> 614,336
<BONDS> 0
0
0
<COMMON> 43,774
<OTHER-SE> (6,517)
<TOTAL-LIABILITY-AND-EQUITY> 1,204,128
<SALES> 761,743
<TOTAL-REVENUES> 761,743
<CGS> 383,657
<TOTAL-COSTS> 383,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,080
<INCOME-PRETAX> 10,718
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,718
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
