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: November 30, 1996
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 January 6, 1997
----- ---------------
Common Stock, par value $.01 per share 4,204,913
<PAGE>
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Balance Sheets - November 30, 1996 (Unaudited) and February 29, 1996 1
Statements of Operations - Nine Months and Three Months Ended
November 30, 1996 and 1995 (Unaudited) 2
Statements of Cash Flows - Nine Months Ended November 30, 1996
and 1995 (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
Signatures 8
<PAGE>
SONO-TEK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
November 30 February 29
1996 1996
ASSETS Unaudited
-----------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 37,445 $ 69,033
Accounts receivable (net of allowance for doubtful accounts
of $31,850 at November 30 and $25,000 at February 29) 653,070 462,115
Inventories (Note C) 465,435 477,381
Prepaid expenses and other current assets 20,608 29,834
------------ ------------
Total Current Assets 1,176,558 1,038,363
Equipment, furnishings and leasehold improvements (less
accumulated depreciation and amortization of $407,289
at November 30 and $368,087 at February 29 ) 65,633 95,861
Patents, patents pending and copyrights (less amortization
of $120,530 at November 30 and $114,372 at February 29) 54,430 59,176
Other assets 6,317 6,317
------------ ------------
T O T A L $ 1,302,938 $ 1,199,717
============ ============
LIABILITIES
Current maturities of long term debt $ 722,482 $ 128,779
Accounts payable 295,201 233,810
Accrued expenses 345,013 362,963
------------ ------------
Total Current Liabilities 1,362,696 725,552
Long term debt, less current maturities 63,984 657,865
Non-current rent payable 1,856 10,217
------------ ------------
Total Liabilities 1,428,536 1,393,634
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common stock - $.01 par value:
Authorized - 12,000,000 shares
Issued - 4,204,913 share 42,049 42,049
Additional paid-in capital 3,758,128 3,758,128
Deficit (3,925,776) (3,994,094)
------------ ------------
Total Shareholders' Deficiency (125,599) (193,917)
------------ ------------
T O T A L $ 1,302,938 $ 1,199,717
============ ============
</TABLE>
1
<PAGE>
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------------- ------------------------
November 30 November 30
Unaudited Unaudited
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $2,313,592 $2,086,235 $ 811,894 $ 736,727
COST OF GOODS SOLD 1,151,813 890,991 411,897 322,973
---------- ---------- ---------- ----------
Gross Profit 1,161,779 1,195,244 399,997 413,754
---------- ---------- ---------- ----------
OPERATING EXPENSES
Research and product development costs 276,458 294,951 91,828 98,154
Marketing and selling expenses 485,808 476,256 177,577 149,689
General and administrative costs 283,762 286,800 92,104 94,155
---------- ---------- ---------- ----------
Total Operating Expenses 1,046,028 1,058,007 361,509 341,998
---------- ---------- ---------- ----------
OPERATING INCOME 115,751 137,237 38,488 71,756
INTEREST EXPENSE 47,514 50,670 15,256 17,650
INTEREST AND OTHER INCOME 80 33,032 61 99
---------- ---------- ---------- ----------
NET INCOME $ 68,317 $ 119,599 $ 23,293 $ 54,205
========== ========== ========== ==========
INCOME PER COMMON SHARE (NOTE D) $ 0.02 $ 0.03 $ 0.01 $ 0.01
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK USED TO COMPUTE
EARNINGS PER SHARE 4,204,913 4,204,913 4,204,913 4,204,913
</TABLE>
2
<PAGE>
SONO-TEK CORPORATION
Statements of Cash FlOWS
For Six Months Ended November 30
<TABLE>
<CAPTION>
1996 1995
Unaudited
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 68,317 $ 119,599
---------- ----------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 45,360 46,755
Allowance for doubtful accounts 6,850 (20,750)
(Increase) decrease in:
Accounts receivable (197,805) (32,827)
Inventories 11,946 (2,305)
Prepaid expenses and other current assets 9,226 27,891
Increase (decrease) in:
Accounts payable & accrued expenses 43,441 (34,820)
Noncurrent rent payable (8,362) (8,362)
Notes and obligations payable - professional fees (2,500) (9,500)
Notes and obligations payable - lease termination (14,123) (16,302)
---------- ----------
Total adjustments (105,968) (50,220)
---------- ----------
Net cash provided by operating activities (37,651) 69,379
---------- ----------
Cash flows from investing activities:
Fixed asset, patent and copyright acquisition costs (10,384) (10,653)
Cash flows from financing activities:
Proceeds from short term loan 72,000 0
Payments of capitalized leases (1,751) (5,429)
Proceeds from sale of common stock 0 25,000
Repayments of note payable - bank (53,801) (39,181)
---------- ----------
Net cash used in financing activities 16,448 (19,610)
---------- ----------
Net Increase (decrease) in cash and cash equivalents (31,588) 39,116
Cash and cash equivalents:
Beginning of period 69,033 67,804
---------- ----------
End of period $ 37,445 $ 106,920
========== ==========
Supplemental disclosure:
Interest paid $ 45,765 $ 22,525
Income taxes paid $ 0 $ 0
</TABLE>
3
<PAGE>
SONO-TEK CORPORATION
Notes to Financial Statements
November 30, 1996
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 29, 1996, 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 November 30, 1996 is comprised of:
Finished goods $ 91,779
Work in process 101,704
Raw materials and subassemblies 271,952
---------
Total $ 465,435
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.
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 $227,357 to $2,313,592 for the nine months
ended November 30, 1996 as compared to $2,086,235 for the nine months ended
November 30, 1995. The increase was primarily a result of increased sales of the
Company's SonoFlux Systems. Sales of this product increased approximately
$304,000, while sales of the Company's Nozzle Systems decreased approximately
$77,000. For the three months ended November 30, 1996 the Company's sales
increased $75,167 to $811,894 as compared to sales of $736,727 for the three
months ended November 30, 1995. During this period sales of the Company's
SonoFlux Systems increased approximately $145,740 and sales of the Company's
Nozzle Systems decreased approximately $70,573 as compared to the three month
period ended November 30, 1995. The increase in sales of the Company's SonoFlux
Systems is believed to be the result of increased acceptance by the electronics
industry of the Company's newest version of the SonoFlux, the "9500". The
decrease in sales of nozzle systems can be attributed to a decrease in sales to
customers in the semiconductor and medical supply industry. Sales to customers
in these industries are normally sporadic. The Company is not aware of any other
factors that may have contributed to the decline in orders.
The Company's gross profit decreased $33,465 from $1,195,244 for the nine
month period ended November 30, 1995 to $1,161,779 for the nine month period
ended November 30, 1996, and decreased $13,757 from $413,754 for the three
months ended November 30, 1995 to $399,997 for the three months ended November
30, 1996. As a percent of sales, gross profit decreased from 57% for the nine
months ended November 30, 1995 to 50% for the nine months ended November 30,
1996, and decreased from 56% for the three months ended November 30, 1995 to 49%
for the three months ended November 30, 1996. For both the nine and three month
periods the decrease in gross profit percentage is attributed to an increase in
the cost of materials, an increase in discounted sales to OEM's and a cumulative
reduction of the reserve for warranty costs taken during both the nine and three
month periods ended November 30, 1995 which resulted in an increase in gross
profit for those periods.
Research and product development costs decreased $18,493 from $294,951 for
the nine months ended November 30, 1995 to $276,458 for the nine months ended
November 30, 1996 and decreased $6,326 from $98,154 for the three months ended
November 30, 1995 to $91,828 for the three months ended November 30, 1996. The
decrease for both the nine and three month periods was primarily a result of
decreased consulting costs associated with the development of the "SonoFlux
9500".
Marketing and selling costs increased $9,552 from $476,256 for the nine
months ended November 30, 1995 to $485,808 for the nine months ended November
30, 1996 and increased $27,888 from $149,689 for the three month period ended
November 30, 1995 to $177,577 for the three month period ended November 30,
1996. The increase for both the nine and three month periods was primarily a
5
<PAGE>
result of an increase in advertising and product marketing costs.
Interest and other income decreased $32,952 from $33,032 for the nine month
period ended November 30, 1995 to $80 for the nine months ended November 30,
1996. During the nine month period ended November 30, 1995 the Company had
received funding from SEMATECH for work performed under the terms of a joint
development agreement. SEMATECH is a consortium of U.S. semiconductor
manufacturers and has provided the Company with funds for the development of a
photoresist application system, or "Wafer Coating System." Although Sono-Tek
successfully developed a system that we believe is capable of reducing the
consumption of Photoresist by a factor of four, parallel advances in the
industry have achieved reductions in the neighborhood of a factor of two without
requiring significant capital investment and the expense associated with
qualification testing. Although we have not been successful in locating a
semiconductor manufacturer that is interested at this time, we are continuing to
pursue the market potential of this accomplishment. For the nine months ended
November 30, 1996 the Company had earnings of $68,317 or $0.02 per share as
compared to earnings of $119,599 or $.03 per share for the nine months ended
November 30, 1995. For the three months ended November 30, 1996, the Company had
earnings of $23,293 or $.01 per share as compared to earnings of $54,205 or $.01
per share for the three months ended November 30, 1995. The decrease in earnings
for both the nine and three month periods resulted primarily from an increase in
materials costs, and a decrease in other income from SEMATECH.
Liquidity and Capital Resources
- -------------------------------
In October and November the Company experienced a cash shortage as a
result of delayed payments from certain customers. During this period of time
the Company's Chairman and the Company's CEO loaned the Company a total of
$72,000. The Company anticipates that these loans will be repaid by February 28,
1997. The loans are by their terms payable on demand and bear interest at a rate
of 10 1/4 % which is equal to the prime rate plus 2%.
On August 15, 1997 the Company's Convertible Secured Subordinated Notes
mature. As a result, the Company's working capital decreased $519,567 to a
working capital deficiency of $186,138 at November 30, 1996. This compares to
working capital of $312,811 at February 29, 1996.
The Company will experience substantial difficulties in meeting these
obligations unless the level of profitability improves substantially over the
next nine months or unless the Noteholders agree to extend the repayment terms
of this debt. There can be no assurance that such extensions can be negotiated
or that such extensions will be on terms as favorable to the Company as those
presently in effect.
6
<PAGE>
PART II - OTHER INFORMATION
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
4.1 Promissory Note of James L. Kehoe dated October 30, 1996 in
the amount of $20,000.00
4.2 Promissory Note of Samuel Schwartz dated October 30, 1996
in the amount of $20,000.00
4.3 Promissory Note of James L. Kehoe dated November 22, 1996
in the amount of $32,000.00
27. Financial Data Schedule - EDGAR filing only
(b) Reports on Form 8-K
One report on Form 8-K was filed dated October 30, 1996 describing a
change, under Items 4 and 7, in the Company's certifying accountant.
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: January 10, 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
Exhibit 4.1
-----------
PROMISSORY NOTE
UNSECURED DEMAND
$ 20,000.00 October 30, 1996
- ------------ ----------------
For value received, Sono-Tek Corporation (the "Borrower"), hereby promises to
pay to the order of James L. Kehoe (the "Lender") Twenty thousand dollars ON
DEMAND.
The Borrower agrees to pay interest from the date hereof on the unpaid balance
of this note, at a rate per annum equal to 10.25%. Interest shall be calculated
on the basis of a 360 day year.
The Borrower agrees to pay all costs and expenses, such as wire transfer fees,
bank fees or broker charges, incurred by Lender to effect this loan.
Borrower: Sono-Tek Corporation
2012 Rt. 9W Bldg. 3
Milton, NY 12547
Signature /s/ Harvey L. Berger President
--------------------
Harvey L. Berger
Signature /s/ J. Duncan Urquhart Controller & Treasurer
----------------------
J. Duncan Urquhart
Exhibit 4.2
-----------
PROMISSORY NOTE
UNSECURED DEMAND
$ 20,000.00 October 30, 1996
- ------------ ----------------
For value received, Sono-Tek Corporation (the "Borrower"), hereby promises to
pay to the order of Samuel Schwartz (the "Lender") Twenty thousand dollars ON
DEMAND.
The Borrower agrees to pay interest from the date hereof on the unpaid balance
of this note, at a rate per annum equal to 10.25%. Interest shall be calculated
on the basis of a 360 day year.
The Borrower agrees to pay all costs and expenses, such as wire transfer fees,
bank fees or broker charges, incurred by Lender to effect this loan.
Borrower: Sono-Tek Corporation
2012 Rt. 9W Bldg. 3
Milton, NY 12547
Signature /s/ Harvey L. Berger President
--------------------
Harvey L. Berger
Signature /s/ J. Duncan Urquhart Controller & Treasurer
----------------------
J. Duncan Urquhart
Exhibit 4.3
-----------
PROMISSORY NOTE
UNSECURED DEMAND
$ 32,000.00 November 22, 1996
- ------------ -----------------
For value received, Sono-Tek Corporation (the "Borrower"), hereby promises to
pay to the order of James L. Kehoe (the "Lender") Thirty-two thousand dollars ON
DEMAND.
The Borrower agrees to pay interest from the date hereof on the unpaid balance
of this note, at a rate per annum equal to 10.25%. Interest shall be calculated
on the basis of a 360 day year.
The Borrower agrees to pay all costs and expenses, such as wire transfer fees,
bank fees or broker charges, incurred by Lender to effect this loan.
Borrower: Sono-Tek Corporation
2012 Rt. 9W Bldg. 3
Milton, NY 12547
Signature /s/ Harvey L. Berger President
--------------------
Harvey L. Berger
Signature /s/ J. Duncan Urquhart Controller & Treasurer
----------------------
J. Duncan Urquhart
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> NOV-30-1996
<CASH> 37,445
<SECURITIES> 0
<RECEIVABLES> 653,070
<ALLOWANCES> 31,850
<INVENTORY> 465,435
<CURRENT-ASSETS> 1,176,558
<PP&E> 65,633
<DEPRECIATION> 407,289
<TOTAL-ASSETS> 1,302,938
<CURRENT-LIABILITIES> 1,362,696
<BONDS> 0
0
0
<COMMON> 42,049
<OTHER-SE> (167,648)
<TOTAL-LIABILITY-AND-EQUITY> 1,302,938
<SALES> 2,313,592
<TOTAL-REVENUES> 2,313,592
<CGS> 1,151,813
<TOTAL-COSTS> 1,151,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,514
<INCOME-PRETAX> 68,317
<INCOME-TAX> 0
<INCOME-CONTINUING> 68,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,317
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
