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 28, 1997
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 19, 1997 the aggregate market value of the Registrant's Common
Stock held by non-affiliates of the Registrant was approximately $1,236,000
computed by reference to the average of the bid and asked prices of the Common
Stock on said date, which average was $0.34.
The Registrant had 4,204,913 shares of Common Stock outstanding as of
May 19, 1997.
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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 28, 1997 ("Fiscal 1997"), 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 to compete favorably against other
products in the market.
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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. In March 1996, this new system was made
available to the international market. The overall performance, reliability, and
ease of use have been complemented by many customers and in Fiscal 1997 sales of
this product line increased for the first time since 1994.
(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 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.
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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 66% of the Company's sales during Fiscal 1997, 63% during Fiscal
1996, and 76% during Fiscal 1995. Nozzle Systems accounted for the remaining
34%, 37% and 24%, respectively.
The 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, participation in trade shows and seminars, and
by responses to the Company's home page on the internet.
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 laboratories 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,
direct mailings 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 internal direct sales
force. These Rep organizations are paid a commission on sales after the Company
receives payment from the customer. The Company currently has fifteen 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 eleven such Distributor companies under contract.
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
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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, 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, precise 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 Years 1997
and 1996 and approximately 5% of the Company's sales in Fiscal 1995. 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.
Other Applications - The Company sells Nozzle Systems to other
manufacturers including manufacturers of feminine 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 because it
significantly reduces the amount of flux consumed, the related emission of these
materials to the environment, and the cost of disposing of waste flux.
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One of the Company's Far East distributors, WKK Electronics PTE Ltd.,
accounted for approximately 2% of the Company's sales in Fiscal Years 1997 and
1996 and approximately 11% of the Company's sales during Fiscal 1995.
Product Development
- -------------------
For the Fiscal years ended February 28, 1997, February 29, 1996, and
February 28, 1995, the Company expended approximately $369,000, $380,000, and
$328,000 respectively on research and development costs. These expenditures were
incurred to refine existing Nozzle System technology, develop additional Nozzle
Systems in response to new and changing customer requirements, develop the
SonoFlux 9500, and to develop a photoresist application system for the
semiconductor industry.
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, all of the Company's nozzles were driven by a power supply
designated as the Model PS-88. After several years of experience in the field,
it was decided that the Company could further enhance the performance of its
products and reduce manufacturing and repair costs by incorporating certain
improvements and additional features into its power supply.
The first generation of a new power supply, designated as the Model
PS-93 operates on the "phase-locked loop" principle which enables it 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 first PS-93 power supplies were shipped in May 1993, and during
Fiscal 1995 it was incorporated into the SonoFlux product line.
During the third quarter of Fiscal 1997, the Company introduced another
new power supply, the Broadband Ultrasonic Generator, or the "BUG". This power
supply incorporates all of the features of the PS-93, however is capable of
driving all of the Company's nozzles ranging from 25kHz to 120kHz by the simple
adjustment of a bank of "dip" switches, similar to those used on many personal
computer boards to select options or features. Other advances include better
error detection, lower power consumption, and it is electrically isolated
thereby reducing interference.
The BUG has been tested and "CE" certified by an independent testing
laboratory. CE certification, which includes safety and other tests, is required
to enable the Company to ship its products into the European market. The BUG is
available in a rack-mount or stand-alone version, and has been incorporated into
all of the Company's Nozzle Systems and SonoFlux Systems.
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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 monitor and control all system
functions. Any system parameter is easily changed using an operator keypad and
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.
During Fiscal 1997, the SonoFlux System was tested and certified by an
independent testing laboratory. The system passed all of the safety and other
tests required to be "CE" compliant which is a prerequisite to sell into the
European market.
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.
The Company designed a prototype wafer coating system to install at a
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Semiconductor manufacturing facility for further testing and qualification,
however to date has not yet been successful in finding a partner willing to
expend the necessary resources to complete this effort.
Funding totaling $32,700 and $14,176 from SEMATECH, a consortium of
U.S. semiconductor manufacturers, was provided toward the development costs of a
photoresist coating system during Fiscal years 1996 and 1995, respectively.
Accuo Mist System
-----------------
The continuing growth of surface mount technology in the electronic
assembly industry has created a need for an effective method of applying liquid
solder flux only to selected portions of a PCB assembly. This technique is
referred to as selective soldering. In addition to applying flux selectively to
PCB assemblies, there are other applications that can benefit from this
technique. These include ball-grid arrays, flip-chips, and a variety of
tape-and-reel configurations.
The Company recognized the need to target the emerging industry
application for selective soldering, and in February 1997, announced the Accuo
Mist System to address this need. The Accuo Mist incorporates an ultrasonic
nozzle designed for low flow rates, together with a spray-shaping device to
gently shape the spray from the nozzle into a precisely defined pattern whose
width can be adjusted from 0.070 to 0.250 inches. Other attractive features of
this system is that it is a non-contact process, and because of its low-energy
nature, fragile components are completely shielded from any disturbance due to
the spray.
The nozzle and spray shaping device can be mounted on any type of
robotic arm, conveyor, or X-Y table. Patterns of virtually any shape can be
produced. For example, discrete dots, containing only a few-tenths of a
microliter of flux or continuous patterns, such as lines, can be deposited.
Manufacturing
- -------------
The Company currently employs eleven persons for its manufacturing and
quality control activities. The Company's manufacturing operations are located
in one facility in the town of Milton, New York. The Company believes that this
facility has adequate space to accommodate anticipated growth of its current
products for the foreseeable future.
The Company's manufacturing area consists of (i) a machine shop, (ii) a
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
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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.
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 eight United States patents held by the Company. Patent
applications based on the United States applications covering fundamental
aspects of the ultrasonic technology developed by the Company have been issued
or are pending in several foreign jurisdictions. Such patents expire during the
period of November 1998 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 Company has been granted a patent on the spray
assembly portion of its SonoFlux System, which will expire in June, 2010. 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 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").
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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 several other companies. 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 19, 1997, the Company had 25 full-time employees.
(d) Financial Information about Foreign and Domestic Operations and
-----------------------------------------------------------------
Export Sales
------------
Sales to foreign customers accounted for approximately $679,000 or 22%
of total revenue in Fiscal 1997, $744,000 or 27% in Fiscal 1996, and $739,000 or
30% in Fiscal 1995. Approximately $101,000 and $117,000 of this amount
represents sales to an affiliate of Becton Dickinson located in England in
Fiscal 1997 and Fiscal 1996, respectively. There were no sales to this customer
in Fiscal 1995.
During Fiscal 1996 and Fiscal 1997 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 $133,000 in Fiscal 1997, $169,000 in Fiscal
1996, and $451,000 in Fiscal 1995. In Europe, orders received totalled
approximately $152,000, $81,000 and $189,000 during Fiscal 1997, 1996 and 1995
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 1997.
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(e) Backlog
-------
The backlog for the Company's products was $81,476 as of February 28,
1997 and $150,321 as of February 29, 1996. The Company anticipates that it will
ship all of its February 28, 1997 backlog during Fiscal 1998.
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 expired 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. As of April 30, 1997 the Company has not signed a renewal lease
agreement but has begun to make payments according to the provisions of such
agreement. 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
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 29, FEBRUARY 28,
1996 1997
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $ 5/8 $ 10/32 $ 7/8 $ 1/2
Second Quarter 13/16 11/32 1 3/16 11/16
Third Quarter 9/16 1/4 15/16 3/8
Fourth Quarter 1 1/4 1/4 5/16 3/16
The above quotations are believed to represent inter-dealer quotations
without retail markups, markdowns or commissions and may not represent actual
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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 19, 1997 there were 299 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.
(d) On March 7, 1996 the Company granted non-qualified options to
purchase 2,562 shares of the Company's Common Stock to each of
two business management consultants as partial payment for
services performed. The options are exercisable commencing
immediately upon date of grant at $.625 per share and expire on
March 6, 2006. No underwriter was involved in the transaction.
The issuance of these options was exempt from registration under
Section 4 (2) of the Securities Act of 1933.
ITEM 6 Selected Financial Data (1)
- ------
Year Ended 02/28/97 02/29/96 02/28/95 02/28/94 02/28/93
- ---------- -------- -------- -------- -------- --------
Net Sales $3,110,672 $2,747,891 $2,548,363 $2,943,553 $ ,513,085
Income (Loss)
Before Extra-
ordinary Item $ 152,639 $ 155,078 $ (483,050) $ (41,543) $ (576,998)
Extraordinary
Item -- -- -- $ 130,552 --
Net Income
(Loss) $ 152,639 $ 155,078 $ (483,050) $ 89,009 $ (576,998)
Income (Loss)
Per Common
Share:
Before Extra-
ordinary Item $ 0.04 $ 0.04 $ (0.12) $ (0.01) $ (0.15)
Extraordinary
Item - - - $ 0.03 -
- --------
(1) Should be read in conjunction with the Financial Statements and notes
thereto.
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Year Ended 02/28/97 02/29/96 02/28/95 02/28/94 02/28/93
- ---------- -------- -------- -------- -------- --------
Net Income
(Loss) $ 0.04 $ 0.04 $ (0.12) $ 0.02 $ (0.15)
Total Assets $1,251,868 $1,199,717 $1,211,161 $1,635,715 $1,275,599
Long-Term
Liabilities $ 576,722 $ 668,082 $ 775,816 $ 866,084 $ 42,662
Cash Dividends None None None None None
Weighted Average
Number of Shares
of Common Stock
Outstanding 4,204,913 4,204,913 3,876,146 3,872,000 3,754,000
ITEM 7 Management's Discussion and Analysis of Financial Condition and
- ------- Results of Operations
Capital Resources and Liquidity
-------------------------------
On February 28, 1997, the Company had working capital of $419,754 and a
stockholders' deficiency of $41,278. This compares to working capital of
$312,811 and a stockholders' deficiency of $193,917 on February 29, 1996. The
increase in working capital and the reduction of the Company's stockholders'
deficiency is primarily a result of the Company's profitable operations during
Fiscal 1997.
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. During Fiscal 1997 and Fiscal 1996 the Company
reduced obligations to its suppliers, bank and other creditors by approximately
$100,000 and $160,000 respectively. Capital expenditures were at a minimal level
of approximately $14,000 and $11,000 during Fiscal 1997 and Fiscal 1996
respectively. This has improved the Company's ability to procure production
materials and supplies, and to more efficiently market its product. In November
1995, the Company resumed interest payments to the holders of its convertible
secured promissory notes issued in November 1993 and continued to make timely
interest payments as they became due in February and May 1996. Interest payments
due to these noteholders in August and November 1996 and February 1997 were not
made constituting an act of default in accordance with the terms of the notes.
In April 1997 the Company and each noteholder agreed to an amendment that, among
other things, (1) waived the right of default and remedies based on the
Company's failure to make the interest payments due on August 15, 1996, November
15, 1996 and February 15, 1997 and thereafter through and including February 15,
1998, (2) agreed to accept shares of the Company's Common Stock as payment for
the total amount of interest due as of February 15, 1997, and (3) extended the
due date of the note from August 15,1997 until August 15, 2000.
The Company's Convertible Secured Subordinated Notes mature on August
15, 2000 and the Company may experience substantial difficulty meeting the new
due date unless the level of profitability of the Company improves substantially
or unless the noteholders agree to future extensions of the repayment terms.
There can be no assurances that such extensions can be
13
<PAGE>
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 sales of
the SonoFlux System increased over the prior year for the first time since
Fiscal 1994. The Company continues to realize significantly lower warranty costs
as compared to earlier generations of the SonoFlux System. During Fiscal 1998
the Company plans to introduce a line of liquid delivery systems which are
designed to complement its line of Nozzle Systems. 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 - 1997 Compared to 1996
- ---------------------------------------------
The Company's sales increased $362,781 or 13% from $2,747,891 for Fiscal
1996 to $3,110,672 for Fiscal 1997. The increase in sales resulted primarily in
an increase in sales of the Company's SonoFlux Systems. Sales of this product
increased $322,854 or 19% from $1,739,459 in Fiscal 1996 to $2,062,313 in Fiscal
1997. The Company attributes the increase in sales of this product to the
success of its newest generation of SonoFlux Systems the "9500". Sales of the
Company's Nozzle Systems increased $39,925 or 4% from $1,008,432 in Fiscal 1996
to $1,048,357 in Fiscal 1997.
The Company's cost of goods sold increased $307,679 or 25% from
$1,211,292 in Fiscal 1996 to $1,518,971 in Fiscal 1997. The increase in cost of
goods sold is a result of an increase in sales of the Company's products, a
change in product mix and an increase in the cost of certain purchased
components of the SonoFlux System.
Research and product development costs decreased $10,810 or 3% from
$379,942 in Fiscal 1996 to $369,133 in Fiscal 1997. Such costs had been higher
in previous years due to prototype and consulting costs associated with the
development of the SonoFlux 9500.
General and administrative costs increased $17,895 or 5% from $359,142
in Fiscal 1996 to $377,037 in Fiscal 1997. During Fiscal 1996 the Company
substantially reduced its reserve for uncollectible accounts which resulted in
significantly lower general and administrative costs for that year.
The Company's operating profit increased $52,118 or 32% from $163,118 in
Fiscal 1996 to $215,236 in Fiscal 1997. The increase in operating profit is a
result of increased sales of the Company's products while keeping increases in
overhead expenses to a minimum.
Interest and other income decreased $56,168 from $60,360 in Fiscal 1996
to $4,192 in Fiscal 1997. During Fiscal 1996 the Company had income from joint
development work from a company involved with the manufacture of semiconductor
wafers. In addition, the Company realized income from an accounting adjustment
to certain accounts payable.
14
<PAGE>
Inflation and changing prices did not have a material effect on the
Company's operations in the Fiscal 1997, 1996, or 1995 periods.
The Company will adopt the provisions of Statement of Financial
Accounting Standards No. 128 "Earnings per Share" in the fourth quarter of
Fiscal 1998. The standard specifies the computation, presentation and disclosure
requirements for earnings per share. As required by the standard, the Company
will restate all prior period earnings per share data presented. The adoption of
the new standard is not expected to have a material effect on the Company's
financial statements.
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.
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 was 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 was a result of the improved performance and reliability of the
Company's new generation of SonoFlux System, the "9500".
15
<PAGE>
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 uncollectible 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.
ITEM 7A Quantative and Qualitative Disclosures about Market Risk
- -------
Not applicable
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
(a) The Board of Directors of Sono-Tek Corporation voted to dismiss
Anchin, Block & Anchin LLP (the "Former Accountants") as the Company's
independent accountants. On October 30, 1996 the Company formally
notified the former accountants of such dismissal.
(b) There were no disagreements between the Company and the former
accountants during the Company's two most recent fiscal years and the
subsequent interim period preceding such dismissal on any matter of
accounting principals or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to the satisfaction
of the former accountants, would have caused the former accountants to
make reference to the matter in their reports. Additionally, during
the aforesaid periods the Company was not advised by the former
accountants of any "reportable events" as defined in paragraph
304(a)(1)(v) of regulation S-K.
16
<PAGE>
(c) The former accountants' opinion for the fiscal year ended February 28,
1995 was qualified with respect to the Company's ability to continue
as a going concern.
(d) As required by Item 304 of Regulation 8-K, the former accountants have
furnished to the Company a letter addressed to the SEC stating that
they agree with the statements made by the Company herein. A copy of
this letter is attached to this Form 8-K as Exhibit 16.
(e) The Board of Directors of the Company, after dismissing the former
accountants as the Company's independent accountants, voted to retain
Deloitte & Touche LLP as the Company's independent accountants. The
Company's Board of Directors formally notified Deloitte & Touche LLP
that they had been retained on October 31, 1996.
PART III
ITEM 10 Directors and Executive Officers of the Registrant
- -------
(a) Identification of Directors
---------------------------
Name Age Position with Company
---- --- ---------------------
Dr. Harvey L. Berger 58 President and Director
Stephen E. Globus 49 Director
James L. Kehoe 50 Chief Executive Officer and a
Director
Samuel Schwartz 77 Chairman and a Director
J. Duncan Urquhart 43 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 1998, 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 58 President and a Director
James L. Kehoe 50 Chief Executive Officer and a
Director
Samuel Schwartz 77 Chairman and a Director
J. Duncan Urquhart 43 Controller, Treasurer, and a
Director
17
<PAGE>
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
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.
18
<PAGE>
STEPHEN E. GLOBUS is Chairman and a Director of Globus Growth Group, Inc. a
New York City based venture capital firm. Mr. Globus is on the Board of
Directors of Tinsley Laboratories of Richmond, California. He is also a General
Partner of Tsai Globus Bio Ventures, a venture capital firm specializing in
Health Care Sciences.
ITEMS 11, 12, and 13
- --------------------
The information required by Items, 11 (Executive Compensation) 12 (Security
Ownership of Certain Beneficial Owners and Management) 13 (Certain Relationships
and Related Transactions), 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 financil statements to the
Commission upon request.
19
<PAGE>
4(f)8 Form of 1995 Amendment to Convertible Note.
4(g)10 Form of 1996 Amendment to Convertible Note.
4(h) Form of 1997 Amendment to Convertible Note.
4(i)11 Letter agreement between the Company and The Bank of New York.
*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
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.
16 12 Letter from former accountant dated October 31, 1996.
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.
20
<PAGE>
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.
10 Incorporated herein by reference to the Company's Form 10-K for the year
ended February 29, 1996.
11 Incorporated herein by reference to the Company's Form 10-Q quarterly
report for the quarter ended May 31, 1996.
12 Incorporated herein by reference to the Company's Form 8K dated October
31, 1996
(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.
21
<PAGE>
SONO-TEK CORPORATION
FORM 10-K
ITEMS 8 AND 14(d)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FOR THE YEAR ENDED FEBRUARY 28, 1997
INDEPENDENT AUDITORS' REPORTS - 1997
- 1996 AND 1995
FINANCIAL STATEMENTS (ITEM 8):
Balance Sheets at February 28, 1997 and February 29, 1996
Statements of Operations
For the Years Ended February 28, 1997, February 29, 1996 and
February 28, 1995
Statements of Stockholders' Equity (Deficiency)
For the Years Ended February 28, 1997, February 29, 1996 and
February 28, 1995
Statements of Cash Flows
For the Years Ended February 28, 1997, February 29, 1996 and
February 28, 1995
Notes to the Financial Statements
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL
SCHEDULES - 1996 AND 1995
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.
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of
Sono-Tek Corporation
Milton, New York
We have audited the accompanying balance sheet of Sono-Tek Corporation (the
"Company") as of February 28, 1997 and the related statements of operations,
stockholders' equity, (deficiency) cash flows and financial statement schedule
for the year then ended. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audit.
We conducted our audit 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 and financial statement
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial statement schedules. 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, such 1997 financial statements present fairly, in all material
respects, the financial position of the Company as of February 28, 1997 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. Also in our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects,
the information set forth therein.
Deloitte & Touche LLP
Hartford, CT
April 30, 1997
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND DIRECTORS OF
SONO-TEK CORPORATION:
We have audited the accompanying balance sheet of Sono-Tek Corporation
as of February 29, 1996 and the related statements of
operations, shareholders' equity (deficiency) and cash flows for each of the two
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 the results of its operations and its cash flows for
each of the two years in the period ended February 29, 1996 in conformity with
generally accepted accounting principles.
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
24
<PAGE>
SONO-TEK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
A S S E T S
February 28, February 29,
1997 1996
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 107,746 $ 69,033
Accounts receivable less allowance of $35,814 and $25,000 525,750 462,115
Inventories - (Notes 2 and 3) 469,241 477,381
Prepaid expenses and other current assets 33,441 29,834
------------- -------------
Total current assets 1,136,178 1,038,363
Equipment, furnishings and leasehold improvements (less
accumulated depreciation and amortization of $339,829 and
$368,087 in 1997 and 1996, respectively) (Notes 2 and 4) 56,574 95,861
Patents, patents pending and copyrights (less accumulated
amortization of $116,318 and $114,372 in 1997 and 1996,
respectively) (Note 2) 52,799 59,176
Other assets 6,317 6,317
------------- -------------
TOTAL ASSETS $ 1,251,868 $ 1,199,717
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current maturities of long term debt (Note 5) $ 94,370 $ 128,779
Accounts payable 267,673 233,810
Accrued expenses (Note 6) 354,381 362,963
------------- -------------
Total current liabilities 716,424 725,552
------------- -------------
Long-term debt, less current maturities (Note 5) 576,056 657,865
Noncurrent rent payable 666 10,217
------------- -------------
Total liabilities 1,293,146 1,393,634
------------- -------------
STOCKHOLDERS' DEFICIENCY
Common stock, $.01 Par value; 12,000,000 shares
authorized; 4,204,913 outstanding in 1997 and 1996 42,049 42,049
Additional paid-in capital 3,758,128 3,758,128
Accumulated deficit (3,841,455) (3,994,094)
------------- -------------
Total stockholders' deficiency (41,278) (193,917)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,251,868 $ 1,199,717
============= =============
</TABLE>
See notes to financial statements.
25
<PAGE>
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Y e a r s E n d e d
------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
<S> <C> <C> <C>
NET SALES (Note 12) $ 3,110,672 $ 2,747,891 $ 2,548,363
COST OF GOODS SOLD 1,518,971 1,211,292 1,480,023
------------ ------------ ------------
GROSS PROFIT 1,591,701 1,536,599 1,068,340
------------ ------------ ------------
OPERATING EXPENSES:
Research and product development
costs - Note 2 369,133 379,942 328,484
Marketing and selling expenses 630,295 634,397 680,600
General and administrative costs 377,037 359,142 501,569
------------ ------------ ------------
Total Operating Expenses 1,376,465 1,373,481 1,510,653
------------ ------------ ------------
OPERATING INCOME (LOSS) 215,236 163,118 (442,313)
INTEREST EXPENSE 66,789 68,400 63,935
INTEREST AND OTHER INCOME 4,192 60,360 23,198
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 152,639 155,078 (483,050)
INCOME TAX EXPENSE (NOTE 8) - - -
------------ ------------ ------------
NET INCOME (LOSS) $ 152,639 $ 155,078 $ (483,050)
============ ============ ============
INCOME (LOSS) PER COMMON SHARE $ 0.04 $ 0.04 $ (0.12)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING USED TO COMPUTE
INCOME (LOSS) PER COMMON SHARE (Note 2) 4,204,913 4,204,913 3,876,146
============ ============ ============
</TABLE>
See notes to financial statements
26
<PAGE>
SONO-TEK CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
<TABLE>
<CAPTION>
Common Stock
Par Value $.01 Total
---------------------------- Additional Stockholders'
Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficiency)
<S> <C> <C> <C> <C> <C>
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)
Net Income 152,639 152,639
------------ ------------ ------------ -------------- -----------
Balance - February 28, 1997 4,204,913 $ 42,049 $ 3,758,128 $ (3,841,455) $ (41,278)
============ ============ ============ ============== ===========
</TABLE>
See notes to financial statements
27
<PAGE>
SONO-TEK CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Y e a r s E n d e d
-----------------------------------
February 28, February 29, February 28,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 152,639 $ 155,078 $(483,050)
---------- ---------- ----------
Adjustments to reconcile net income(loss) to net cash
provided by operating activities:
Depreciation and amortization 61,298 75,197 90,087
Allowance for doubtful accounts 11,500 (37,596) 18,980
Loss on disposition of fixed assets and intangibles - 13,200 27,400
(Increase) Decrease in:
Accounts receivable (75,135) (74,334) 300,435
Inventories 8,140 13,190 31,298
Prepaid expenses and other current assets (3,607) 14,985 9,064
Other assets - (400) (600)
Accounts payable and accrued expenses 25,281 (60,422) 99,415
Noncurrent rent payable (9,551) (11,150) (3,573)
---------- ---------- ----------
Net cash provided by operating activities 170,565 87,748 89,456
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed assets, patent and copyright acquisitions (15,634) (16,569) (30,177)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes and obligations
payable - professional fees (18,472) (10,000) (48,000)
Repayments of notes payable - lease termination (23,339) (21,407) (45,034)
Payments of capital leases (1,753) (8,827) (7,305)
Repayments of note payable, bank (72,654) (54,716) (37,007)
Proceeds from sale of common stock - 25,000 75,000
---------- ---------- ----------
Net Cash Used in Financing Activities (116,218) (69,950) (62,346)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 38,713 1,229 (3,067)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR 69,033 67,804 70,871
---------- ---------- ----------
END OF YEAR $ 107,746 $ 69,033 $ 67,804
========== ========== ==========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 51,419 $ 43,742 $ 38,123
Income taxes paid $ - $ - $ 7,505
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Receivable for common stock issued $ - $ - $ 25,000
========== ========== ==========
</TABLE>
See notes to financial statements.
28
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- ----------------------------------------------------------------------
1. BUSINESS DESCRIPTION
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).
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of money
market mutual funds and short-term certificates of deposit with original
maturities of 90 days or less.
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 by use of the straight-line
method based on the estimated useful lives of the assets which range
from five to ten years. Leasehold improvements are being amortized on
the straight-line method over the lesser of the life of the underlying
asset or the life of the lease.
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 and
are expensed as incurred. Engineering costs directly applicable to the
manufacture of existing products are included in cost of goods sold.
INCOME TAXES - The Company accounts for income taxes under the asset and
liability method. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. 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.
29
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME (LOSS) PER COMMON SHARE - Income (loss) per common share is based
on the weighted average number of shares outstanding for each of the
periods presented. The computation does not include the effect of
outstanding stock options or conversion of the subordinated promissory
notes sincetheir inclusion would be either not material or anti-dilutive
The Company will adopt the provisions of Statement of Financial
Accounting Standards No. 128 "Earnings per Share" in the fourth quarter
of Fiscal 1998. The standard specifies the computation, presentation and
disclosure requirements for earnings per share. As required by the
standard, the Company will restate all prior period earnings per share
data presented. The adoption of the new standard is not expected to have
a material effect on the Company's financial statements.
ADVERTISING EXPENSES - The Company expenses the cost of advertising in
the period in which the advertising takes place. Advertising expense for
the years ended February 28, 1997, February 29, 1996 and February 28,
1995 was $102,439, $94,902 and $92,804, 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 adopted the Statement in
the first quarter of Fiscal 1997 and the effects of adoption were not
material.
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 adopted the
provisions of SFAS 123 in Fiscal 1997. Under SFAS 123, the Company
will continue to apply the provisions of APB 25 to its stock based
employee compensation arrangements. And is only requires to supplement
its financial statements with additional proforma disclosures.
MANAGEMENT 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.
RECLASSIFICATIONS - Certain amounts in prior year financial statements
have been reclassified to conform to the current year presentation.
30
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
3. INVENTORIES
Inventories consist of the following:
February 28, February 29,
--------------------------
1997 1996
Finished goods $111,486 $102,688
Work-in-process 110,071 137,800
Raw materials and subassemblies 247,684 236,893
------- -------
$469,241 $477,381
======== ========
4. EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS
Equipment, furnishings and leasehold improvements consist of the
following:
February 28, February 29,
---------------------------
1997 1996
Laboratory equipment $ 77,436 $ 77,571
Machinery and equipment 196,765 186,284
Furniture and fixtures 122,202 121,398
Leasehold improvements - 78,695
------- -------
Totals 396,403 463,948
Less: Accumulated depreciation and
amortization 339,829 368,087
------- -------
$ 56,574 $ 95,861
========= ========
5. LONG-TERM DEBT
Long-term debt consists of the following:
February 28, February 29,
1997 1996
---------------------------
Note payable, bank, collateralized by accounts
receivable 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 $7,500 thereafter. The weighted average
interest rate during fiscal 1997 was 10.25%. The
loan has been personally guaranteed by the
Company's President and a former Chairman and
Chief Executive Officer of the Company. $126,699 $199,353
31
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
5. LONG-TERM DEBT (CONTINUED) February 28, February 29,
1997 1996
---------------------------
Convertible secured subordinated promiossory notes
with individuals, collateralized by all of the
personal property 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 of
each year until maturity on August 15, 1997.
During the fiscal years 1995 and 1996 the
noteholders waived the default as to nonpayment
of interest and agreed to defer quarterly
payments of interest due from November 15, 1994
to February 15, 1997 until March 1, 1997. In April
1997, the noteholders entered into an agreement
with the Company, (the "Third Note Amendment
Agreement") whereby the holders agreed to
(1) accept shares of the Company's Common Stock
as payment for the total amount 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. The interest rate at February 28, 1997
was 7.75%. Each $1,000 portion of these notes
is 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. 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 formally
the Company's Chairman of the Board and is believed
to be a major stockholder. The obligation to this
individual was paid in full at February 28, 1997. 13,727 55,538
Capital leases which matured June 30, 1996. - 1,753
------- -------
670,426 786,644
Due within one year 94,370 128,779
------ -------
Due after one year $576,056 $657,865
======== ========
Long-term debt is payable as follows:
February 28, 1998 $ 94,370
February 28, 1999 46,056
February 29, 2000 -
February 28, 2001 530,000
-------
$670,426
========
32
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
5. LONG-TERM DEBT (CONTINUED)
Management believes the fair value of the debt payable to the bank approximates
the carrying value through the variable interest rate on the loan. Management
does not believe it is practical to determine the fair value of the subordinated
notes as there are no similar notes to compare them to.
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
February 28, February 29,
-----------------------------
1997 1996
Professional fees $ 83,398 $ 85,198
Estimated warranty costs 29,994 35,000
Accrued compensation 124,532 99,888
Accrued commissions 24,380 48,939
Accrued interest 68,798 53,427
Other accrued expenses 23,279 40,511
------ ------
$354,381 $362,963
======== ========
7. COMMITMENTS
Leases:
-------
The Company leases an office and manufacturing facility under a lease
that expired in January 1997. The lease provided for a five year renewal
option at annual rentals varying from $65,000 to $78,000. As of
April 30, 1997 the Company has not signed a renewal lease agreement but
has begun to make payments according to the provisions of such agreement
Future annual minimum payments through the end of the five year renewal
option are as follows:
Fiscal Year Ending
February
1998 65,584
1999 72,000
2000 72,500
2001 78,000
2002 71,500
--------
$359,584
========
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
stockholder and the Company's former Chairman of the Board. Upon
termination of the lease, the Company agreed
33
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
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). The Company made the final payment on this note in
February 1997.
Rent expense was approximately $61,000, $60,000, and $61,000 for the
years ended February 28, 1997, February 29, 1996, and February 28, 1995,
respectively.
8. INCOME TAXES
The annual provision (benefit) 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 28, February 29, February 28,
1997 % 1996 % 1995 %
--------------- --------------- -----------------
Computed tax at
maximum rate $ 52,000 34.0 $ 52,700 34.0 $(164,200) (34.0)
Operating loss currently
not deductible - - - - 164,200 34.0
Change in valuation
allowance for
the effect of
operating loss
carry forwards (52,000) (34.0) (52,700) (34.0) - -
--------- ------ -------- ------- --------- ------
Provision (benefit) for
income taxes $ - - $ - - $ - -
========= ====== ======== ====== ========= ======
The net deferred tax asset is comprised of the following:
February 28, February29,
-----------------------------
1997 1996
Allowance for doubtful accounts $ 14,000 $ 10,000
Accumulated depreciation 18,000 9,000
Accumulated amortization 9,000 -
Inventory 7,000 -
Noncurrent rent payable 1,000 4,000
Accrued vacation 13,000 12,000
Accrued expenses 74,000 63,000
Operating loss carryforwards 1,382,000 1,430,000
--------- ---------
Net deferred tax assets before valuation 1,518,000 1,528,000
Deferred tax asset valuation allowance (1,518,000) (1,528,000)
---------- ----------
Net Deferred Tax Asset $ - $ -
=========== ============
34
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
8. INCOME TAXES (CONTINUED)
The change in the valuation allowance was (10,000), ($118,000), and
$232,000 for the years ended February 28, 1997, February 29, 1996 and
February 28, 1995, respectively.
At February 28, 1997, 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
---------
$3,574,000
==========
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.
10. STOCK OPTIONS
Under the Company's 1983 Incentive Stock Option Plan which expired in
May 1993, and the 1993 Stock 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 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 were
outstanding at February 28, 1995 including options as to 151,000
shares which were exercisable, with the balance generally becoming
exercisable in cumulative installments over the remainder of their ten
year terms. During Fiscal 1996 the outstanding options under the 1983
were cancelled.
Under the 1993 Stock Incentive Plan,("1993 Plan") options can be granted
to officers, directors, consultants and employees to purchase up to
750,000 of the Company's common shares. Options granted under the 1993
Plan expire on various dates through 2003.
Under the 1993 Stock Incentive Plan, option prices must be at least 100%
of the fair market value of the common stock at time of grant. For
qualified employees, except under certain circumstances specified in the
1993 plan or unless otherwise specified at the discretion of the board
of directors, no option may be exercised prior to one year after date of
grant, with the balance becoming exercisable in cumulative installments
over a three year period during the term of the option, and terminate at
a stipulated period of time after an employee's termination of
35
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
10. STOCK OPTIONS (CONTINUED)
During fiscal 1997, the Company granted options for 17,500 shares
exercisable at $.78 per share to qualified employees and 5,124 shares
exercisable at $.625 per share to non-qualified outside consultants,
respectively. During fiscal 1996 and 1995, the Company granted to
qualified employees only, 52,500 shares exercisable at $.33 per share
and 296,000 shares, exercisable at $.38 per share respectively.
Asummary of the 1993 plan activity for the three year period ended
February 28, 1997 is as follows:
Weighted
Average
Options Options Exercise
Outstanding Exercisable Price
Balance - February 28, 1994 0
Granted - Fiscal 1995 296,000 $ .38
Cancelled - Fiscal 1995 (5,000) (.38)
------ -------- ----
Balance - February 28, 1995 291,000 50,000 .38
Granted - Fiscal 1996 52,500 .33
Cancelled - Fiscal 1996 (60,000) (.38)
-------- -------- ----
Balance - February 29, 1996 283,500 131,450 .37
Granted - Fiscal 1997 22,624 .74
Cancelled - Fiscal 1997 (2,500) (.38)
------ -------- ----
Balance - February 28, 1997 303,624 221,544 $ .40
======= ======= ========
The Company has determined that the proforma effect of the stock options
on compensation expense required by SFAS No. 123, Accounting for Stock-
Based Compensation, is immaterial.
11. OTHER RELATED PARTY TRANSACTIONS
Consulting Fees - During fiscal 1996 and 1995, the Company incurred
$52,000 ($26,000 each year) in consulting fees to its Chairman of the
Board under an agreement commencing March 1993. At February 28, 1997,
and February 29, 1996 accounts payable includes a liability for these
and prior year fees of $69,076.
36
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
12. SIGNIFICANT CUSTOMERS AND FOREIGN SALES
Sales to a single customer accounted for approximately 11% of the
Company's sales for the year ended February 28, 1995. No single customer
accounted for more than 10% of sales for the years ended February 28,
1997, and February 29, 1996.
Export sales to customers located outside the United States were as
follows:
Sales (Thousands)
--------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
Location
Western Europe $ 399 $ 269 $ 178
Far East 164 146 510
Other 116 329 51
--- --- --
$ 679 $ 744 $ 739
===== ===== =====
37
<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 for each of the two years in the period
ended February 29, 1996, we also audited Schedule II for each of the two 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 28, 1997. 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
38
<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 28, 1997 $ 25,000 $ 11,500 $ 686 $ 35,814
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
</TABLE>
* Represents write-off net of recovery, of uncollectible accounts
39
<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 29, 1997
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 29, 1997
- ---------------------
Samuel Schwartz
Chairman of the Board
/S/ James L. Kehoe May 29, 1997
- ---------------------
James L. Kehoe
Chief Executive Officer
and Director
/s/ Harvey L. Berger May 29, 1997
- ---------------------
Harvey L. Berger
President and Director
/S/ J. Duncan Urquhart May 29, 1997
- ----------------------
J. Duncan Urquhart
Treasurer (principal financial
and accounting officer) and Director
May 29, 1997
- ---------------------
Stephen E. Globus
Director
40
<PAGE>
EXHIBIT INDEX
Ex. No. Description Page
- ------- ----------- ----
4(h) Form of 1997 Amendment to Convertible Note. 42
27.1 Financial Data Schedule - Edgar filing only
41
THIRD 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 $DOLLARS made as of November 16,
1993, and the Note Amendment Agreement made as of March 23, 1995 and the Second
Note Amendment Agreement made as of April 30, 1996.
Whereas the Company has not made several interest payments to Holder which were
due on the dates and in the amounts shown in Attachment 1 hereto, and
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, and
Whereas it is unlikely that the Company will be able to repay the principal
amount of the Note in the amount stated above when such amount becomes due on
August 15, 1997.
Now, therefore, the Company and the Holder hereby agree as follows:
1. The total amount of past due interest as shown on Attachment I hereto,
as well as interest due on the past due interest, shall be paid to the
Holder by the Company as soon as practical after the signing of this
Agreement. Payment shall be in the form of shares of the Company's
Common Stock, which number was determined by dividing the total amount
of past due interest and interest thereon by $0.40.
These shares shall bear the restrictive legend set forth in Attachment
II hereto.
2. 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
described in Paragraph 1.
3. The Holder agrees to extend the due date of the Note from August 15,
1997 until August 15, 2000.
4. The Company shall pay interest to the Holder for each of the additional
three years at a rate equal to 1% below the prime rate as announced by
the Wall Street Journal on August 15, 1997, August 15, 1998, and August
15, 1999. Interest shall be payable quarterly in arrears on the 15th day
of November, February, May, and August.
5. From the date hereof until March 1, 1998, 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 May 15, 1997 and
continuing through February 15, 1998.
6. Holder, by his signature hereto, agrees to all of the provisions of
Attachment II.
April 30, 1997
Sono-Tek Corporation
- --------------- ----------------
James L. Kehoe NAME
Chief Executive Officer
42
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 107,746
<SECURITIES> 0
<RECEIVABLES> 525,750
<ALLOWANCES> 35,814
<INVENTORY> 469,241
<CURRENT-ASSETS> 1,136,178
<PP&E> 56,574
<DEPRECIATION> 339,829
<TOTAL-ASSETS> 1,251,868
<CURRENT-LIABILITIES> 716,424
<BONDS> 0
0
0
<COMMON> 42,049
<OTHER-SE> (83,327)
<TOTAL-LIABILITY-AND-EQUITY> 1,251,868
<SALES> 3,110,672
<TOTAL-REVENUES> 3,110,672
<CGS> 1,518,971
<TOTAL-COSTS> 1,518,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,789
<INCOME-PRETAX> 152,639
<INCOME-TAX> 0
<INCOME-CONTINUING> 152,639
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,639
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
