SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: August 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-16035
SONO-TEK CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1568099
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2012 Rt. 9W, Bldg. 3, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (914) 795-2020
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding as of
Class October 15, 1998
----- ----------------
Common Stock, par value $.01 per share 4,378,387
<PAGE>
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Balance Sheets - August 31, 1998 (Unaudited) and February 28, 1998 1
Statements of Operations - Six Months and Three Months Ended
August 31, 1998 and 1997 (Unaudited) 2
Statements of Cash Flows - Six Months Ended August 31, 1998
and 1997 (Unaudited) 3
Notes to Financial Statements 4 - 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 8
Part II - Other Information 9 - 10
Item 3 - Quantitative and Qualitative Disclosure About Market Risk -
Not applicable
Signatures 11
<PAGE>
<TABLE>
SONO-TEK CORPORATION
BALANCE SHEETS
ASSETS
<CAPTION>
August 31, February 28,
1998 1998
Unaudited
--------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 118,278 $ 113,759
Accounts receivable (less allowance of $7,000 and $1,000
at August 31 and February 28, respectively) 450,652 810,560
Inventories (Note C) 788,729 615,459
Prepaid expenses and other current assets 43,620 15,780
---------- ----------
Total current assets 1,401,279 1,555,558
Equipment and furnishings (less accumulated depreciation and
of $387,769 and $369,398 at August 31 and February 28,
respectively) 120,134 122,016
Patents, patents pending and copyrights (less accumulated
amortization of $75,272 and $123,930 at August 31 and
February 28, respectively) 41,758 45,187
Other assets 5,917 5,917
---------- ----------
TOTAL ASSETS $1,569,088 $1,728,678
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt $ 9,460 $ 55,438
Revolving line of credit 149,948 50,000
Accounts payable 372,293 405,009
Accrued expenses 268,310 353,776
---------- ----------
Total current liabilities 800,011 864,223
---------- ----------
Long term debt, less current maturities 573,104 577,815
Noncurrent rent payable 8,579 8,083
---------- ----------
Total liabilities 1,381,694 1,450,121
---------- ----------
Stockholders' Equity
Common stock, $.01 par value; 12,000,000 shares authorized,
4,374,387 outstanding at August 31 and February 28 43,744 43,744
Additional paid-in capital 3,824,221 3,824,221
Accumulated deficit (3,680,571) (3,589,408)
---------- ----------
Total stockholders' equity 187,394 278,557
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,569,088 $1,728,678
========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Ended August 31, Three Months Ended August 31,
Unaudited Unaudited
1998 1997 1998 1997
---------------------------- --------------------------
<S> <C> <C> <C> <C>
Net Sales $1,716,299 $1,575,428 $970,257 $813,685
Cost of Goods Sold 908,987 776,390 492,495 392,733
---------- --------- --------- ---------
Gross Profit 807,312 799,038 477,762 420,952
---------- --------- --------- ---------
Operating Expenses
Research and product development costs 262,667 171,593 128,469 84,325
Marketing and selling expenses 370,616 339,449 204,354 166,597
General and administrative costs 238,874 190,912 123,572 96,743
--------- --------- ------- ---------
Total Operating Expenses 872,157 701,954 456,395 347,665
--------- --------- ------- ---------
Operating (Loss) Income (64,845) 97,084 21,367 73,287
Interest Expense (27,849) (25,264) (14,249) (12,184)
Interest and Other Income 1,531 0 423 0
--------- --------- -------- ---------
(Loss) Income Before Income Taxes (91,163) 71,820 7,541 61,103
Income Tax Expense (Note D) 0 0 0 0
--------- --------- -------- ---------
Net (Loss) Income $(91,163) $71,820 $7,541 $61,103
========= ========= ======== =========
Basic Earnings Per Share $(0.02) $0.02 $0.00 $0.01
====== ===== ===== =====
Diluted Earnings Per Share $(0.02) $0.02 $0.00 $0.01
====== ===== ===== =====
Weighted Average Shares - Basic 4,374,387 4,318,203 4,374,387 4,374,387
========= ========= ========= =========
Weighted Average Shares - Diluted 4,931,126 4,618,443 4,931,126 4,674,627
========= ========= ========= =========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
SONO-TEK CORPORATION
STATEMENTS OF CASH FLOWS
Six Months Ended August 31,
Unaudited
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $(91,163) $ 71,820
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 21,800 16,680
Provision for doubtful accounts 6,000 6,000
(Increase) decrease in:
Accounts receivable 352,295 8,667
Inventories (173,270) (65,684)
Prepaid expenses and other current assets (26,226) 18,667
Increase (decrease) in:
Accounts payable and accrued expenses (118,182) (39,292)
Non-current rent payable 496 3,996
--------- ---------
Net Cash (Used in) Provided by Operating Activities (28,250) 20,854
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furnishings (16,489) (2,690)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 99,948 0
Proceeds from short term loan 41,700 0
Notes and obligations payable - professional fees 0 (7,000)
Repayments of short term loan (41,700) 0
Repayments of equipment loan (4,437) 0
Repayments of note payable, bank (46,253) (39,226)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 49,258 (46,226)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,519 (28,062)
CASH AND CASH EQUIVALENTS
Beginning of period 113,759 107,746
--------- ---------
End of period $118,278 $ 79,684
========= =========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 8,167 $ 5,774
========= =========
Non-cash exchange of accrued interest
for common stock 0 $ 67,787
= =========
</TABLE>
See notes to financial statements.
<PAGE>
SONO-TEK CORPORATION
Notes to Financial Statements
August 31, 1998 and 1997
NOTE A: The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial statements
prepared in conformity with generally accepted accounting principles. Such
disclosures were included with the financial statements of the Company at
February 28, 1998, 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: Inventories at August 31, 1998 are comprised of:
<TABLE>
<S> <C>
Finished goods $133,434
Work in process 169,302
Raw materials and subassemblies 485,993
--------
Net total inventories $788,729
========
</TABLE>
NOTE D: The Company has a net operating loss carryforward, therefore no income
tax expense is recorded for the six months ended August 31, 1998 and August 31,
1997. At February 28, 1998, the Company had available operating loss
carryforwards of approximately $3,208,000 for income tax purposes.
NOTE E: On March 3, 1997, the FASB issued SFAS No. 128 "Earnings per Share".
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application was not
permitted. Restatement of all prior-period earnings per share ("EPS") data
presented is required when SFAS 128 is implemented. The Company adopted SFAS No.
128 for the year ended February 28, 1998 and EPS data is provided in the
financial statements for all periods presented based on the requirements of this
statement.
Basic EPS is computed by dividing net income by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Stock options granted but not yet
exercised under the Company's stock option plans are included for Diluted EPS
calculations under the treasury stock method. The convertible secured
subordinated promissory notes and related warrants are antidilutive and
therefore are not considered in the Diluted EPS calculations.
The computation of basic and diluted earnings per share are set forth on the
following table:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
August 31, August 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator-
Numerator for basic and diluted earnings
per share - net (loss) income $(91,163) $71,820 $7,541 $61,103
========= ======= ====== =======
Denominator:
Denominator for basic earnings (loss)
per share - weighted average shares 4,374,387 4,318,203 4,374,387 4,374,387
Effects of dilutive securities:
Stock options for employees
and outside consultants 556,739 300,240 556,739 300,240
--------- --------- --------- ---------
Denominator for diluted earnings (loss)
per share 4,931,126* 4,618,443* 4,931,126* 4,674,627*
========= ========= ========= =========
</TABLE>
*The effect of considering the convertible secured subordinated
promissory notes and related warrants are antidilutive and therefore
not considered in the diluted earnings (loss) per share calculations.
On June 26, 1998, the Board of Directors of the Company granted options to
acquire 152,500 shares of Common Stock to qualified employees of the Company
under the 1993 Stock Incentive Plan, of which 30,000 shares were granted to an
officer of the Company.
Note F: EMPLOYEE STOCK OPTION PLAN
On August 3, 1998, the Company registered with the Securities and Exchange
Commission on Form S-8 the 750,000shares of the Company's common stock
underlying the 1993 Stock Incentive Plan.
Note G: SHORT TERM LOAN
During August 1998, the Company entered into a short term loan with two officers
of the Company. The total amount of the loans was $41,700, and they were repaid
within the month along with interest of $185, at a rate of 10.5%, the same rate
paid on the current bank loans.
<PAGE>
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
- --------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Federal Securities Laws. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions; political, regulatory,
competitive and technological developments affecting the Company's operations or
the demand for its products; timely development and market acceptance of new
products; adequacy of financing; capacity additions; and ability to enforce
patents.
Results of Operations
- ---------------------
The Company's sales increased $140,871 from $1,575,428 for the six months ended
August 31, 1997 to $1,716,299 for the six months ended August 31, 1998,
primarily due to sales of the Company's SonoFlux Systems which increased
approximately $266,000. Sales of new products, particularly the MCS Infinity
System and Liquid Delivery Systems increased $119,000. Sales of the Company's
Nozzle Systems decreased approximately $225,000.
For the three months ended August 31, 1998 the Company's sales increased
$156,572 to $970,257 from $813,685 for the three months ended August 31, 1997.
During this three month period sales of the Company's SonoFlux Systems increased
approximately $236,000 and sales of new products increased by $92,000, while
sales of the Company's Nozzle Systems decreased approximately $170,000.
The Company believes the continuing increase in sales of the SonoFlux System is
a result of its efforts to provide the circuit board assembly industry with
equipment that has a reputation for reliable and cost-effective performance.
Over the last two years, the Company has made significant efforts to diversify
its product line by developing new products. The increased sales during the
first half of Fiscal 1999 of the MCS Infinity System and Liquid Delivery Systems
is a direct result of these efforts. Due to the nature of the market for Nozzle
Systems, it is not uncommon for the Company to experience significant
fluctuations in sales from year to year.
Gross profit increased $8,274 from $799,038 for the six month period ended
August 31, 1997 to $807,312 for the six month period ended August 31, 1998. The
Company's gross profit increased $56,810 from $420,952 for the three months
ended August 31, 1997 to $477,762 for the three months ended August 31, 1998.
For both the three and six month periods the increase in gross profit is
attributed to an increase in sales. The percentage of gross profit to sales
decreased as a result of increased sales of products with a lower profit margin,
plus an increase in personnel and depreciation costs.
Research and product development costs increased $91,074 from $171,593 for the
six months ended August 31, 1997 to $262,667 for the six months ended August 31,
1998, primarily due to an increase in engineering staffing and compensation of
approximately $68,000, and $17,000 in material costs associated with new product
design. Research and product development costs increased $44,144 from $84,325
for the three months ended August 31, 1997 to $128,469 for the three months
ended August 31, 1998. This increase is also attributed to increased personnel
costs of approximately $34,000 and new product design cost of approximately
$5,000.
Marketing and selling costs increased $31,167 from $339,449 for the six months
ended August 31, 1997 to $370,616 for the six months ended August 31, 1998.
These same costs increased $37,757 from $166,597 for the three months ended
August 31, 1997 to $204,354 for the three months ended August 31, 1998. The
increase for both the three and six month periods is primarily a result of
increased commissions paid resulting from the increase in sales of the SonoFlux
System, and start-up costs associated with selling a full range of pressure
nozzles.
General and administrative costs increased $47,962 from $190,912 for the six
month period ended August 31, 1997 to $238,874 for the six month period ended
August 31, 1998, primarily as a result of higher compensation costs of
approximately $32,000 and an increase in professional fees of approximately
$13,000. General and administrative costs increased $26,829 from $96,743 for the
three month period ended August 31, 1997 to $123,572 for the three month period
ended August 31, 1998. The increased costs were due primarily to an increase in
compensation costs of approximately $17,000 and an increase in professional fees
of $7,800. The increase in professional fees for both periods was in connection
with the Company registering its Employee Stock Option Plan on Form S-8 with the
Securities and Exchange Commission on August 3, 1998.
Interest expense increased $2,585 from $25,264 for the six month period ended
August 31, 1997 to $27,849 for the six months ended August 31, 1998. Interest
expense increased $2,065 from $12,184 for the three month period ended August
31, 1997 to $14,249 for the three months ended August 31, 1998. The increase in
interest expense is a result of two loans for the purchase of production
equipment and increased borrowings under the line of credit.
For the six months ended August 31, 1998 the Company had a net loss of $91,163
or $(0.02) per share as compared to earnings of $71,820 or $0.02 per share for
the six months ended August 31, 1997. For the three months ended August 31,
1998, the Company had earnings of $7,541 or $0.00 per share as compared to
earnings of $61,103 or $.01 per share for the three months ended August 31,
1997. The decrease in earnings for both the six month and three month periods
were a result of the change in product mix (lower sales of Nozzle Systems), and
higher costs in the areas of research, administration and marketing.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital decreased $90,067 from $691,335 at February 28,
1998 to $601,268 at August 31, 1998. The Company's stockholders' equity
decreased $91,163 from $278,557 on February 28, 1998 to $187,394 on August 31,
1998. The decrease in working capital and stockholders' equity was primarily a
result of the net loss for the first quarter of fiscal year 1999.
In August 1998, the Company made the final loan payment on a bank loan made in
October 1991 for $300,000. Also during August 1998, the Company needed a short
term loan to provide cash for when payment on a receivable was delayed by a
large customer who issues checks only once a month. The loan for $41,700 was
obtained from two officers of the Company. As soon as the customer's payment was
received, the short term loan was repaid. Interest was paid at a rate of 10.5%,
the same rate paid on current bank loans. The Company currently has a $150,000
revolving line of credit with a bank. The loan is collateralized by accounts
receivable, inventory and all other personal property of the Company.
Although there can be no assurances, management believes that working capital
generated by continuing operations and available line of credit will be
sufficient to support the Company's working capital needs for the next twelve
months based on anticipated sales levels.
Impact of Year 2000
- -------------------
The Company has performed a thorough assessment to determine its readiness for
the Year 2000 (Y2K). The results of this assessment have identified that the
Company's accounting software and certain components of the internal computer
network are not Y2K compliant. Accordingly, the Company has ordered and received
new software that is Y2K compliant, and the Company has placed on order the
necessary hardware upgrades for its internal computer network The Company has a
detailed plan to evaluate these new systems and have them on-line by December
31, 1998. Both the software and hardware upgrades are "off-the-shelf" items,
therefore there is minimal risk in these systems not performing.
As part of its assessment, the Company evaluated its phone, security, and
manufacturing machinery and determined that all of these systems are Y2K
compliant. The Company has also evaluated the software and hardware used in its
products and determined that they are all Y2K compliant.
The Company is in the process of surveying its major suppliers for their Y2K
readiness. Because all major components and materials used by Company in the
manufacture of its products are readily available from several suppliers,
management considers this area to be of minimal risk.
The Company plans to complete all necessary purchases, installations, and
evaluations by December 31, 1998.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were voted upon at the Company's annual meeting of
shareholders held on August 20, 1998.
1. The election of three (3) directors of the Company to serve
until the Company's 2000 annual meeting of shareholders.
<TABLE>
For Withheld
--- --------
<S> <C> <C>
James L. Kehoe 3,769,965 63,600
Samuel Schwartz 3,769,765 63,800
J. Duncan Urquhart 3,769,965 63,600
</TABLE>
2. The election of one (1) director of the Company to serve until
the Company's 1999 annual meeting of shareholders.
<TABLE>
For Withheld
--- --------
<S> <C> <C>
Christopher L. Coccio 3,767,965 65,600
</TABLE>
3. Ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending
February 28, 1999.
<TABLE>
For Against Abstained
--- ------- ---------
<S> <C> <C>
3,751,176 53,301 29,088
</TABLE>
There were no broker non-votes.
Item 5. Other Information
The Securities and Exchange Commission has recently amended Rules 14a-4 and
14a-5 promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), in respect of the Company's exercise of discretionary voting
authority in connection with annual shareholder meetings, and in particular with
respect to matters not submitted under the Shareholder Proposal rule set forth
in Rule 14a-8 under the 1934 Act.
Under the amended Rules, a company is permitted discretionary voting authority
in those instances in which the company did not have notice of the matter by a
date more that 45 days before the month and day in the current year
corresponding to the date on which the company first mailed its proxy materials
for the prior year's annual meeting of shareholders, or by a date established by
an overriding advance notice provision in a company's articles of incorporation
or bylaws. The Company has not implemented such an advance notice provision.
Accordingly, in connection with the 1999 Annual Meeting of Stockholders of the
Company, the date after which notice of a stockholder proposal submitted outside
the processes of Rule 14a-8 under the 1934 Act is considered untimely is June 4,
1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
4.1 Note of James L. Kehoe dated August 14, 1998 in the principal
sum of $16,700
4.2 Note of Samuel Schwartz dated August 17, 1998 in the
principal sum of $25,000
10. 1993 Employee Stock Option Plan as Amended on June 26, 1998
27. Financial Data Schedule - EDGAR filing only
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 15, 1998
SONO-TEK CORPORATION
(Registrant)
By: /s/ James L. Kehoe
_____________________________
James L. Kehoe
Chief Executive Officer
By: /s/ Kathleen N. Martin
______________________________
Kathleen N. Martin
Treasurer & Chief Financial Officer
<PAGE>
Exhibit 4.1
PROMISSORY NOTE
UNSECURED DEMAND
$16,700 August 14, 1998
- ------- ---------------
For value received, Sono-Tek Corporation (the "Borrower"), hereby promises to
pay to the order of James L. Kehoe (the "Lender") sixteen thousand seven hundred
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 10.5%. 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 the Lender to effect this loan.
Borrower: Sono-Tek Corporation
2012 Route 9W, Building 3
Milton, NY 12547
Signature /s/ Harvey L. Berger
---------------------------
Harvey L. Berger, President
Signature /s/ Kathleen N. Martin
---------------------------
Kathleen N. Martin, CFO and Treasurer
<PAGE>
Exhibit 4.2
PROMISSORY NOTE
UNSECURED DEMAND
$25,000 August 17, 1998
- ------- ---------------
For value received, Sono-Tek Corporation (the "Borrower"), hereby promises to
pay to the order of Samuel Schwartz (the "Lender") twenty five 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 10.5%. 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 the Lender to effect this loan.
Borrower: Sono-Tek Corporation
2012 Route 9W, Building 3
Milton, NY 12547
Signature /s/ Harvey L. Berger
---------------------------
Harvey L. Berger, President
Signature /s/ Kathleen N. Martin
---------------------------
Kathleen N. Martin, CFO and Treasurer
<PAGE>
Exhibit 10
SONO-TEK CORPORATION 1993 STOCK INCENTIVE PLAN
OCTOBER 12, 1993 AS AMENDED JUNE 26, 1998
I. OBJECTIVE OF THE PLAN.
The purpose of this 1993 Stock Incentive Plan [the "Plan"] is to enable Sono-Tek
Corporation [the "Company" or "Sono-Tek"] to compete successfully in attracting,
motivating, and retaining employees, directors, and consultants with outstanding
abilities by making it possible for them to purchase shares of Sono-Tek's Common
Stock on terms which will give them a more direct and continuing interest in the
future success of the Company's business.
This Plan is intended to establish a policy of encouraging ownership of the
Company's Common Stock by employees, directors, and consultants of Sono-Tek and
of providing incentives for them to put forth maximum efforts for it's
successful operations. By extending to such individuals the opportunity to
acquire proprietary interests in Sono-Tek and to participate in its success, the
Plan may be expected to benefit Sono-Tek and its shareholders by making it
possible for Sono-Tek to attract and retain the best available talent and by
rewarding such individuals for their part in increasing the value of the
Company's stock.
2. DEFINITIONS.
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:
2.1 "Award" shall mean Options granted pursuant to this Plan.
2.2 "Award Agreement" shall mean the agreement between the Award Recipient and
Sono-Tek setting forth the terms and conditions of an Award.
2.3 "Award Recipient" shall mean an individual who receives an Award pursuant to
this Plan.
2.4 "Board" and "Board of Directors" shall mean the board of directors of
Sono-Tek.
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.6 "Common Stock" shall mean shares of the common stock of Sono-Tek with a par
value of $.0l.
2.7 "Company" means Sono-Tek Corporation, a New York corporation with its
principal offices at 2012 Route 9W, Bldg. 3, Milton, New York 12547.
2.8 "Continuous Employment" shall mean continuous regular employment by
Sono-Tek. A leave of absence granted in accordance with Sono-Tek's usual
procedure which does not operate to interrupt continuous employment for
other benefits granted by Sono-Tek shall not be considered a termination of
employment nor an interruption of Continuous Employment hereunder, and an
employee who is granted such a leave of absence shall be considered to be
continuously employed during the period of such leave; provided, that if
regulations under the Code or an amendment to the Code shall establish a
more restrictive definition, of a leave of absence, such definition shall
be substituted herein.
2.9 "Non-Employee Director" shall mean any director who is not an employee of
the Company.
2.10 "Consultant" shall mean any individual or organization retained by the
Company to provide consulting services.
2.11 "Incentive Stock Options" shall mean those Options granted hereunder as,
and intended to be, Incentive Stock Options as defined in, and which by
their terms comply with, the requirements for such options set out in
Section 422 of the Code, and Treasury Regulations issued pursuant thereto.
2.12 "Non-Qualified Stock Options" shall mean those Options granted hereunder
which are not Incentive Stock Options as described in paragraph 2.11.
2.13 "Option" shall mean an option to purchase Common Stock granted pursuant to
the provisions of this Plan.
2.14 "Ten Percent Shareholder" shall mean an individual who owns, within the
meaning of Section 422 (b) (6) of the Code, stock possessing more than (1
0%) percent of the total combined voting power of all classes of stock of
Sono-Tek.
3. STOCK RESERVED FOR THE PLAN.
Seven hundred fifty thousand (750,000) shares of the authorized but unissued
Common Stock are reserved for issue and may be issued pursuant to Awards under
the Plan.
In lieu of such unissued shares, Sono-Tek may, in its discretion, transfer, on
the exercise of Options, reacquired shares or shares bought in the market for
the purposes of the Plan, provided that (subject to the provisions of paragraph
13) the total number of shares which may be granted or sold pursuant to Awards
granted under the Plan shall not exceed 750,000.
If any Awards granted under the Plan shall for any reason terminate or expire
without having been exercised, the Common Stock not issued under such Awards
shall be available again for the purposes of the Plan.
4. ADMINISTRATION OF THE PLAN.
4.1 The Board of Directors shall administer the Plan. The Board shall have full
authority in its discretion, but subject to the express Provisions of the Plan,
to determine: the individuals to whom, and the time or times at which, Awards
shall be granted; the number of shares to be covered by each Award; the purchase
price of the Common Stock covered by each Option; whether Options shall be of
the Incentive Stock Option type, or the Non-Qualified Stock Option type, or
both. The Board shall further have full authority at its discretion to interpret
the Plan; to prescribe, amend and rescind rules and regulations relating to it;
to determine the terms (which need not be identical) of Award Agreements
executed and delivered under the Plan, including such terms and provisions as
shall be requisite in the judgment of the Board to conform to any change in any
law or regulation applicable thereto; and to make all other determinations
deemed necessary or advisable for the administration of the Plan. The Board's
determination on the foregoing matters shall be conclusive.
4.2 Notwithstanding the provisions of paragraph 4.1, the selection of officers
and directors for participation in the Plan and decisions concerning the timing,
pricing and amount of an Award may, at any time and from time to time, be
delegated by the Board of Directors to a committee (the "Committee"). The
Committee shall be not less than two directors and shall be comprised solely of
Non-Employee Directors, as defined by Rule 16b-3(b)(3)(i) of the Securities
Exchange Act of 1934 ("1934 Act"), or any successor definition adopted by the
Securities Exchange Commission, and who shall each also qualify as an Outside
Director for purposes of Section 162(m) of the Code. Any vacancy occurring on
the Committee may be filled by appointment by the Board. The Board at its
discretion may from time to time appoint members to the Committee in
substitution of members previously appointed, may remove members of the
Committee and may fill vacancies, however caused, in the Committee."
5. ELIGIBILITY; FACTORS TO BE CONSIDERED IN GRANTING AWARDS.
5.1 Incentive Stock Options or Non-Qualified Stock Options may be granted to any
person who, at the time the Award is granted, is a regular, salaried employee
(which term shall include officers and Directors who are regular, salaried
employees) of Sono-Tek. A member of the Board of Directors of the Company who is
not also a regular, salaried employee of Sono-Tek, will not be eligible to
receive Incentive Stock Options. Further, no Incentive Stock Options may be
granted hereunder to an individual who, immediately after such Option is
granted, is a Ten Percent Shareholder, unless (i) the option price is at least
110% of the fair market value of such stock on the date of grant and (ii) the
Option may not be exercised more than 5 years after the date of grant. In
determining the employees to whom Awards shall be granted, the number of shares
of Common Stock to be covered by each Award, the term of any Option, and whether
any such Option shall be an Incentive Stock Option, a Non-Qualified Stock
Option, or both, the Board or committee, as the case may be, shall take into
account the duties of the respective employees, their present and potential
contributions to the success of Sono-Tek and such other factors as they shall
deem relevant in connection with accomplishing the purpose of the Plan. An
employee who has been granted an Award may be granted and hold an additional
Award or Awards if the Board or committee so determines. 5.2 Non-Qualified Stock
Options may be granted to Non-Employee Directors and Consultants to the Company.
In determining the Non-Employee Directors and Consultants to whom Awards shall
be granted, and the term and the number of shares of Common Stock to be covered
by each Award, the Board or committee shall take into account the duties of such
individuals, their contributions to the Success of the Company, and other such
factors as they shall deem relevant in connection with accomplishing the purpose
of the Plan. Such individuals or organizations may be granted and hold an
additional Award or Awards if the Board or committee so determines.
6. OPTION PRICES.
The purchase price of Common Stock covered by each Option shall be determined by
the Board or committee, as the case may be, but shall not be less than 100% (or
110% in the case of an Incentive Stock Option granted to a Ten Percent
Shareholder) of the fair market value of the Common Stock at the time the Option
is granted. The fair market value shall mean the simple average of the high and
low sales prices of the Common Stock as reported in the report of composite
transactions (or other source designated by the Board or committee) on the date
on which the Option is granted.
7. TERM OF OPTIONS.
The term of each Option shall be for such period as the Board shall determine,
but not more than ten years (or 5 years in the case of an Incentive Stock Option
granted to a Ten Percent Shareholder) from the date of granting thereof, and
shall be subject to earlier termination as hereinafter provided. If the original
term of any Option is less than ten years (or 5 years in the case of an Option
granted to a Ten Percent Shareholder) from the date of granting, the Option,
prior to its expiration, may be amended, with the approval of the Board and the
employee, to extend the term so that the term as amended is not more than ten
years (or 5 years in the case of an Incentive Stock Option granted to a Ten
Percent Shareholder) from the original date of granting of such Option. To the
extent not otherwise prohibited by law, such extension shall not constitute the
grant of a new Option and the purchase price specified in such Option need not
be increased.
8. EXERCISE OF OPTIONS.
8.1 In the case of Awards granted to employees, each Option shall provide that
it may be exercised as to forty-five percent of the total number of shares
covered by such Option on or after the date on which the employee shall have
completed at least one year of Continuous Employment after the Option was
granted, and as to an additional thirty-five percent of the total number of
shares covered by such Option on or after the date on which the employee shall
have completed at least two years of Continuous Employment after the Option was
granted, and as to the final twenty percent of the total number of shares
covered by such Option on or after the date on which the employee shall have
completed at least three years of Continuous Employment after the Option was
granted, so that upon completion of the third year of such Continuous Employment
after granting the Option, the holder will have become entitled to purchase the
entire number of shares covered by the Option; provided that the Board shall
have authority to vary in advance of grant and from time to time after grant,
the period of Continuous Employment which shall be required for the exercise of
Options granted hereunder.
8.2 In the case of Awards granted to Non-Employee Directors each such Option
shall provide that it may be exercised as to one-half the total number of shares
covered by such Option on or after the date in which the Non-Employee Director
shall have completed at least one year of service after the Option was granted
and as to the remainder of the total number of shares covered by such option on
or after the date of which such Non-Employee Director will have completed at
least two years of continued service, provided that the Board shall have the
authority to vary in advance of grant and from time to time after grant the
period of service which shall be required for the exercise of Options granted
hereunder.
8.3 In the case of Awards granted to Consultants, each such Option shall provide
that it may be exercised as to one-half of the total number of shares covered by
such Option one year on or after the date the Option was granted and as to the
remainder of the total number of shares covered by such Option, two years after
the date the Option was granted. The Board shall have the authority to vary in
advance of grant and from time to time after grant the exercise period of such
grant.
8.4 Unless otherwise provided in the Award Agreement, a holder of an Option may
purchase all or from time to time any part of, the shares for which the right to
purchase has accrued to him in accordance with the terms of this paragraph;
provided, however, that an Option shall not be exercised as to fewer than 50
shares, or all the remaining shares covered by the Option, if fewer than 50, at
any one time. The purchase price of the shares as to which an Option shall be
exercised shall be paid in full at the time of exercise. at the election of the
holder of an Option (i) in cash or currency of the United States of America, or
by certified check made payable to the Company in U.S. dollars, (ii) by
tendering to Sono-Tek shares of the Company's Common Stock, then owned at least
six months by him, having a fair market value equal to the cash exercise price
applicable to the purchase price of the shares as to which an Option is being
exercised, or (iii) partly in cash or certified check and partly in shares of
Sono-Tek's Common Stock valued at fair market value. Such fair market value
shall be determined as of the close of the business day immediately preceding
the day on which the Option is exercised, in the manner set forth in paragraph
6. Fractional shares of Common Stock will not be issued. Notwithstanding the
foregoing, the Board shall have the right to modify, amend or cancel the
provisions of clauses (ii) and (iii) above at any time upon prior notice to the
holders of Options. Except as provided in paragraphs 10 and 11 hereof, no Option
may be exercised at any time unless the holder thereof is then a regular
employee of Sono-Tek or any Subsidiary. The holder of an Option shall have none
of the rights of a stockholder with respect to the shares subject to option
until such shares shall have been registered upon the exercise of the Option on
the transfer books of the Company in the name of the person or persons
exercising the Option.
8.5 Notwithstanding any other provision of this Plan or any Option granted
hereunder, any Option granted hereunder and then out-standing shall become
immediately exercisable in full (i) in the event a tender offer or exchange
offer is made by any "person" within the meaning of Section 14 (d) of the
Securities Exchange Act of 1934 (the "Act") or (ii) in the event of a Change in
Control; provided that, if in the opinion of counsel to Sono-Tek the immediate
exercisability of such Option, when taken into consideration with all other
"parachute payments" as defined in Section 280G of the Code, would result in an
"excess parachute payment" as defined in such section, such Option shall not
become immediately exercisable except as and to the extent the Board in its
discretion otherwise determines. For purposes of this Section, a "Change in
Control" shall have occurred if (i) any "person" within the meaning of Section
14 (d) of the Act other than a holder of any Common Stock or Preferred Stock of
the Company on the date this Plan is approved by the Board becomes the
"beneficial owner" as defined in Rule 13d-3 thereunder, directly or indirectly,
of more than 25% of Sono-Tek's Common Stock, (ii) during any two-year period,
individuals who constitute the Board of Directors of Sono-Tek (the "Incumbent
Board") as of the beginning of the period cease for any reason to constitute at
least a majority thereof, provided that any person becoming a member of the
Board of Directors during such period whose election or nomination for election
by Sono-Tek's stockholders was approved by a vote of at least three-quarters of
the Incumbent Board (either by a specific vote or by approval of the proxy
statement of Sono-Tek in which such person is named as a nominee for the Board
of Directors without objection to such nomination) shall be, for purposes of
this clause (ii), considered as though such person were a member of the
Incumbent Board, or (iii) the approval by Sono-Tek's stock holders of the sale
of all or substantially all of the assets of Sono-Tek. The Board may adopt such
procedures as to notice and exercise as may be necessary to effectuate the
acceleration of the exercisability of Options as described above.
8.6 The aggregate fair market value (determined as of the date the Option is
granted) of the stock with respect to which Incentive Stock Options granted
under the Plan and all other stock option plans of Sono-Tek are exercisable for
the first time by any specific individual during any calendar year shall not
exceed $100,000.
9. NONTRANSFERABILITY OF OPTIONS
An Option granted under the Plan shall not be transferable otherwise than by
will or the laws of descent and distribution, and an Option may be exercised,
during the lifetime of the employee, only by him or her.
10. TERMINATION OF EMPLOYMENT
10.1 If an employee receiving an Option shall at any time not be an employee of
Sono-Tek, the Option shall at once terminate, except as provided hereinafter in
this paragraph. In the event that the employment of an employee to whom an
Option has been granted under the Plan shall be terminated (other than
termination by the Company for cause as determined by the Board, or by reason of
retirement, disability or death) such Option may, subject to the provisions of
paragraphs "8" and "11", be exercised, to the extent that the employee was
entitled to do so at the date of termination of his or her employment, at any
time within sixty (60) days after such termination, but in no event after the
expiration of the term of the Option. Options granted under the Plan shall not
be affected by any change of duties or position so long as the holder continues
to be an employee of Sono-Tek. 10.2 If a Non-Employee Director awarded an Option
shall at any time cease to be a Director of the Company, the Option shall at
once terminate, except as provided hereinafter in this paragraph. In the event
the Non-Employee Director awarded an Option under the Plan shall be terminated
(other than termination by the Company for cause as determined by the Board, or
by reason of retirement, disability, or death) such Option may, subject to the
provisions of paragraphs "8" and "11", be exercised, to the extent that the
Director was entitled to do so at the date of termination of his or her service,
at any time within six months after such termination, but in no event after the
expiration of the term of the Option.
10.3 An Option granted to a Consultant may, subject to the provisions of
paragraphs "8", and "11" be exercised, to the extent that the Consultant was
entitled to do so at the date of the termination of his or her consulting
services, at any time within one year after such termination, but in no event
after the expiration of the term of the Option.
11. RETIREMENT, DISABILITY OR DEATH OF EMPLOYEE.
If an employee to whom an Option has been granted under the Plan shall retire
from Sono-Tek at normal retirement date pursuant to any pension plan provided by
Sono-Tek, or if such retirement is earlier than the employee's normal retirement
date, and such retirement is with the prior consent of Sono-Tek, or if an
employee is totally and permanently disabled, such Option may be exercised,
notwithstanding the provisions of paragraphs "8" and "10" hereof, in full
without regard to the period of Continuous Employment after the Option was
granted at any time (a) in the case of an Incentive Stock Option within 90 days
after such retirement or disability retirement, but in no event after the
expiration of the term of the Option or (b) in the case of a Non-Qualified Stock
Option within 5 years after such retirement or disability retirement, but in no
event after the expiration of the term of the Option.
If a person to whom an Option has been granted under the Plan shall die while he
or she is employed by or in the service of Sono-Tek, such Option may be
exercised, subject to the provisions of paragraph "8", to the extent that such
person was entitled to do so at the date of his death, by his executor or
administrator or other person at the time entitled by law to such person's
rights under the Option, at any time within such period, not exceeding one year
after his or her death, as shall be prescribed in the Award Agreement, but in no
event after the expiration of the term of the Option.
12. NO LOANS TO HOLDERS OF OPTIONS.
Neither Sono-Tek, nor any company with which it is affiliated may directly or
indirectly lend money to any person for the purpose of assisting him or her to
acquire or carry shares of the Common Stock issued upon the exercise of Options
granted under the Plan.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Notwithstanding any other provision of the Plan, the Award Agreements may
contain such provisions as the Board shall determine for the adjustment of the
number and class of shares covered by each outstanding Award, the option prices
and the minimum numbers of shares as to which Awards shall be exercisable at any
one time in the event of changes in the outstanding Common Stock by reason of
stock dividends, split-ups, spin-offs, recapitalizations, mergers,
consolidations, combinations or exchanges of shares and the like; and, in the
event of any such change in the outstanding Common Stock, the aggregate number
and class of shares available under the Plan and the maximum number of shares as
to which Awards may be granted to any employee shall be appropriately adjusted.
14. SHARE WITHHOLDING.
With respect to any Award, the Board may, in its discretion and subject to such
rules as the Board may adopt, permit the employee to satisfy, in whole or in
part, any withholding tax obligation which may arise in connection with an Award
by election to have Sono-Tek withhold Common Stock having a fair market value
(calculated in accordance with paragraph "6" on the date the amount of
withholding tax is determined) equal to the amount of the withholding tax.
15. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing in the Plan or in any Award granted or Award Agreement entered into
pursuant to the Plan shall confer upon any employee the right to continue in the
employ of Sono-Tek or interfere with the right of Sono-Tek to terminate his or
her employment at any time.
16. TIME OF GRANTING AWARDS.
Nothing contained in the Plan or in any resolution to be adopted by the holders
of voting stock of Sono-Tek shall constitute the granting of any Award
hereunder. An Award pursuant to the Plan shall be deemed to have been granted on
the date on which the name of the recipient and the terms of the Award are
determined by the Board.
17. TERMINATION AND AMENDMENT OF THE PLAN.
Unless the Plan shall have been terminated as hereinafter provided, no Award
shall be granted hereunder after October 12, 2003. The Board of Directors of
Sono-Tek may at any time prior to that date terminate the Plan or make such
modification or amendment of the Plan as it shall deem advisable; provided,
however, that no amendment may be made, without the approval by the holders of
voting, stock of Sono-Tek, except as provided in paragraph 13 hereof, which
would (i) increase the maximum number of shares for which Awards may be granted
under the Plan, (ii) change the manner of determining the minimum option prices,
(iii) extend the period during which an Award may be granted or an Option
exercised, or (iv) amend the requirements as to the class of persons eligible to
receive Awards. No termination, modification, or amendment of the Plan or of any
Award under the Plan, may, without the consent of the person to whom an Award
shall theretofore have been granted, adversely affect the rights of such person
under such Award.
18. GOVERNMENT REGULATIONS.
The Plan and the granting and exercising of Awards thereunder, and the
obligation of Sono-Tek to issue, sell and deliver shares, as applicable, under
such Awards, shall be subject to all applicable laws, rules and regulations. In
particular, and without limiting the generality of the foregoing, as a condition
to the exercise of any Award, the Company may require the holder of an Option to
deliver to the Company (i) a written certificate of the holder (or his personal
representative, as the case may be) to the effect that he is purchasing such
shares for investment and not with a view to the sale or distribution of any
such shares and (ii) such other certificates, representations and agreements of
the holder (or his personal representative, as the case may be) as may be
required under the Plan or as the Company shall also require in order that the
Company may be reasonably assured that the issuance, delivery, and disposition
of such shares are being and will be effected in compliance with the Securities
Act of 1933, as amended (the "Act"), the Rules and Regulations thereunder, other
applicable law, and the rules of each stock exchange upon which the shares of
Common Stock are listed, if any; provided, however, that if the offer and sale
of shares of Common Stock upon exercise of Options granted under the Plan is
registered under the Act, the holder (or his personal representative, as the
case may be) need not furnish the certificate described in clause (i) of this
sentence. Certificates evidencing shares of Common Stock issued upon exercise of
the Option may contain such legends reflecting any restrictions upon sale or
transfer as in the view of counsel to the Company may be necessary to the lawful
and proper issuance of such certificates.
19. SHAREHOLDER APPROVAL.
The Plan shall become effective upon adoption by the Board. The Plan shall be
subject to approval by the affirmative vote of the holders of a majority of all
outstanding shares of capital stock of the Company entitled to vote thereon
within one (1) year before or after adoption of the Plan by the Board. In the
event such shareholder approval is withheld or otherwise not received within the
given time period, the Plan and all options which may have been granted
thereunder shall become null and void.
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