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, 1999
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, 1999
Common Stock, par value $.01 per share 8,218,962
<PAGE>
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Consolidated Balance Sheets -
August 31, 1999 (Unaudited) and February 28, 1999 1
Consolidated Statements of Operations - Six Months and Three Months
Ended August 31, 1999 and 1998 (Unaudited) 2
Consolidated Statements of Cash Flows - Six Months Ended
August 31, 1999 and 1998 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 13
Part II - Other Information 13
Item 3 - Quantitative and Qualitative Disclosure About Market Risk -
Not applicable
Signatures 14
<PAGE>
<TABLE>
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
August 31, February 28,
<S> <C> <C>
1999 1999
Current Assets Unaudited
------------------------------
Cash and cash equivalents $ 58,097 $ 70,051
Accounts receivable (less allowance of $6,915 and $6,000
at August 31 and February 28, respectively) 976,393 264,217
Inventories (Note 5) 857,443 787,200
Prepaid expenses and other current assets 57,937 42,039
------------ ------------
Total current assets 1,949,870 1,163,507
Equipment and furnishings (less accumulated depreciation and
of $425,453 and $407,486 at August 31 and February 28,
respectively) 157,765 127,892
Goodwill (less accumulated amortization of $6,928 at August 31) (Note 3) 1,240,108 0
Patents, patents pending and copyrights (less accumulated
amortization of $82,044 and $78,697 at August 31 and
February 28, respectively) 34,985 38,333
Other assets 30,572 5,917
------------- --------------
TOTAL ASSETS $3,413,300 $1,335,649
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt (Note 7) $ 187,592 $ 10,503
Short term loans-related parties (Note 6) 215,000 88,000
Revolving line of credit 299,948 199,948
Accounts payable 695,434 324,192
Accrued expenses 435,870 267,948
---------- ----------
Total current liabilities 1,833,844 890,591
Long term debt, less current maturities (Note 7) 329,022 37,293
Long term loans-related parties (Note 6) 150,000 0
Customer deposits 47,847 0
Noncurrent rent payable 9,582 9,083
------------ -----------
Total liabilities 2,370,295 936,967
--------- ----------
Stockholders' Equity
Common stock, $.01 par value; 12,000,000 shares authorized, 8,138,961 and
6,281,667 outstanding at August 31 and
February 28, respectively 81,390 62,817
Additional paid-in capital 5,391,216 4,735,975
Accumulated deficit (4,429,601) (4,400,110)
----------- ----------
Total stockholders' equity 1,043,005 398,682
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,413,300 $1,335,649
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended August 31, Three Months Ended August 31,
Unaudited Unaudited
1999 1998 1999 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net Sales $2,108,428 $1,716,299 $1,303,099 $970,257
Cost of Goods Sold 986,544 908,987 643,793 492,495
---------- --------- --------- ---------
Gross Profit 1,121,884 807,312 659,306 477,762
---------- --------- --------- ---------
Operating Expenses
Research and product development costs 259,356 262,667 148,108 128,469
Marketing and selling expenses 484,696 370,616 267,591 204,354
General and administrative costs 290,854 238,874 174,655 123,572
--------- ---------- ------- --------
Total Operating Expenses 1,034,906 872,157 590,353 456,395
---------- --------- ------- ---------
Operating Income (Loss) 86,978 (64,845) 71,772 21,367
Interest Expense (Note 6) (129,037) (27,849) (16,269) (14,249)
Interest and Other Income 12,568 1,531 6,099 423
---------- ---------- --------- -----------
(Loss) Income Before Income Taxes (29,492) (91,163) 61,602 7,541
Income Tax Expense (Note 8) 0 0 0 0
---------- ---------- ----------- ------------
Net (Loss) Income $(29,492) $(91,163) $61,602 $7,541
======== ========= ======= ======
Basic (Loss) Earnings Per Share $(0.00) $(0.02) $0.01 $0.00
======= ======= ===== =====
Diluted (Loss) Earnings Per Share $(0.00) $(0.02) $0.01 $0.00
======= ======= ===== =====
Weighted Average Shares - Basic 6,594,581 4,374,387 6,907,494 4,374,387
========= ========= ========= =========
Weighted Average Shares - Diluted 6,594,581 4,374,387 8,194,809 4,931,126
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended August 31,
Unaudited
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $(29,492) $(91,163)
Adjustments to reconcile net loss income to net cash
used in operating activities:
Non-cash charge for issuance of warrants 102,626 0
Depreciation and amortization 34,318 21,800
Provision for doubtful accounts 915 6,000
(Increase) decrease in:
Accounts receivable (506,718) 352,295
Inventories 14,019 (173,270)
Prepaid expenses and other current assets 15,732 (26,226)
Increase (decrease) in:
Accounts payable and accrued expenses 276,369 (118,182)
Customer deposits 31,847 0
Non-current rent payable 499 496
---------- -----------
Net Cash Used in Operating Activities (59,885) (28,250)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition costs net of cash received (315,518) 0
Purchase of equipment and furnishings (6,469) (16,489)
-------- -----------
Net Cash Used in Investing Activities (321,986) (16,489)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 100,000 99,948
Proceeds from short term loans-related party 127,000 41,700
Proceeds from issuance of stock 222,000 0
Financing costs paid (10,000) 0
Repayments of short term loans-related party 0 (41,700)
Repayments of long term loans-related party (50,000) 0
Repayments of long term debt (19,083) (50,690)
------- -------
Net Cash Provided by Financing Activities 369,917 49,258
------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (11,954) 4,519
CASH AND CASH EQUIVALENTS
Beginning of period 70,051 113,759
-------- --------
End of period $58,097 $118,278
======= ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 12,846 $ 8,167
========= ==========
Non-cash exchange of accrued bonuses
for common stock $ 17,188 $0
========= ==
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
August 31, 1999 and 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements of Sono-Tek
Corporation (the "Company") include the accounts of the Company and its wholly
owned subsidiary, S&K Products International, Inc. ("S&K") which was acquired by
the Company on August 3, 1999. All significant intercompany accounts and
transactions are eliminated in consolidation. The acquisition of S&K has an
effect on the comparison of the Company's fiscal year 2000 results to prior
periods because S&K was included in the Company's results of operations for only
28 days in the second quarter of fiscal year 2000.
Interim Reporting - The attached summary consolidated 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, 1999, and included in its report on Form 10-K. Such
statements should be read in conjunction with the data herein.
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 presented. The results for such interim periods are not necessarily
indicative of the results to be expected for the year.
NOTE 2: SEGMENT INFORMATION
The Company has adopted the Statement of Financial Accounting Standard No 131
("SFAS 131") "Disclosures About Segments of an Enterprise and Related
Information". The Company has two reportable segments: spraying products and
cleaning systems. The spraying products segment is primarily engaged in the
business of developing, installing and servicing ultrasonic spray equipment for
industrial uses, and manufacturing all products for both segments. The cleaning
systems segment is engaged in the business of developing, installing and
servicing cleaning systems for the semiconductor, disk drive and precision
cleaning industries.
Summary financial information concerning the Company's reportable segments is
shown in the following table:
<TABLE>
<CAPTION>
Six Months Ended August 31, 1999
Spraying Cleaning
Products Systems Total
<S> <C> <C> <C>
Net Sales $2,020,653 $87,775 $2,108,428
Net Loss (1,274) (28,218) (29,492)
Identifiable Assets 1,685,714 1,727,586 3,413,300
Capital Expenditures 6,469 0 6,469
Depreciation and Amortization Expense 27,785 7,386 34,318
</TABLE>
The Company operated in a single reportable segment for the six months ended
August 31, 1998.
NOTE 3: ACQUISITION
On August 3, 1999 the Company purchased all the outstanding stock of S&K, a
supplier of cleaning and drying systems for the semiconductor, disk drive, and
precision cleaning industries. S&K is a wholly owned subsidiary of the Company.
The aggregate consideration tendered by the Company in respect to the
acquisition described above was $5,000 of cash and 810,000 shares of the
Company's common stock with a valuation of $0.30 per share. Also at the time of
the closing, two stock grants for a total of 250,000 shares of the Company's
common stock were made to two directors of the Company and 200,000 warrants were
issued to a non-employee director of the Company as an acknowledgment of their
services in consummating the acquisition. The value of the stock issued and
warrants granted to the non-employee director were accounted for as additional
purchase price. Professional fees of $101,345 associated with the acquisition
were also accounted for as additional purchase price. The fair value of net
assets acquired were:
Cash $26,648
Accounts Receivable 206,372
Inventory 84,263
Equipment & Furnishings 47,447
Other Assets 46,285
Accounts Payable (142,977)
Accrued Expenses (153,007)
Long Term Debt (687,901)
--------
Net Liabilities Assumed (572,870)
Acquisition Costs (674,166)
--------
Goodwill $1,247,036
==========
The goodwill will be amortized on the straight-line basis over 15 years.
Accumulated amortization at August 31, 1999 was $6,928.
The following unaudited proforma information presents a summary of the
consolidated results of operations of Sono-Tek and S&K as if the acquisition had
occurred on March 1, 1998.
<TABLE>
<CAPTION>
Proforma Consolidated Statement of Operations
Six months ended August 31,
1999 1998
---- ----
<S> <C> <C>
Net Sales $2,667,655 $3,096,606
Cost of Goods Sold 1,222,607 1,572,887
--------- ---------
Gross Profit 1,445,048 1,523,719
Operating Expenses 1,555,081 1,636,499
--------- ---------
Net Loss (110,033) (112,780)
Interest Expense (160,122) (79,557)
Interest & Misc. Income 28,970 (5,990)
----------- ------------
Net Loss $(241,185) $(198,327)
========== ==========
</TABLE>
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense as
a result of goodwill and the elimination of extraordinary items associated with
the S&K reorganization. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred on
March 1, 1998, or of future results of operations of the consolidated entities.
NOTE 4: PRIVATE PLACEMENT
On May 5, 1999, the Company issued a Private Placement Memorandum to raise
$500,000 by offering 1,666,667 shares of common stock at $0.30 per share. The
Company completed the sale of 740,000 shares of common stock (of which the
Company's officers and directors purchased 310,000) through August 31, 1999 for
$222,000. The gross proceeds were used to pay certain costs associated with the
acquisition of S&K and for working capital. Gross proceeds of the offering were
reduced by $30,000 for professional fees incurred during the offering. The
Company is continuing to offer additional shares pursuant to the Private
Placement Memorandum (Note 11).
NOTE 5: INVENTORY
Inventories at August 31, 1999 are comprised of:
Finished goods $189,443
Work in process 115,027
Raw materials and subassemblies 553,167
--------
Net total inventories $857,443
========
Note 6: RELATED PARTY LOANS
Short term loans - From time to time the Company has required short-term loans
to meet its payment obligations. All of these loans, which are payable on
demand, have been provided by certain officers and Directors of the Company at
an interest rate of prime plus 2% at the time of the loan (10.25% at August 31,
1999). As of August 31, 1999 the amount of these loans outstanding was $215,000.
Interest expense for the six-month period ended August 31, 1999 was $7,906.
Accrued interest was $9,226 and $1,320 at August 31, 1999 and February 28, 1999,
respectively.
On May 13, 1999, the Board of Directors granted to the Board members who
provided the short term loans 600,000 warrants exercisable at $0.30 per share
that expire May 13, 2004. The Company recognized a non-cash interest charge of
$102,626 for the immediate amortization of the discounted short-term loans that
had been discounted based on the fair market value of the warrants granted. The
Company estimated the fair market value of the warrants using the minimum value
method under the assumption that the estimated life of the warrants were 5
years, the discount rate was 5.25% and expected volatility of the Company's
common stock was 94%.
Long term loans - Two convertible subordinated notes for a total of $150,000
were converted from S&K debt to Company debt at the time of the acquisition. The
notes are subordinate to the long-term debt with S&K's bank. The notes are
payable August 3, 2002 with interest of 6%. The unpaid principal balance is
convertible into common stock at $1.00 per share.
NOTE 7: LONG TERM DEBT
<TABLE>
<CAPTION>
Long term debt consists of the following:
August 31 February 28
-------------------------------------
<S> <C> <C>
Equipment loan, bank, collateralized by related production equipment, payable in
monthly installments of $1,225, including interest at 2% over the bank's prime
rate (10.25% and 9.75% at August 31 and
February 28, 1999, respectively). $42,701 $47,796
Note payable, bank, collateralized by all assets of S&K,
personally guaranteed by two officers of S&K, payable in
monthly installments of $17,852, including interest at 9.5% 473,913 0
------- -----------
Total long term debt 516,614 47,796
Due within one year (187,592) (10,503)
--------- --------
Due after one year $329,022 $37,293
======== =======
</TABLE>
At August 31, 1999, long term debt is payable as follows:
August 31, 2000 $187,592
August 31, 2001 206,298
August 31, 2002 116,109
August 31, 2003 6,615
--------
$516,614
========
NOTE 8: INCOME TAXES
The Company has a net operating loss carryforward, therefore no income tax
expense is recorded for the six months ended August 31, 1999 and 1998. For
income tax purposes, Sono-Tek had available operating loss carryforwards of
approximately $3,632,000 at February 28, 1999. A valuation allowance has been
reported in an amount equal to the net deferred tax assets due to the Company's
inability to estimate it's ability to recover such amounts.
NOTE 9: EARNINGS PER SHARE
Basic earnings per share ("EPS") and loss per share ("LPS") are computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding for the period. Diluted EPS and LPS reflect the potential dilution
that could occur if securities or other obligations 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
and LPS calculations under the treasury stock method.
The computation of basic and diluted earnings (loss) per share are set forth on
the following table:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
August 31, August 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator-
Numerator for basic and diluted
earnings (loss) per share $(29,492) $(91,163) $61,602 $7,541
========= ========= ======= ======
Denominator:
Denominator for basic earnings (loss)
per share - weighted average shares 6,594,581 4,374,387 6,907,494 4,374,387
Effects of dilutive securities:
Stock warrants for directors 0* 0* 800,000 0
Stock options for employees, directors
and outside consultants 0* 0* 490,315 556,739
-------------- --------------- ---------- -------
Denominator for diluted earnings
(loss) per share 6,594,581** 4,374,387** 8,197,809** 4,931,126**
========= ========= ========= =========
</TABLE>
*Stock options and warrants for employees, directors and outside
consultants are antidilutive as a result of the net loss and therefore
are not considered in the Diluted LPS calculation.
**The effect of considering a) the detachable warrants related to
$530,000 of convertible secured subordinated promissory notes which
were converted to equity as of February 26, 1999 and b) the
convertible long term loans-related parties (Note 6) are antidilutive
and therefore not considered in the Diluted EPS and LPS per share
calculations.
Under the assumption that stock options, warrants and convertible long term
loans were not antidilutive as described in * and **, the denominator for
Diluted LPS would be 7,884,896 and 4,931,126 weighted average shares at August
31, 1999 and 1998 respectively.
On June 8, 1999, the Board of Directors of the Company granted options to
acquire 42,500 shares of common stock to qualified employees of the Company,
exercisable at the fair market value on the date of grant, under the 1993 Stock
Incentive Plan. On June 25, 1999, three Directors cancelled options to acquire a
total of 40,000 shares of common stock.
NOTE 10: OPERATING LEASES
The Company leases an office and manufacturing facility in Milton, NY 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, but that option was
not exercised. The Company is making payment on a month-to-month basis equal to
the amount that would have been required per month if the option had been
exercised.
The Company leases an office and warehouse facility in Chestnut Ridge, NY under
a one year lease that was signed at the time of the acquisition of S&K for a
base annual rental fee of $92,000. The building is owned by an officer of S&K.
The rent expense was $9,000 for the six-month period ended August 31, 1999.
NOTE 11: SUBSEQUENT EVENTS
On September 29, 1999, the Company entered into a Note and Warrant Purchase
Agreement with a venture capital corporation ("VCC") whereby the Company
borrowed $450,000 due on September 29, 2004 pursuant to a Note payable (the
"Note") and granted the VCC warrants to purchase 1,100,000 shares of the
Company's common stock at an exercise price equal to the fair market value of
$0.30 per share. The warrants expire six years following the repayment of the
Note. Interest on the Note is payable monthly at the rate of 12% per year. The
value associated with the warrants and professional fees incurred in connection
with this agreement will be amortized over the term of the Note. Payments on the
Note are interest only for the first two years, with the principal balance
amortizing equally over the remaining three years. The Note is collateralized by
all assets of the Company, subordinated to the existing lien in favor of the
Company's bank securing its line of credit.
During September 1999, the Company sold 80,000 shares of the Company's common
stock under the terms of the May 5, 1999 Private Placement Memorandum for
$24,000. The Company is continuing to offer up to an additional 346,667 shares
for $104,000 (Note 4).
At the 1999 Annual Meeting held on September 30, 1999, the Company's
shareholders approved an increase to the number of shares that can be issued
pursuant to the 1993 Stock Incentive Plan (the "Plan") to employees, directors,
and consultants to the Company from seven hundred fifty thousand (750,000) to
one million five hundred thousand (1,500,000), effective immediately. The
shareholders further agreed to amend the Plan to permit the granting of
Incentive Stock Options or Non-Qualified Stock Options to any person who, at the
time the Award is granted, is regularly employed by the Company or any
"subsidiary corporation" of the Company, as that term is defined by section
424(f) of the Code, which change shall be effective as if originally included at
the Plan's inception.
At the 1999 Annual Meeting held on September 30, 1999, the Company's
shareholders approved an increase to the number of authorized shares of common
stock of the Company, $0.01 par value, from 12,000,000 to 25,000,000.
<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.
The Company undertakes no obligation to update publicly any forward-looking
statements.
Liquidity and Capital Resources
The Company's working capital decreased $156,890 from $272,916 at February 28,
1999 to $116,026 at August 31, 1999. The decrease in working capital was
primarily a result of an increase in accounts receivable and inventories of
$782,000 that was offset by an increase in short term loans and current
liabilities of $943,000.
The Company's stockholders' equity increased $644,323 from $398,682 on February
28, 1999 to $1,043,005 on August 31, 1999. Of this increase, $222,000 was due to
the sale of 740,000 shares of common stock through the Private Placement
Memorandum dated May 5, 1999, $102,626 was due to the issuance of 600,000
warrants, $332,000 was due to the issuance of 960,000 shares of common stock and
200,000 warrants to purchase common stock related to the acquisition of S&K and
$17,000 was due to the conversion of accrued expense into 57,294 shares of
common stock, all of which were partially offset by the $29,000 loss for the six
months ended August 31, 1999.
The Company currently has a $300,000 line of credit with a bank. The loan is
collateralized by accounts receivable, inventory and all other personal property
of the Company and is guaranteed by the Chairman and CEO of the Company. As of
August 31, 1999 the outstanding balance was $299,948. Due to losses incurred
during Fiscal 1999, the Company was required to borrow on a short-term basis
from certain officers and Directors of the Company. As of August 31, 1999 the
balance owed the officers and Directors was $215,000. A $150,000 related party
loan to S&K was assumed at the time of acquisition and converted into
subordinated convertible debt, payable August 3, 2002.
On September 30, 1999 the Company signed a 5-year note with a venture group for
$450,000. The proceeds of this loan will be used for (i) professional fees
incurred in connection with the transaction, (ii) the acquisition of S&K, (iii)
paying loans, salary and accrued expenses to certain officers, (iv) the
reduction of trade payables, (v) acquiring limited fixed assets, and (vi)
general working capital and other corporate purposes of the Company and its
subsidiaries.
Although there can be no assurances, management believes that the continued
success of its new products, along with the improvement in the market for the
SonoFlux Systems will lead to broader markets and increases in sales and
profits. Management also believes that the acquisition of S&K will lead to
increased sales while at the same time realizing significant efficiencies by
integrating the operations of the two companies. With the increase in sales and
savings from the combined operation of both companies, management believes the
Company will be able to meet its current obligations as they become due.
Results of Operations
The Company's sales increased $392,129 from $1,716,299 for the six months ended
August 31, 1998 to $2,108,428 for the six months ended August 31, 1999. The
increase was due to $88,000 in sales of S&K's products, increased sales in MCSo
Infinity and Accuo Mist Systems of $151,000, pressure nozzles of $30,000 and
special orders of $137,000, that were offset by a decrease in nozzle sales of
$33,000 and a decrease in SonoFlux Systems sales of $88,000. The Company
believes that the electronics industry has begun to improve as demonstrated by
an increase in SonoFlux sales between the last half of fiscal year 1999 and the
first half of fiscal 2000.
The Company's sales increased $332,842 from $970,257 for the three months ended
August 31, 1998 to $1,303,099 for the three months ended August 31, 1999. The
increase was due to $88,000 in sales of S&K's products, an increase in MCSo
Infinity and Accuo Mist Systems of $115,000, pressure nozzles of $30,000 and
special orders of $84,000 that were offset by a decrease in nozzle sales of
$23,000 and a decrease in SonoFlux Systems of $35,000.
Gross profit increased $314,572 from $807,312 for the six month period ended
August 31, 1998 to $1,121,884 for the six month period ended August 31, 1999.
Gross profit increased $181,544 from $477,762 for the three months ended August
31, 1998 to $659,306 for the three months ended August 31, 1999. For both the
three and six month periods the increase in the Company's gross profit was
primarily a result of increased sales of the Company's products, combined with
decreases in production labor, service travel and warranty costs.
Research and product development costs decreased $3,311 from $262,667 for the
six months ended August 31, 1998 to $259,356 for the six months ended August 31,
1999. The decrease in research and development costs is primarily a result of a
decrease in materials cost associated with the development of new products which
was offset by the additional costs associated with S&K.
Research and product development costs increased $19,639 from $128,469 for the
three months ended August 31, 1998 to $148,108 for the three months ended August
31, 1999. The increase was a result higher personnel costs and the additional
costs associated with S&K.
Marketing and selling costs increased $114,080 from $370,616 for the six months
ended August 31, 1998 to $484,696 for the six months ended August 31, 1999. The
increase was a result of expenses related to start up cost associated with the
sale of pressure nozzles of $47,000, additional commission and labor costs of
$34,000, trade shows and travel of $12,000, plus the costs associated with S&K.
Marketing and selling costs increased $63,237 from $204,354 for the three months
ended August 31, 1998 to $267,591 for the three months ended August 31, 1999.
The increase was a result of expenses related to start up cost associated with
the sale of pressure nozzles of $15,000 plus additional commissions and labor
costs of $21,000 and costs associated with S&K.
General and administrative costs increased $51,980 from $238,874 for the six
month period ended August 31, 1998 to $290,854 for the six month period ended
August 31, 1999. General and administrative costs increased $51,083 from
$123,572 for the three month period ended August 31, 1998 to $174,655 for the
three month period ended August 31, 1999. For both periods the increase is a
result of additional S&K costs, which were partially offset by a decrease in the
Company's personnel costs.
Interest expense increased $101,188 from $27,849 for the six month period ended
August 31, 1998 to $129,037 for the six months ended August 31, 1999. The
increase is primarily due to a non-cash charge of $102,626 for the costs
associated with 600,000 warrants that were issued on May 13, 1999 and offset by
a decrease resulting from the conversion of the convertible secured subordinated
promissory notes to equity in February 1999.
Interest expense increased $2,020 from $14,249 for the three month period ended
August 31, 1998 to $16,269 for the three months ended August 31, 1999. The
increase was due to interest expense on S&K debt.
For the six months ended August 31, 1999 the Company had a net loss of $29,492
or $(0.00) per share as compared to a net loss of $91,163 or $(0.02) per share
for the six months ended August 31, 1998. The decrease in net loss was primarily
a result of an increase in the Company's sales offset by the non-cash charge of
$102,626 for the warrants issued May 13, 1999.
For the three months ended August 31, 1999, the Company had earnings of $61,602
or $0.01 per share as compared to earnings of $7,541 or $.00 per share for the
three months ended August 31, 1998. The increase in earnings was primarily a
result of an increase in the Company's sales.
Year 2000 Compliance
Sono-Tek has assessed its readiness for the Year 2000 (Y2K). This assessment
identified areas that needed to be modified, and resulted in the Company
upgrading both hardware and software used internally.
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 Y2K compliant. The Company has surveyed
its major suppliers for their Y2K readiness. Because all major components and
materials used by the Company in the manufacture of its products are readily
available from several suppliers, management considers this area to be of
minimal risk.
At the present time, a contingency plan has not been developed. The Company will
continue to monitor the need for a contingency plan. The Company has incurred
internal staff costs, as well as the expense to purchase additional hardware and
software of approximately $25,000. The additional costs related to the Y2K
compliance is approximately $18,000 and is not anticipated to have a material
effect on the Company's business, results of operations or financial condition.
Despite its efforts to survey its customers, suppliers and service providers,
the Company cannot be certain as to the actual Y2K readiness of these third
parties or the impact that any non-compliance on their part may have on the
Company's business, results of operations or financial condition. This is a Year
2000 readiness disclosure entitled to protection as provided in the Year 2000
Information and Readiness Disclosure Act.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
4.1 27. Financial Data Schedule - EDGAR filing only
(b) Reports on Form 8-K
Filed August 13, 1999
<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, 1999
SONO-TEK CORPORATION
(Registrant)
By: /s/ James L. Kehoe
------------------
James L. Kehoe
Chief Executive Officer
By: /s/ Kathleen N. Martin
----------------------
Kathleen N. Martin
Chief Financial Officer
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<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> AUG-31-1999
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