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, 1999
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. [ ]
As of May 28, 1999 the aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant was approximately
$1,225,300 computed by reference to the average of the bid and asked prices of
the Common Stock on said date, which average was $0.30.
The Registrant had 6,281,667 shares of Common Stock outstanding as of
May 28, 1999.
<PAGE>
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 for the purpose of engaging in the development, manufacture,
and sale of ultrasonic liquid atomizing nozzles. Ultrasonic nozzles atomize low
to medium viscosity liquids 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. The Company
is continuously striving to improve the performance and versatility of its line
of ultrasonic nozzles, as well as searching for new industry applications.
During Fiscal 1999, the Company signed an agreement with a large European
manufacturer of pressure nozzles to begin selling the Company's line of
ultrasonic nozzles from its sales offices throughout Europe, South America and
Asia.
The Company's SonoFlux System, which applies a uniform coating of flux to
printed circuit boards immediately prior to the components being soldered in
place, was introduced to the market in 1991 and has become an industry leading
product.
During Fiscal 1998, the Company developed and announced a complete family of
liquid delivery products including a Gravity Feed System, a Syringe Pump, and
multiple models of Gear Pumps and Pressure Reservoirs. These liquid delivery
products enable customers to purchase a complete, fully integrated and tested
spray solution from a single supplier. Also during Fiscal 1998, the Company
announced the MCS Infinity System which is a precise, highly efficient spray
coating system designed for general top-down spraying applications, and the MCS
Accu Mist System which provides the ability to spray liquids to very small
areas, either as discrete dots or continuous lines.
During Fiscal 1999, Sono-Tek also began distributing in the U.S. market a full
range of pressure nozzles manufactured by a European company. Sono-Tek currently
generates the majority of its revenues from sales of capital equipment, which is
expensive and seldom requires replacement. Sales of pressure nozzles differ
because they are commodity items, relatively inexpensive, and generate a
continuous source of revenue because of their limited useful life.
On March 3, 1999, as part of the Company's plan to grow and diversify, the
Company signed a non-binding letter of intent to acquire a local manufacturer of
specialty equipment that produces cleaning, degreasing and vapor drying systems
for the semiconductor, disk drive, and other high technology industries. The
Company believes this acquisition, if consummated, would complement the
Company's core business including industry focus and manufacturing similarities.
The Company also believes that significant efficiencies could be realized by
integrating the operation of the two companies. The Company anticipates
reporting this transaction on Form 8-K upon the execution of a definitive
acquisition agreement.
On May 5, 1999, the Company released a Private Placement Memorandum to sell via
a private placement 1,666,667 shares of the Company's common stock at a purchase
price of $0.30 per share contingent upon consummation of the acquisition
described above. The proceeds from this private placement will be used to fund
the Company's acquisition as mentioned above, and for working capital purposes.
In the event that the acquisition is not consummated, no shares will be issued
and all funds will be refunded to the purchasers. The shares sold pursuant to
this private placement will not have been registered under the Securities Act of
1933, and may not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements. In connection with the
private placement, the Company has agreed to use its reasonable best efforts to
cause the purchased shares to become registered under the Securities Act within
180 days of purchase.
(b) Financial Information about Industry Segments.
During Fiscal 1999 the Company was engaged in one industry segment and line of
business. All the products manufactured by the Company are based on the process
of ultrasonic spraying.
(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, an
electrical power supply, and related hardware which atomizes low-to-medium
viscosity liquids used in various spraying applications.
Ultrasonic nozzles 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 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 the requirements of specific applications.
Ultrasonic nozzles produce a soft low-velocity spray of liquid which virtually
eliminates overspray, thereby minimizing waste and loss to the surrounding
environment. Ultrasonic nozzles are capable of spraying material in minute
amounts on the order of one-millionth of a liter of liquid per second.
Ultrasonic nozzles typically have large passageways which makes them more
resistant to clogging.
Marketing Overview
The SonoFlux System accounted for approximately 71% of the Company's sales
during Fiscal 1999, 76% during Fiscal 1998, and 66% during Fiscal 1997. Nozzle
systems accounted for 18%, 21% and 34% of sales, during those same years,
respectively. Sales of the MCS Systems accounted for 9% of the Company's sales
during Fiscal 1999, and 3% during Fiscal 1998. No single customer accounted for
more than 10% of net sales in Fiscal 1998 and 1997. During Fiscal 1999 one
customer, Delco Electronics, accounted for 17% of net sales.
The Company markets ultrasonic nozzles to customers requiring specialized
applications of liquids to their products. A majority of sales leads are
generated via direct mail advertising, advertisements and technical articles in
trade journals, product news releases, participation in trade shows and
seminars, and by responses to the Company's website. The majority of sales are
made to end users who use ultrasonic nozzles in the manufacture of their own
products, to original equipment manufacturers ("OEMs") who incorporate
ultrasonic nozzles into their own products for resale, and to government,
university, and private laboratories who use nozzle systems for research
projects. The sales function of the Company's products is currently performed by
six people located in the Company's facilities in Milton, New York.
The market for the SonoFlux product line is the Printed Circuit Board (PCB)
assembly industry. 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 seventeen such Rep organizations under contract with a total of
approximately forty people performing direct sales.
In foreign markets, the Company uses Distributors to market the SonoFlux product
line in certain European and Far Eastern countries. The Company currently has
six such Distributor companies under contract.
Initial sales of the MCS Accu Mist and MCS Infinity Systems were made during
Fiscal 1998 to companies for general top-down spraying applications. During
Fiscal 1999 sales were made into applications such as BGA fluxing, spraying
perfumes onto non-woven fabrics, spraying a mold release agent for a
manufacturer of filters, and spraying plastic spheres used in the manufacture of
touch-screens for flat panel displays. All MCS Systems consist of (i) a control
module which provides power to the ultrasonic nozzle, liquid delivery, and
electronic control and interface functions, (ii) an ultrasonic nozzle, and (iii)
a vertical jet assembly which is available in a wide variety of designs to
accommodate various spray widths. Each module is capable of spraying areas as
narrow as 0.25 inches or as wide as one foot. Areas greater than one foot in
width can be accommodated by grouping together as many individual modules as
necessary. The Company anticipates this product will satisfy the requirements of
a broad range of industrial applications.
In January 1998, the Company signed a distribution agreement with a European
company and its subsidiaries in eleven countries covering parts of Europe, Asia
and South America, to market and sell all Sono-Tek product lines except the
SonoFlux System. There were approximately $36,000 in sales made through this
company in Fiscal 1999.
Markets for the Company's Products
Nozzle Systems
The Company markets ultrasonic nozzles to customers requiring specialized
applications of liquids to their products such as applying chemicals on silicon
wafers in the production of integrated circuits, applying biochemical compounds
to medical devices, 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 ultrasonic nozzles 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.
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.
MCS Infinity and MCS Accu Mist Systems
The MCS Infinity System is targeted for markets where surface areas ranging from
several inches up to several feet need to be coated with a precise, low velocity
spray. The initial markets being targeted for this system include non-woven
fabrics, flat panel display manufacturing, and the spraying of mold release
agents.
The MCS Accu Mist System is targeted for markets where the surface area to be
coated is generally small, as low as a quarter of an inch. The initial market
being targeted for this system involves the application of liquid solder flux to
individual leads or connectors used in specialized electronic assembly areas.
The initial shipment of the Sono-Tek's MCS Infinity System occurred during
Fiscal 1998.
Pressure Nozzles
During Fiscal 1999, the Company began distributing pressure nozzles in the U.S.
market. These nozzles are manufactured by a leading European developer and
manufacturer. Sales of pressure nozzles, which require frequent replacement and
are relatively inexpensive, will help diversify the Company's product line and
complement Sono-Tek's sales of capital equipment.
Product Development
For the Fiscal years ended February 28, 1999, 1998, and 1997, the Company
expended approximately $488,000, $410,000, and $369,000, respectively on
research and development. In addition to continuous improvement programs on
nozzle systems and the SonoFlux 9500, these expenditures were incurred to
develop (i) a photoresist application system for the semiconductor industry,
(ii) the MCS Accu Mist and MCS Infinity Systems, (iii) and a range of liquid
delivery systems including a Gravity Feed System, a Syringe Pump, and multiple
models of Gear Pumps and Pressure Reservoirs.
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 core technology.
Nozzle Products
During the third quarter of Fiscal 1997, the Company introduced a new power
supply, the Broadband Ultrasonic Generator, or the "BUG". This power supply
provides a stable, frequency-locked electrical signal to the attached ultrasonic
nozzle and is capable of driving all of the Company's nozzles.
SonoFlux System
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 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 and has the capacity to store up to 250 customized programs.
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.
MCS Accu 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 Fiscal 1998, released the MCS Accu Mist System to
address this need. The MCS Accu 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
are 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.
MCS Infinity System
The Sono-Tek MCS Infinity System is a precise, highly efficient spray coating
system designed for general top-down spraying applications. This new product
consists of (i) a control module which provides power to the ultrasonic nozzle,
liquid delivery, and electronic control and interface functions, (ii) an
ultrasonic nozzle, and (iii) a vertical jet assembly which is available in a
wide variety of designs to accommodate various spray widths. Each module is
capable of spraying areas as narrow as 0.25 inches or as wide as one foot. Areas
greater than one foot in width can be accommodated by grouping together as many
individual modules as necessary. This versatile, modular system delivers a soft,
uniform and highly controllable spray over any substrate width. These standard
modules are then custom configured for each user's application with custom
hardware and interface electronics.
Liquid Delivery Systems
During Fiscal 1998, Sono-Tek announced a family of liquid delivery systems.
These new products are intended to enable customers to purchase a complete,
fully integrated and tested spray solution from a single supplier. The liquid
delivery systems fall into four basic categories.
1. Syringe Pumps are the most precise of all liquid delivery methods, and
are ideal for very low flow rates, including single shots down to the
nanoliter (one-billionth of a liter) range.
2. Gear Type Metering Pumps are characterized by their capability to meter
the flow of liquid accurately over a wide range of flow rates without
pulsation. Two models are available to accommodate various flow ranges.
3. Pressurized Reservoir Systems provide a highly reliable, yet cost
effective approach for use in the most demanding applications,
especially where the liquid contains undissolved solids or abrasive
materials. Several models are available, ranging from 6 ounces to 3
gallon reservoir capacities, and can be used for either continuous flow
or single-shot dispensing.
4. Gravity Operated Systems are a low cost, versatile solution for use
primarily in laboratory applications or for feasibility testing.
Manufacturing
The Company currently employs twelve people for its manufacturing and quality
control activities. The Company's manufacturing operations are located in one
facility in the town of Milton, New York. As the Company expands its business by
diversifying its product line, the Company may need to expand into a larger
facility.
The Company's current manufacturing area consists of (i) a machine shop, (ii) a
nozzle assembly/test area, (iii) an electronics assembly area, (iv) a system
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. During the fourth quarter
of Fiscal 1998, the Company purchased new production equipment which has reduced
production costs and improved quality. 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
wired to provide interconnections between the individual components and
sub-assemblies. The circuit boards and the components that populate them, as
well as the sheet metal components, are purchased from outside suppliers and are
available from a wide range of suppliers throughout the world.
The system 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 SonoFlux systems, MCS Infinity Systems, Liquid
Delivery Systems, and MCS Accu Mist Systems.
All raw materials used in the Company's products are readily available from many
different domestic suppliers.
The Company provides a limited warranty on all of its products covering parts
and labor for a period of one year from the date of sale.
The Company has begun to purchase for resale, pressure nozzles from a European
manufacturer with whom the Company intends to enter into a U.S. distributor
agreement. The Company began sales of the pressure nozzles manufactured by this
European manufacturer in Fiscal 1999.
The Company maintains comprehensive general liability insurance in an amount
which it believes is adequate for the nature of its operations.
The Company became ISO 9001 Registered in September 1998. Management believes
that achieving this standard demonstrates a long-term commitment to the business
and will provide a competitive edge in marketing. In addition to the high degree
of quality implied by being ISO registered, the Company expects that such
registration will discipline the Company in running its business and will
stimulate continuous improvement.
Patents
The Company's business is based in part on the technology covered by eight
United States patents held by the Company, two of which have expired with no
material effect on the Company. Patent applications, based on the United States
applications, covering fundamental aspects of the ultrasonic technology
developed by the Company have been issued in several foreign jurisdictions. Two
patents have expired and the rest will expire between now and 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 decided not to maintain its patent protection in
certain countries in which the Company believes the protection is no longer
required. 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 financial resources significantly greater than the Company's financial
resources. There can be no assurance 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 or superior to the Company's nozzle system. (See
"Competition").
Competition
Ultrasonic nozzles are sold primarily to customers that require specific
performance characteristics which the Company believes are not attainable using
competing methods such as pressure 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 Company's ultrasonic nozzle. Management
believes this company offers a very limited range of ultrasonic products, has
not introduced any new products in several years, and is rarely encountered by
the Company's sales force. Management believes this company does not currently
present any significant competition to the Company's products.
In the electronic fabrication area, the Company's SonoFlux System competes with
spray fluxing systems from several other companies. Sono-Tek was a pioneer in
this industry and has become one of the industry's leading suppliers of spray
fluxing equipment. The Company has competed favorably against these companies in
the past based on the ease-of-use, performance, and reliability of its
equipment. Management believes that Sono-Tek also has a reputation in the
industry of providing excellent customer support and service.
Although management believes that it has competed against such companies
successfully in the past, there can be no assurance that the Company will be
able to successfully compete against these Companies in the future.
The Company believes that a large market exists for industrial spray nozzles in
the U.S. Sono-Tek competes with several well established companies in this
market. Sono-Tek believes it will be able to compete effectively against these
companies because it will offer a complete range of interchangeable products
that are competitively priced. The Company also believes that it will be able to
offer better customer support and service, be more flexible in offering custom
products to satisfy unique customer requirements, be able to provide a better
level of application engineering support, and provide complete "turn key"
solutions which many customers find desirable.
Employees
As of May 28, 1999, the Company had 28 full-time employees. The Company believes
that its relationship with its employees is good.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
The Company has focused primarily on the North American market. In March 1998,
the Company entered into an agreement with a European nozzle manufacturer to see
its line of pressure nozzles in the U.S. The Company also utilizes independent
sales representatives or sales representative companies throughout North America
(including parts of Canada and Mexico) to sell SonoFlux equipment on a
commission basis. During Fiscal 1999, 1998 and 1997, the sales to foreign
customers accounted for approximately $620,000, $435,000 and $679,000,
respectively, or 17%, 12% and 22%, respectively, of total revenues.
(e) Backlog
The backlog for the Company's products was approximately $115,000, $104,000 and
$81,000 as of February 28, 1999, 1998 and 1997, respectively. The Company
anticipates that it will ship all of its February 28, 1999 backlog during Fiscal
2000.
ITEM 2 Properties
The Company's offices, 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 leased these
facilities pursuant to a lease which expired January 31, 1997. The Company had
an option at the end of the lease term to renew the lease for an additional five
year period, but that option was not exercised. As of May 28, 1999 the Company
has not signed a renewal lease agreement. The Company is making payments on a
month-to-month basis equal to the amount that would have been required per month
if the option had been exercised.
As the Company increases its sales of new products, and plans the acquisition of
another manufacturing firm (see "General Development of Business" above), the
Company may need to expand into a larger facility or to rent or lease additional
space.
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
quotations for the Company's Common Stock for the periods indicated as furnished
by the National Quotations Bureau, Incorporated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28, FEBRUARY 28,
1999 1998
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 7/8 $ 1/2 $ 3/8 $ 9/32
Second Quarter 41/64 7/16 7/16 17/64
Third Quarter 15/32 7/32 1 5/16
Fourth Quarter 3/8 1/8 13/16 1/2
</TABLE>
The above quotations are believed to represent inter-dealer quotations without
retail markups, markdowns or commissions and may not represent actual
transactions. The Company believes that, although limited or sporadic quotations
exist, there is no established public trading market for the Company's Common
Stock.
(b) As of May 28, 1999 there were 295 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.
ITEM 6 Selected Financial Data(1)
<TABLE>
<CAPTION>
Year Ended 02/28/99 02/28/98 02/28/97 02/29/96 02/28/95
- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $2,902,951 $3,570,379 $3,110,672 $2,747,891 $2,548,363
========== ========== ========== ========== ==========
Net (Loss)Income $ (810,702) (2) $ 252,047 $ 152,639 $ 155,078 $ (483,050)
=========== ========== ========== ========== ==========
Basic (Loss) Earnings
Per Share $(0.18) $0.06 $0.04 $0.04 $(0.12)
====== ===== ===== ===== ======
Diluted (Loss) Earnings
Per Share $(0.18) $0.05 $0.03 $0.04 $(0.12)
====== ===== ===== ===== ======
Cash Dividends None None None None None
Weighted Average
Shares - Basic 4,386,799 4,376,064 4,204,913 4,204,913 3,873,146
========= ========= ========= ========= =========
Weighted Average
Shares - Diluted(3) 4,386,799 4,773,667 4,507,441 4,477,646 3,911,323
========= ========= ========= ========= =========
Total Assets $1,335,649 $1,728,678 $1,251,868 $1,199,717 $1,211,161
========== ========== ========== ========== ==========
Long-Term Liabilities $ 46,376(4) $ 585,898 $ 576,722 $ 668,082 $ 775,816
========== ========== ========== ========== ==========
<FN>
(1) Should be read in conjunction with the Financial Statements and notes thereto.
(2) Upon conversion of $530,000 Subordinated Debt to equity, the Company expensed
$354,280 of which $302,857 is due to the lowering of the conversion price from
$.70 to $.30 and $51,423 is due to the value of the new warrants granted.
(3) Stock options for employees and outside consultants are antidilutive during
Fiscal 1999 as a result of the net loss and therefore are not considered in the
Diluted EPS calculation.
(4) The Long-Term Liabilities decreased in Fiscal 1999 due to the conversion of
the Subordinated Convertible Debt of $530,000 to equity.
</FN>
</TABLE>
ITEM 7 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
statement.
Capital Resources and Liquidity
On February 28, 1999 the Company had working capital of $272,916 and
stockholders' equity of $398,682. This compares to working capital of $691,335
and stockholders' equity of $278,557 on February 28, 1998. The net decrease in
working capital of $418,419 is due to a decrease in cash and cash equivalents
and accounts receivable, partially offset by an increase in inventory. The net
increase of $120,125 in the Company's stockholders' equity is a result of
converting $530,000 of Convertible Secured Subordinated Promissory Notes to
equity, net of the 1999 operating loss.
During Fiscal 1999 and 1998 the Company reduced its obligations on a bank loan
by $46,253 and $94,173, respectively. The loan was paid off in full during
Fiscal 1999. During Fiscal 1998 the Company obtained a $150,000 revolving line
of credit which was increased in Fiscal 1999 to $300,000. The line of credit is
collateralized by accounts receivable, inventory and all other personal property
of the Company, and guaranteed by the CEO of the Company. As of May 28, 1999,
the Company has used $250,948 from the line of credit.
Capital expenditures decreased during Fiscal 1999 to $44,000 from $95,000 during
Fiscal 1998. The decrease was mainly due to the fact that the Company purchased
a large piece of production equipment during Fiscal 1998. During Fiscal 1998 the
Company entered into a collateralized $57,000 term loan agreement to purchase
new production equipment. During Fiscal 1999, $9,204 was paid on the equipment
loan.
The Company's Convertible Secured Subordinated Promissory Notes that were
scheduled to mature on August 15, 2000 were converted under the Fourth Note
Amendment Agreement dated February 26, 1999. This agreement provided for the
reduction in the conversion price from $.65 per share to $.30 per share. The
Noteholders received stock for the converted Notes and for the unpaid interest
as of February 26, 1999. At the same time, the exercise price of the warrants
was reduced from $1.50 per share to $.65 per share, and the expiration date of
the warrants was extended to February 28, 2002.
Due to the losses incurred during Fiscal 1999, the Company was required to
borrow on a short term basis from two officers of the Company. As of May 28,
1999, the balance owed the officers was $165,000. These losses also limited the
Company's ability to pay trade creditors in a timely manner and make interest
payments on the Convertible Secured Subordinated Promissory Notes.
As necessary, the Company plans on funding the operations by using the available
borrowings under the current line of credit agreement and obtaining loans from
shareholders (as required in the past).
Although there can be no assurances, management believes that the introduction
of the MCS Accu Mist, MCS Infinity, and Liquid Delivery Systems, the additional
sales channels for ultrasonic nozzles, and the sustained sales of the SonoFlux
9500 will lead to broader markets and increases in sales and profits, which will
in turn allow the Company to meet its current obligations as they become due.
Results of Operations - 1999 Compared to 1998
The Company's sales decreased $667,428 or 19% from $3,570,379 for Fiscal 1998 to
$2,902,951 for Fiscal 1999. The decrease in sales was a result of a decrease in
unit sales of the Company's SonoFlux Systems and ultrasonic nozzles, partly
offset by an increase in new product sales. Sales of fluxing systems decreased
by $632,995 or 24% from $2,692,923 in Fiscal 1998 to $2,059,928 in Fiscal 1999.
The Company attributes the decrease in sales of this product to the excess of
supply over demand in the electronics assembly industry for the last several
months. Sales of the Company's nozzle systems decreased $233,113 or 31% from
$760,197 in Fiscal 1998 to $527,084 in Fiscal 1999. This decrease was a result
of lower sales and a decrease in nozzle repairs. During Fiscal 1999, new
products accounted for $309,594 in sales or 10% of total sales.
The Company's cost of goods sold decreased $123,600 or 7% from $1,740,217 in
Fiscal 1998 to $1,616,617 in Fiscal 1999. The decrease in cost of goods sold is
a result of the decrease in sales of the Company's products, and the subsequent
decrease in material costs partially offset by an increase in cost of goods sold
related to new products. The gross profit margin decreased $543,828 or 30% from
$1,830,162 in Fiscal 1998 to $1,286,334 in Fiscal 1999. The gross profit margin
was 44% and 51% of sales for Fiscal 1999 and 1998, respectively. The decrease is
attributable to the increases in personnel and benefit costs, including
temporary employees, additional depreciation on production equipment purchased
at the end of Fiscal 1998, and also to supplies needed to operate the new
production equipment.
Research and product development costs increased $78,066 or 19% from $409,722 in
Fiscal 1998 to $487,788 in Fiscal 1999. The increase is a result of additional
staff to work on new product development.
General and administrative costs increased $102,563 or 26% from $395,954 in
Fiscal 1998 to $498,517 in Fiscal 1999. The increase was a result of consulting
expenses related to the planned acquisition and raising the capital necessary to
consummate the transaction, a settlement to a former employee, and additional
employee and benefit costs. In Fiscal 1999, the Company also recorded a non-cash
charge of $354,280 associated with inducing Noteholders to convert their
Convertible Secured Subordinated Promissory Notes.
Sales and marketing expense decreased $16,704 or 2% from $723,919 in Fiscal 1998
to $707,215 in Fiscal 1999. A decrease in commissions of $55,000, due to lower
sales, was offset by approximately $72,000 in startup costs associated with
expenses incurred in the distribution of pressure nozzles.
The Company's operating profit decreased $1,062,033 or 353% from $300,567 in
Fiscal 1998 to a loss of $761,466 in Fiscal 1999. The decrease in operating
profit is mainly a result of decreased sales of the Company's products, a
non-cash charge associated with the conversion of the Convertible Secured
Subordinated Promissory Notes of $354,280 and the additional expense of $72,000
related to start up activities associated with the sales of pressure nozzles.
Interest and other income increased $10,844 from $368 in Fiscal 1998 to $11,212
in Fiscal 1999. The Company enrolled in a reinvestment program with its bank,
providing interest income on unused cash for a total of $3,000. The Company also
recovered unclaimed customer credits of $8,000. Interest expense increased
$11,560 or 24% from $48,888 in Fiscal 1998 to $60,448 in Fiscal 1999 due to
interest incurred on a collateralized equipment term loan entered into in
February 1998, and additional balances on the line of credit.
Inflation and changing prices did not have a material effect on the Company's
operations in Fiscal 1998 or 1999.
Results of Operations - 1998 Compared to 1997
The Company's sales increased $459,707 or 15% from $3,110,672 for Fiscal 1997 to
$3,570,379 for Fiscal 1998. The increase in sales resulted from an increase in
unit sales of the Company's SonoFlux Systems partially offset by a decrease in
sales of the Company's nozzle systems. Sales of the SonoFlux System increased
$630,610 or 31% from $2,062,313 in Fiscal 1997 to $2,692,923 in Fiscal 1998. 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 decreased $288,160 or 27% from $1,048,357 in Fiscal 1997 to $760,197 in
Fiscal 1998 due to a decrease in nozzle repairs.
The Company's cost of goods sold increased $221,244 or 15% from $1,518,971 in
Fiscal 1997 to $1,740,217 in Fiscal 1998. 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. The gross profit margin remained constant between Fiscal 1997 and 1998.
Research and product development costs increased $40,590 or 11% from $369,133 in
Fiscal 1997 to $409,722 in Fiscal 1998. The increase is a result of additional
staff to work on new product development.
General and administrative expense increased $18,920 or 5% from $377,037 in
Fiscal 1997 to $395,954 in Fiscal 1998 as a result of additional employee costs
and professional fees.
Sales and marketing expense increased $93,625 or $15% from $630,295 in Fiscal
1997 to $723,919 in Fiscal 1998. The increase was due to commissions generated
from higher sales.
The Company's operating profit increased $85,331 or 40% from $215,236 in Fiscal
1997 to $300,567 in Fiscal 1998. 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 $3,823 or 91% from $4,192 in Fiscal 1997 to
$369 in Fiscal 1998. Interest expense decreased $17,901 or 27% from $66,789 in
Fiscal 1997 to $48,888 in Fiscal 1998 due to monthly installment payments
reducing the outstanding principal balances outstanding during Fiscal 1998 New
equipment that was purchased during the 4th quarter was financed and had a
negligible effect on Fiscal 1998 interest expense.
Inflation and changing prices did not have a material effect on the Company's
operations in Fiscal 1998 or 1997.
Year 2000 Compliance
The Company has performed a thorough assessment to determine 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 $10,000 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.
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk related to changes in interest rates and,
to a lesser extent foreign currency exchange rates. The interest rate on the
Company's debt is based on fluctuations in the prime rates. If the prime rate
increased by 1 percentage point from the levels at February 28, 1999, the effect
on the Company's results of operations would approximate $3,000.
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
Not applicable
PART III
ITEM 10 Directors and Executive Officers of the Registrant
(a) Identification of Directors
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
John J. Antretter 36 Director
Harvey L. Berger 60 President and a Director
Christopher L. Coccio 57 Director
James L. Kehoe 52 Chairman, Chief Executive Officer and a Director
Samuel Schwartz 79 Director
J. Duncan Urquhart 45 Director
</TABLE>
Mr. Antretter has been a Director of the Company since February 1999. Dr. Berger
has been a Director of the Company since June 1975. Mr. Coccio has been a
Director of the Company since June 1998. 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.
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 2000, and the term of Dr. Berger and
Messrs. Antretter and Coccio will be until the annual meeting to be held in
1999, and in each case until their respective successors are elected and
qualified.
(b) Identification of Executive Officers
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Harvey L. Berger 60 President and a Director
James L. Kehoe 52 Chairman, Chief Executive Officer and a Director
Kathleen N. Martin 46 Chief Financial Officer and Treasurer
William J. McCormick 42 Vice President
</TABLE>
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 Chairman since May 1999 and Chief Executive
Officer since August 1993. Ms. Martin has served as Chief Financial Officer and
Treasurer since November 1997. Mr. McCormick has served as Vice President since
May 1999.
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) Identification of Certain Significant Employees
Not applicable.
(d) Family Relationships
None.
(e) Business Experience
JOHN J. ANTRETTER has been a consultant to the Company since November 1998, and
a Director since February 1999. From January 1996 through September 1998, Mr.
Antretter was Chairman and CEO of Technology Manufacturing & Design Inc. (TMD),
an Austin, TX based contract electronics manufacturing firm. Prior to joining
TMD, he was the CEO and a Director of Plasmaco, Inc., a developer of flat panel
display systems from 1994 to 1996. In January 1996, Mr. Antretter negotiated the
sale of Plasmaco to Panasonic. Mr. Antretter has additional experience in the
venture capital and investment banking fields, and was a commercial lending
officer for the Bank of New York. Mr. Antretter received his MBA from Fordham
University in 1989.
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, and 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. Dr. Berger holds a Ph.D. in physics from
Rensselaer Polytechnic Institute and is a member of the Marist College Advisory
Board.
CHRISTOPHER L. COCCIO has been a Director of the Company since June 1998. From
1964 to 1996 he held various management positions at General Electric Company.
He received a B.S. from Stevens Institute of Technology, an M.S. from the
University of Colorado, and a Ph.D. from Rensselaer Polytechnic Institute. He is
a consultant to the New York State Legislative Commission on Science and
Technology.
JAMES L. KEHOE has been Chairman of the Board since May 1999, 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.
KATHLEEN N. MARTIN has been the Chief Financial Officer and Treasurer of the
Company since November 1997. From 1992 to 1997, Ms. Martin was employed by
Plasmaco, Inc. where she served as Accounting Analyst and Controller. Ms. Martin
has a B.A. in Mathematics from Hartwick College and a B.S. in Accounting from
the State University of New York at New Paltz.
WILLIAM J. MC CORMICK has been Vice President of the Company since May 1999. He
joined Sono-Tek in 1994 as a sales engineer. Since April 1995 he has been the
Engineering Manager of the Company. Prior to joining Sono-Tek, Mr. McCormick
worked for 13 years at IBM and Highland Manufacturing Company where he held
various technical, sales, and management positions. He has over thirteen years
of experience managing various business functions such as engineering,
manufacturing, operations, sales, and finance. He has an Electronics Engineering
Technology Degree from Ohio Institute of Technology, and is pursuing his MBA
from SUNY at New Paltz.
SAMUEL SCHWARTZ has been a Director of the Company since August 1987 and was
Chairman of the Board from February 1993 to May 1999. 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 a Director of the Company since September 1988.
Since January 1999 he has been a Consultant Associate with Resources Connection,
which provides contract accounting services. From October 1997 to December 1998,
Mr. Urquhart was Director of Business Operations at The Gun Parts Corporation,
an international supplier of gun parts. Prior to his resignation from Sono-Tek
in October 1997, he was Controller of the Company from January 1988, and
Treasurer of the Company from September 1988.
Section 16(a) Beneficial Ownership Reporting Compliance
Samuel Schwartz, a Director and beneficial owner of greater than 10% of the
outstanding common stock of the Company, did not timely file a Form 4 with
respect to certain shares of stock he acquired upon conversion of outstanding
debt. Kathleen N. Martin, Chief Financial Officer and Treasurer did not timely
file a Form 5 with respect to certain options granted by the Board of Directors.
ITEM 11 Executive Compensation
The following table sets forth the aggregate remuneration paid or accrued by the
Company through February 28, 1999 for the Chief Executive Officer of the
Company. No other executive officer received aggregate remuneration that equaled
or exceeded $100,000 for the fiscal year ended February 28, 1999.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Annual Compensation Compensation
Name and Awards, Securities All Other
Principal Position Year Salary ($) Bonus ($) Underlying Options (#) Compensation ($)1
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James L. Kehoe 1999 $115,000 $0 0 $2,300
Chief Executive Officer 1998 102,000 0 200,000 1,244
1997 85,000 0 0 818
</TABLE>
1 Dollar amounts are Company contributions under the SARSEP.
The following table sets forth information regarding option exercises during the
fiscal year ended February 28, 1999, as well as any unexercised options held as
of February 28, 1999 by each named executive.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options In the Money Options
Shares at Fiscal Year End (#) At Fiscal Year End ($)
Acquire on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Harvey L. Berger 0 0 50,000 0 0 0
James L. Kehoe 0 0 270,000 0 0 0
Kathleen N. Martin 0 0 9,000 41,000 0 0
William J. McCormick 0 0 20,000 30,000 0 0
</TABLE>
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors has a Compensation Committee composed of
Christopher L. Coccio, Samuel Schwartz and J. Duncan Urquhart, all Directors of
the Company. However, the Compensation Committee serves an advisory function
only. All decisions regarding compensation are made by the full Board of
Directors, including Mr. Berger and Mr. Kehoe who could participate in decisions
regarding the compensation of the Company's executive officers, including their
own.
ITEM 12 Security Ownership of Certain Beneficial Owners and Management
The following information is furnished as of May 28, 1999 to indicate beneficial
ownership of the Company's Common Stock by each Director, by each executive
officer, by all Directors and executive officers as a group and by each person
known to the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock. Such information has been furnished to the Company by
the indicated owners. Unless otherwise indicated, the named person has sole
voting and investment power.
<TABLE>
<CAPTION>
Name (and address if Amount
more than 5%) of Beneficially
Beneficial owner Owned Percent
---------------- ----- -------
Directors
<S> <C> <C>
*John J. Antretter 20,000(1) **
*Harvey L. Berger 371,700(2) 4.8%
*Christopher L. Coccio 15,000 **
*James L. Kehoe 603,400(3) 7.8%
*Samuel Schwartz 786,609(4) 10.1%
*J. Duncan Urquhart 10,000(5) **
Executive Officer
*Kathleen N. Martin 14,000(6) **
*William J. McCormick 25,000(7) **
All Executive Officers and
Directors as a Group 1,845,709(8) 23.8%
Additional 5% owners
Herbert Spiegel 514,692(9) 6.6%
425 East 58th Street
New York, NY 10022
*c/o Sono-Tek Corporation, 2012 Route 9W, Bldg. 3, Milton, NY 12547.
** Less than 1%
<FN>
(1) Includes options to purchase 20,000 shares under the 1993 Plan.
(2) Includes 4,000 shares in the name of Dr. Berger's wife and includes options
to purchase 50,000 shares under the 1993 Plan.
(3) Includes options to purchase 270,000 shares under the 1993 Plan, plus
warrants to purchase 300,000 shares awarded by the Board of Directors in May 1999.
(4) Includes 166,667 shares issued for the conversion of a convertible secured
subordinated promissory note in the principle sum of $50,000 and 12,888 shares
issued for accrued interest of $3,866 related to the note. Also assumes the
exercise of a warrant Mr. Schwartz received upon conversion of a secured
subordinated promissory note, which warrant is exercisable at $.65 per share for
an additional 71,400 shares of Common Stock. Also includes warrants to purchase
300,000 shares awarded by the Board of Directors in May 1999.
(5) Includes options to purchase 10,000 shares granted in May 1999 under the 1993
Plan.
(6) Includes options to purchase 9,000 shares under the 1993 Plan.
(7) Includes options to purchase 20,000 shares under the 1993 Plan.
(8) Includes options to purchase 309,000 shares under the 1993 Plan, and 179,555
shares from the conversion of debt and interest and 71,400 shares from warrants
in footnote 4 above, and warrants to purchase 600,000 shares awarded by the
Board of Directors in May 1999.
(9) Includes 216,667 shares issued for the conversion of a convertible secured
subordinated promissory note in the principle sum of $65,000 and 16,754 shares
issued for accrued interest of $5,026 related to the note. Also assumes the
exercise of a warrant Mr. Spiegel received upon conversion of a secured
subordinated promissory note, which warrant is exercisable at $.65 per share for
an additional 92,820 shares of Common Stock.
</FN>
</TABLE>
ITEM. 13 Certain Relationships and Related Transactions
On February 26, 1999 the Directors of the Company agreed to reduce the
conversion price of the Convertible Secured Subordinated Promissory Notes from
$0.70 per common share to $0.30 per common share. In addition to changing the
conversion price of the Notes, the Directors also extended the term of the
Warrants from August 15, 2000 to February 28, 2002, adjusted the exercise price
from $1.50 per share to $0.65 per share, provided that if the Company's common
stock trades at a price greater than $1.95 per share for a period of thirty
consecutive trading days, the Company can force the exercise of the Warrants
within ninety days of providing notice to the holder, and obtained a waiver of
all events and prospective events of default. Samuel Schwartz agreed to convert
$50,000 in principal and $3,866 in interest into 179,555 shares of common stock,
and Herbert Spiegel agreed to convert $65,000 in principal and $5,026 in
interest into 233,421 shares of common stock. As a result of the conversion, the
Company recorded a non-cash charge of $302,857 due to the lowered conversion
price, and a non-cash charge of $51,423 due to the lowered warrant price.
During Fiscal 1999 Samuel Schwartz and James L. Kehoe loaned the Company a total
of $88,000 that was not repaid at February 28, 1999. The demand loans carried an
interest rate of prime plus 2% (9.75% at February 28, 1999). Subsequent to year
end, Messrs. Schwartz and Kehoe loaned an additional $77,000 to the Company. In
May 1999, the Board of Directors awarded each of them warrants to purchase
300,000 shares of the Company's common stock.
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)4 Certificate of Incorporation of the Company and all amendments thereto.
3(b)1 By-laws of the Company as amended.
4(a)4 Form of Convertible Note.
4(b)3 Form of Warrant.
4(c)3 Master Security Agreement.
4(d) The Company agrees to furnish a copy of the equipment loan referred to
in the Company's financial statements to the Commission upon request.
4(e)6 Form of 1995 Amendment to Convertible Note.
4(f)7 Form of 1996 Amendment to Convertible Note.
4(g)9 Form of 1997 Amendment to Convertible Note
4(h)8 Letter agreement between the Company and The Bank of New York.
4(i) Form of 1999 Amendment to Convertible Note.
4(j) Mr. Kehoe's Personal Guarantee for the Bank of New York.
*10(a)4 Employment Agreement dated October 14, 1993 between the Company and Dr.
Harvey L. Berger.
10(b)2 Lease for the Company's facilities in Milton, NY dated July 19, 1991.
10(c)2 Amendment No. 1 to Milton, NY lease dated December 27, 1991.
10(d)4 Amendment No. 2 to Milton, NY lease dated January 22, 1992.
*10(e)5 1993 Stock Incentive Plan as amended.
10(f) Bank of New York Line of Credit.
23(a) Independent Auditors' Consent.
27.1 Financial Data Schedule. EDGAR filing only.
* Management Contract or Compensatory Plan.
1 Incorporated herein by reference to exhibit 2 to Amendment No. 1 to
Form 8-A, SEC file #0-16035.
2 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 29, 1992.
3 Incorporated herein by reference to the Company's Form 10-Q Quarterly
Report for the quarter ended November 30, 1993.
4 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 28, 1994.
5 Incorporated herein by reference to the Company's Form 10-Q quarterly
report for the quarter ended August 31, 1994.
6 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 28, 1995.
7 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 29, 1996.
8 Incorporated herein by reference to the Company's Form 10-Q quarterly
report for the quarter ended May 31, 1996.
9 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 28, 1997.
(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.
<PAGE>
SONO-TEK CORPORATION
FORM 10-K
ITEMS 8 AND 14(d)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FOR THE YEAR ENDED FEBRUARY 28, 1999
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS (ITEM 8):
Balance Sheets at February 28, 1999 and February 28, 1998
Statements of Operations
For the Years Ended February 28, 1999, 1998 and 1997
Statements of Stockholders' Equity (Deficiency)
For the Years Ended February 28, 1999, 1998 and 1997
Statements of Cash Flows
For the Years Ended February 28, 1999, 1998 and 1997
Notes to the Financial Statements
FINANCIAL STATEMENTS SCHEDULE (ITEM 14(d) SCHEDULE 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.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors of
Sono-Tek Corporation
Milton, New York
We have audited the accompanying balance sheets of Sono-Tek Corporation (the
"Company") as of February 28, 1999 and 1998 and the related statements of
operations, stockholders' equity (deficiency), and cash flows for each of the
three years in the period ended February 28, 1999. Our audits also included the
financial statement schedule listed in the index at item 14d. 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 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, such financial statements present fairly, in all material respects, the
financial position of the Company as of February 28, 1999 and 1998 and the
results of its operations and its cash flows for each of the three years in the
period ended February 28, 1999 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
Stamford, CT
May 5, 1999 (May 13, 1999 as to Note 16)
<PAGE>
<TABLE>
SONO-TEK CORPORATION
BALANCE SHEETS
ASSETS
February 28,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Current Assets
Cash and cash equivalents $70,051 $113,759
Accounts receivable (less allowance of $6,000 and $1,000
in 1999 and 1998, respectively) 264,217 810,560
Inventories - (Note 3) 787,200 615,459
Prepaid expenses and other current assets 42,039 15,780
--------- ---------
Total current assets 1,163,507 1,555,558
Equipment and furnishings (less accumulated depreciation and
amortization of $407,486 and $369,398 in 1999 and 1998,
respectively) (Note 4) 127,892 122,016
Patents and patents pending (less accumulated amortization
of $78,697 and $123,930 in 1999 and 1998, respectively) 38,333 45,187
Other assets 5,917 5,917
--------- ---------
TOTAL ASSETS $1,335,649 $1,728,678
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt (Note 6) $10,503 $55,438
Short term loans-related parties (Note 13) 88,000 -
Revolving Line of Credit (Note 5) 199,948 50,000
Accounts payable 324,192 405,009
Accrued expenses (Note 7) 267,948 353,776
---------- ----------
Total current liabilities 890,591 864,223
---------- ---------
Long term debt, less current maturities (Note 6) 37,293 577,815
Noncurrent rent payable 9,083 8,083
---------- ---------
Total liabilities 936,967 1,450,121
---------- ---------
Commitments and Contingencies (Note 8) - -
Stockholders' Equity
Common stock, $.01 par value; 12,000,000 shares authorized,
6,281,667 and 4,374,387 issued and outstanding in 1999
and 1998, respectively 62,817 43,744
Additional paid-in capital 4,735,975 3,824,221
Accumulated deficit (4,400,110) (3,589,408)
---------- ----------
Total stockholders' equity 398,682 278,557
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,335,649 $1,728,678
========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
SONO-TEK CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
Years Ended February 28,
--------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Sales (Note 14) $2,902,951 $3,570,379 $3,110,672
Cost of Goods Sold 1,616,617 1,740,217 1,518,971
--------- --------- ---------
Gross Profit 1,286,334 1,830,162 1,591,701
--------- --------- ---------
Operating Expenses
Research and product development
expenses 487,788 409,722 369,133
Marketing and selling expenses 707,215 723,919 630,295
General and administrative expenses 498,517 395,954 377,037
Non-cash charge for conversion of debt (Note 10) 354,280 - -
--------- --------- ---------
Total Operating Expenses 2,047,800 1,529,595 1,376,465
--------- --------- ---------
Operating (Loss) Income (761,466) 300,567 215,236
Interest Expense (60,448) (48,888) (66,789)
Interest and Other Income 11,212 368 4,192
-------- -------- --------
(Loss) Income Before Income Taxes (810,702) 252,047 152,639
Income Tax Expense (Note 9) - - -
-------- -------- --------
Net (Loss) Income $(810,702) $252,047 $152,639
========= ======== ========
Basic (Loss) Earnings Per Share ($0.18) $0.06 $0.04
====== ===== =====
Diluted (Loss) Earnings Per Share ($0.18) $0.05 $0.03
====== ===== =====
Weighted Average Shares - Basic 4,386,799 4,346,064 4,204,913
========= ========= =========
Weighted Average Shares - Diluted 4,386,799 4,773,667 4,507,441
========= ========= =========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
SONO-TEK CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED FEBRUARY 28, 1999, 1998 and 1997
<CAPTION>
Common Stock Total
Par Value $.01 Additional Stockholders'
----------------------- Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficiency)
------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Balance - March 1, 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)
Issuance of common stock 169,474 1,695 66,093 - 67,788
Net Income - - - 252,047 252,047
--------- ------- ---------- ----------- ---------
Balance - February 28, 1998 4,374,387 43,744 3,824,221 (3,589,408) 278,557
Issuance of common stock 4,000 40 1,280 - 1,320
Subordinated Debt conversion 1,766,667 17,667 866,613 - 884,280
Interest conversion 136,613 1,366 39,618 - 40,984
Non-employee stock option - - 4,243 - 4,243
Net Loss - - - (810,702) (810,702)
--------- ------- ---------- ----------- --------
Balance - February 28, 1999 6,281,667 $62,817 $4,735,975 $(4,400,110) $398,682
========= ======= ========== =========== ========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
SONO-TEK CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended February 28,
--------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $(810,702) $252,047 $152,639
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Non-cash charge for conversion of debt 354,280 - -
Non-cash charge for stock options 4,243 - -
Depreciation and amortization 44,941 37,182 61,298
Provision (benefit) for doubtful accounts 5,000 (34,814) 11,500
(Increase) decrease in:
Accounts receivable 541,343 (244,368) (75,135)
Inventories (171,741) (146,218) 8,140
Prepaid expenses and other current assets (26,258) (1,131) (3,607)
Other assets - 13,564 -
Increase (decrease) in:
Accounts payable and accrued expenses (125,661) 204,518 25,281
Non-current rent payable 1,000 7,417 (9,551)
--------- -------- --------
Net Cash (Used In) Provided by Operating Activities (183,555) 88,197 170,565
---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of equipment and furnishings (43,964) (95,011) (15,634)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes and obligations payable -
professional fees - - (18,472)
Repayments of notes payable - lease termination - - (23,339)
Payments on capital leases - - (1,753)
Repayments of note payable, bank (46,253) (94,173) (72,654)
Repayments of equipment loan (9,204) - -
Proceeds from revolving line of credit 149,948 50,000 -
Proceeds from equipment loan - 57,000 -
Proceeds from short term loans-related parties 88,000 - -
Proceeds from sale of common stock 1,320 - -
------- ------- --------
Net Cash Provided by (Used in) Financing Activities 183,811 12,827 (116,218)
------- ------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (43,708) 6,013 38,713
CASH AND CASH EQUIVALENTS
Beginning of year 113,759 107,746 69,033
------- -------- --------
End of year $70,051 $113,759 $107,746
======= ======== ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $17,960 $29,208 $51,419
======= ======= =======
Non-cash exchange of accrued interest
for common stock (Note 10) $40,984 $67,788 -
======= ======= =======
Conversion of debt to equity (Note 10) $884,280 - -
======= ======= =======
See notes to financial statements.
</TABLE>
<PAGE>
SONO-TEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
1. BUSINESS DESCRIPTION
The Company was incorporated in New York on March 21, 1975 for the
purpose of engaging in the development, manufacture, and sale of
ultrasonic liquid atomizing nozzles. Ultrasonic nozzle systems atomize
low to medium viscosity liquids 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.
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
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. Consignment goods are spare
parts used by outside sales representatives for emergency repairs
performed on customer's equipment.
Equipment and Furnishings - Equipment and furnishings 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.
Product Warranty - Expected future product warranty expense is recorded
when the product is sold.
Patent and Patent Pending Costs - 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.
Research and Product Development Expenses - Research and product
development expenses 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.
Earnings (Loss) Per Share - Basic earnings per share ("EPS") is
computed by dividing net income (loss) 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 (see Note 6) were antidilutive and therefore are not
considered for the Diluted EPS calculations.
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, 1999, 1998 and 1997 was $110,805,
$113,153, and $102,439, respectively.
Long-Lived Assets - The Company periodically evaluates the carrying
value of long-lived assets, including intangible assets, when events
and circumstances warrant such a review. The carrying value of a
long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and
is less than its carrying value. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair market
value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved.
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" and the Financial Accounting Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation". Under SFAS 123, the Company will continue to apply the
provisions of APB 25 to its stock-based employee compensation
arrangements, and is only required 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 the prior year financial
statements have been reclassified to conform to the current year
presentation.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
February 28,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Raw Materials $591,536 $281,467
Work-in-process 56,119 160,450
Consignment 10,868 -
Finished Goods 128,677 173,542
------- -------
$787,200 $615,459
======== ========
</TABLE>
4. EQUIPMENT AND FURNISHINGS
Equipment and furnishings consist of the following:
<TABLE>
<CAPTION>
February 28,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Laboratory equipment $ 79,441 $ 77,436
Machinery and equipment 324,444 289,576
Furniture and fixtures 131,493 124,402
-------- --------
Totals 535,378 491,414
Less: accumulated depreciation (407,486) (369,398)
-------- --------
$127,892 $122,016
======== ========
</TABLE>
5. REVOLVING LINE OF CREDIT
On January 2, 1998, the Company received a $150,000 line of credit
which carries an interest rate of prime plus 2% (9.75% at February 28,
1999). On February 15, 1999, the line of credit was restructured and
increased to $300,000. The loan is collateralized by accounts
receivable, inventory and all other personal property of the Company
and is guaranteed by the CEO of the Company. The line of credit is
payable on demand. As of February 28, 1999 and 1998, the balance was
$199,948 and $50,000 respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 28,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Note payable, bank, collateralized by accounts receivable, inventory
and all other personal property of the Company. As modified in May
1996, the note was payable in monthly installments, including
interest at 2% over the bank's prime rate (10.5% at February 28,
1998), of $7,500. The weighted average interest rate was 10.5% and
10.4% during Fiscal 1999 and 1998, respectively. The loan was
personally guaranteed by the Company's President and a former
Chairman and Chief Executive Officer of the Company. The note was
paid off in August 1998. - 46,253
Convertible secured subordinated promissory notes, as amended 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, 2000. In the
original note, each $1,000 portion of these notes was convertible
into 1,428 common shares of the Company and a warrant, which
expired in August 2000, to purchase an additional 1,428 shares of
common stock at $1.50 a share. During Fiscal 1999, the Company was
in default of the agreement for failure to pay interest when due.
On February 26, 1999 the Note was amended to reduce the conversion
price from $0.70 to $0.30, and the noteholders converted. At the
same time the warrants were extended to February 28, 2002, and the
price was reduced to $0.65 per share (see Note 11). These notes
included $50,000 issued to the Company's former Chairman of the Board. - 530,000
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 (9.75% at February 28, 1999). 47,796 57,000
------- --------
Total long term debt 47,796 633,253
Due within one year (10,503) (55,438)
------- --------
Due after one year $37,293 $577,815
======= ========
</TABLE>
Long-term debt is payable as follows (as of February 28, 1999):
February 28, 2000 $10,503
February 28, 2001 11,574
February 28, 2002 12,754
February 29, 2003 12,965
-------
$47,796
=======
Management believes that the fair value of the debt payable to the bank
approximates its carrying value because of the variable interest rate
on the loan. Management does not believe it is practical to determine
the fair value of the convertible secured subordinated promissory notes
as there are no similar notes to compare them to. As of February 28,
1999 the Company was in compliance with the terms of the covenants
related to the bank loan.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
February 28,
-------------------------------
1999 1998
---- ----
Professional fees $ 93,076 $ 88,576
Estimated warranty costs 17,800 30,250
Accrued compensation 120,203 137,068
Accrued commissions 5,593 70,480
Accrued interest 1,364 20,253
Accrued claim 25,000 -
Other accrued expenses 4,912 7,149
------- --------
$267,948 $353,776
======== ========
8. COMMITMENTS AND CONTINGENCIES
Litigation - During the normal course of business the Company is
involved in various routine legal matters. The Company believes the
outcome of these matters will not have a material adverse effect on the
Company's financial statements.
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,
but that option was not exercised. The Company is making payments on a
month-to-month basis equal to the amount that would have been required
per month if the option had been exercised.
Rent expense was approximately $73,000, $73,000, and $61,000 for the
years ended February 28, 1999, 1998, and 1997, respectively.
9. INCOME TAXES
The annual provision (benefit) for income taxes differs from amounts
computed by applying the maximum U.S. Federal income tax rate to
pre-tax income (loss) as follows:
<TABLE>
<CAPTION>
February 28,
------------------------------------------------------------------
1999 % 1998 % 1997 %
---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C>
Computed tax (benefit)
expense at maximum rate ($275,639) (34.0) $85,700 34.0 $52,700 34.0
Permanent differences 2,574 .3 1,330 .5 - -
Tax effect of debt
conversion costs 121,898 15.0 - - - -
Change in valuation
allowance for tax
effect of operating
loss carryforwards 151,167 18.7 (87,030) (34.5) (52,700) (34.0)
------- ------- ---- ------- ----
Provision for
income taxes $ - - $ - - $ - -
======== ===== ======= ==== ======= ====
</TABLE>
The net deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
February 28,
-------------------------------------
1999 1998
---- ----
<S> <C> <C>
Allowance for doubtful accounts $ 2,000 $ 0
Accumulated depreciation 24,000 24,000
Accumulated amortization 8,000 8,000
Inventory 52,000 19,000
Noncurrent rent payable 4,000 3,000
Accrued vacation 10,000 11,000
Accrued expenses 60,000 57,000
Operating loss carryforwards 1,452,000 1,283,000
--------- ---------
Net deferred tax assets before
valuation allowance 1,612,000 1,405,000
Deferred tax asset valuation allowance (1,612,000) (1,405,000)
--------- ----------
Net deferred tax asset $ - $ -
========== ==========
</TABLE>
The change in the valuation allowance was $207,000 and ($123,000) for
the years ended February 28, 1999 and 1998, respectively.
At February 28, 1999, the Company has available operating loss
carryforwards of approximately $3,632,000 for income tax purposes which
expire between 2001 and 2019.
10. CAPITAL STOCK
On April 30, 1997, the Company reached an agreement with the holders of
$530,000 of secured convertible secured subordinated promissory notes,
whereby they agreed to, among other things, accept 169,474 shares of
the Company's Common Stock as payment for the total amount of interest
due as of February 28, 1997 of $67,788. During Fiscal 1999, as part of
the Fourth Note Amendment Agreement, the Noteholders agreed to convert
$530,000 of convertible secured subordinated promissory notes on
February 26, 1999 into 1,766,667 shares of the Company's Common Stock.
Also, as part of the Fourth Note Agreement, the Noteholders received
136,613 shares of the Company's Common Stock as payment for the total
amount of interest due as of February 26, 1999. The Agreement lowered
the conversion price from $.70 per share to $.30 per share. This
resulted in a non-cash charge of $302,857 to earnings for Fiscal 1999.
An additional non-cash charge of $51,423 was the result of the lowering
of the warrant exercise price from $1.50 per share to $.65 per share
(see Note 11).
11. STOCK OPTIONS AND WARRANTS
Stock Options - 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 employment.
During Fiscal 1999, the Company granted options for 172,500 shares
exercisable at between $.38 per share and $.60 per share to qualified
employees, and 20,000 shares exercisable at $.30 per share to a
consultant of the Company. During Fiscal 1999 compensation expense of
$4,243 was recognized based on the fair value of fully vested options
granted to non-employees. During Fiscal 1998, the Company granted
options for 299,000 shares exercisable at between $.37 per share and
$.82 per share to qualified employees. During Fiscal 1997, the Company
granted to qualified employees 17,500 shares exercisable at $.78 per
share and 5,124 shares, exercisable at $.625 per share to outside
consultants.
A summary of the 1993 Plan activity for the three year period ended
February 28, 1999 is as follows:
<TABLE>
<CAPTION>
Stock Options Exercise Price
Outstanding Exercisable Outstanding Exercisable
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance -March 1, 1996 283,500 131,450 $ .37 $ .37
Granted - Fiscal 1997 22,624 .74
Canceled - Fiscal 1997 (2,500) .38)
------- ------- ----- -----
Balance - February 28, 1997 303,624 221,544 .40 .35
Granted Fiscal 1998 299,000 .42
Canceled Fiscal 1998 (45,000) (.52)
------- ------- ----- -----
Balance - February 28, 1998 557,624 457,875 .40 .38
Granted Fiscal 1999 192,500 .55
Canceled Fiscal 1999 (43,500) (.39)
Exercised Fiscal 1999 (4,000) (.33)
------- -----
Balance - February 28, 1999 702,624 512,049 $ .44 $ .39
======= ======= ===== =====
</TABLE>
The fair value of options granted under the Company's fixed stock
option plans during Fiscal 1999, 1998 and 1997 were estimated on the
dates of grant using the minimum value options-pricing models with the
following weighted-average assumptions used: expected volatility of
approximately 83%, 75% and 60% in Fiscal 1999, 1998 and 1997,
respectively, risk free interest rate of approximately 5.25%, 6% and
6.3% in Fiscal 1999, 1998 and 1997, respectively, and expected lives of
option grants of approximately five years.
The estimated fair value of options granted during Fiscal 1999, 1998
and 1997 were $.25 per share, $.17 per share and $.20 per share,
respectively. The Company applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for the 1993 Plan. Had
compensation cost for the Company's stock option plan been determined
based on the fair value at the option grant dates for awards in
accordance with the accounting provisions of SFAS 123, the Company's
net income (loss) and basic and diluted earnings (loss) per share for
the years ended February 28, 1999, 1998 and 1997 would have been
changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net (Loss)Income:
As reported $(810,702) $252,047 $152,639
Pro forma $(882,675) $210,896 $147,229
Basic earnings (loss) per share:
As reported $(.18) $.06 $.04
Pro forma $(.20) $.05 $.04
Diluted earnings (loss) per share (see Note 12):
As reported $(.18) $.05 $.03
Pro forma $(.20) $.04 $.03
</TABLE>
Warrants - In connection with the conversion of the Convertible Secured
Subordinated Promissory Notes (see Note 6), on February 26, 1999 the
Company modified the terms of the original detachable stock warrants
reducing the exercise price from $1.50 per share to $0.65 per share.
After conversion of the note, there are 756,840 warrants outstanding.
The estimated fair value of these warrants at the date issued was $0.07
per share using the minimum value options-pricing model and assumptions
similar to those used for valuing the Company's stock options as
described above, except the expected lives of the warrants is two
years. A non-cash charge for conversion of debt of $51,423 was recorded
in connection with the issuance of these warrants.
12. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
February 28,
-----------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator-
Numerator for basic and diluted earnings
(loss) per share - net (loss) income $(810,702) $252,047 $152,639
========== ======== ========
Denominator:
Denominator for basic earnings (loss) per
share -weighted average shares 4,386,799 4,346,064 4,204,913
Effects of dilutive securities:
Stock options for employees
and outside consultants 0* 427,603 302,528
--------- --------- ----------
Denominator for diluted earnings (loss)
per share 4,386,799** 4,773,667** 4,507,441**
========= ========= =========
Basic Earnings (Loss) Per Share $(.18) $.06 $.04
====== ==== ====
Diluted Earnings (Loss) Per Share $(.18)*** $.05*** $.03***
====== ==== ====
</TABLE>
* Stock options for employees and outside consultants are antidilutive
during Fiscal 1999 as a result of the net loss and therefore are not
considered in the Diluted EPS calculation.
**The effect of considering the warrants issued in connection with the
debt conversion during Fiscal 1999 (see Notes 6 and 11) at February 28,
1999 and the convertible secured subordinated promissory notes and
related warrants (see Notes 6 and 11) at February 28, 1998 and 1997 are
antidilutive and therefore not considered for the diluted (loss)
earnings per share calculations.
***Under the assumption that stock options and warrants were not
antidilutive as described in * and **, the denominator for diluted
earnings (loss) per share would be 5,766,578, 5,530,507, and 5,264,281
at February 28, 1999, 1998 and 1997, respectively.
13. RELATED PARTY TRANSACTIONS
Short term loans - related parties - From time to time the Company has
required short term loans to meet its cash requirements. All of these
loans have been provided by two Board members of the Company, one of
which is an officer, at the rate of prime plus 2% (9.75% at February
28, 1999). As of February 28, 1999 the amount outstanding was $88,000.
During Fiscal 1999, interest expense relating to these loans was
$1,354.
Consulting agreement - At February 28, 1999 and February 28, 1998,
accounts payable includes a liability for prior years' consulting fees
to the Company's former Chairman of the Board of $69,076 recorded from
1993 to 1996.
14. SIGNIFICANT CUSTOMERS AND FOREIGN SALES
For the year ended February 28,1999 one customer accounted for 17% of
sales. At February 28, 1999, this customer accounted for 29% of trade
receivables. No single customer accounted for more than 10% of sales or
trade receivables for the years ended February 28, 1998 and February
28, 1997.
Export sales to customers located outside the United States were
approximately as follows:
<TABLE>
<CAPTION>
February 28,
------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Western Europe $235,000 $ 41,000 $399,000
Far East 100,000 163,000 164,000
Other 285,000 231,000 116,000
------- ------- -------
$620,000 $435,000 $679,000
======== ======== ========
</TABLE>
15. FINANCIAL CONSIDERATIONS AND MANAGEMENT'S PLANS
The Company incurred a net loss during Fiscal 1999 of $810,702,
consisting of a loss from operations and a non-cash charge of $354,280
resulting from the conversion of the Convertible Secured Subordinated
Promissory Note to equity. The operating loss was a result of lower
sales stemming from a down turn in the capital goods market in the
electronics industry. In response to the loss, the Company initiated a
series of cost reductions, lowered interest expense by converting the
Convertible Secured Subordinated Promissory Notes, and increased its
efforts to expand the customer base outside of the electronics market.
Management also anticipates the acquisition of a company that
manufactures cleaning, rinsing and drying systems for the
semiconductor, disk drive, precision parts manufacturing, and flat
panel display industries, (see Note 16) will give the Company
additional sales, and the ability to reduce overhead costs by sharing
the costs between the two companies.
As necessary, the Company plans on funding the operations by using the
available borrowings under the current line of credit agreement and
obtaining loans from shareholders (as required in the past).
Although the results of these actions cannot be predicted, including
the success of the acquisition and the ability to derive sufficient
cash flows from the new acquisition (See Note 16), the Company believes
that these steps are appropriate and will help the Company return to
profitability in Fiscal 2000.
16. SUBSEQUENT EVENTS
During the first quarter of Fiscal 2000, two Board members, one of
which is an officer, provided short term loans to the Company in the
amount of $77,000 bringing the total loans from related parties to
$165,000.
On March 3, 1999, as part of the Company's plan to grow and diversify,
the Company signed a non-binding letter of intent to acquire a local
manufacturer of specialty equipment that produces cleaning, degreasing
and vapor drying systems for the semiconductor, disk drive, and other
high technology industries. The Company believes this acquisition will
complement the Company's core business including industry focus and
manufacturing similarities. The Company also believes that significant
efficiencies can be realized by integrating the operation of the two
companies. The Company anticipates reporting this transaction on Form
8-K upon the execution of a definitive acquisition agreement.
On May 5, 1999 the Company released a Private Placement Memorandum
which offers 1,666,667 shares of the Company's common stock at $0.30
per share. The money raised from this offering will be used for the
planned acquisition, as discussed in the proceeding paragraph, and as
working capital.
At a meeting held May 13, 1999, the Board of Directors granted a five
year stock purchase warrant for 300,000 shares, exercisable at $.30 per
share to each of the two Board members who have loaned money to the
Company over the last several years. The Board also authorized the
grant of 100,000 shares of the Company's common stock to the CEO upon
the completion of the acquisition discussed above. At the same meeting,
a non-employee director was granted 20,000 options, exercisable at $.30
per share, of which 10,000 were vested immediately and 10,000 vest at
the end of his current term as a director.
<PAGE>
SCHEDULE II
<TABLE>
SONO-TEK CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Column C
Column A Column B Additions Column D Column E
- ---------------------------------------------------------------------------------------------------------------------
Balance Charged (credited) Charged to Balance
at Beginning to Costs and to Other at End
Description of Period Expenses Accounts Deductions* of Period
- ----------- --------- -------- -------- ----------- ---------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
Year Ended February 28, 1999 $1,000 $5,000 - $ 0 $6,000
Year Ended February 28, 1998 35,814 (34,814) - 0 1,000
Year Ended February 28, 1997 25,000 11,500 - 686 35,814
</TABLE>
* Represents write-offs, net of recoveries, of uncollectible accounts.
<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: June 1, 1999
Sono-Tek Corporation
(Registrant)
By: /s/ James L. Kehoe
- ----------------------
James L. Kehoe
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and officers of
Sono-Tek Corporation, a New York corporation, which is filing its Annual Report
on Form 10-K with the Securities and Exchange Commission under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitute and appoint
James L. Kehoe and Kathleen N. Martin and each of them their true and lawful
attorney-in-fact and agent, with full power and substitution and
re-substitution, for him and her and in his or her name, place and stead, in any
and all capacities, to sign such Form 10-K and any or all amendments to the Form
10-K, and all other documents in connection therewith to be filed with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
interests and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitutes, may lawfully do or cause to be done by virtue hereof.
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/ James L. Kehoe June 1, 1999
- ------------------
James L. Kehoe
Chairman, Chief Executive Officer and Director
/s/ John J. Antretter June 1, 1999 /s/ Harvey L Berger June 1, 1999
- --------------------- -------------------
John J. Antretter Harvey L. Berger
Director President and Director
/s/ Christopher L. Coccio June 1, 1999 /s/ Samuel Schwartz June 1, 1999
- ------------------------- -------------------
Christopher L. Coccio Samuel Schwartz
Director Director
/s/ J. Duncan Urquhart June 1, 1999 /s/ Kathleen N. Martin June 1, 1999
- ---------------------- ----------------------
J. Duncan Urquhart Kathleen N. Martin
Director Treasurer & Chief Financial Officer
<PAGE>
Exhibit 4(i) Form of 1999 Amendment to Convertible Note
FOURTH NOTE AMENDMENT AGREEMENT
Reference is made to that certain Convertible Secured Subordinated Note (as
amended, the "Note") by and between Sono-Tek Corporation (the "Company") and
NAME~ (the "Holder") in the principal amount of $DOLLARS~ made as of November
16, 1993, as amended by the Note Amendment Agreement made as of March 23, 1995,
the Second Note Amendment Agreement made as of April 30, 1996, and the Third
Note Amendment Agreement made as of April 30, 1997.
Whereas the Company has not made several interest payments to Holder which were
due on the dates and in the amounts shown in Attachment I hereto, and
Whereas the failure of the Company to make said interest payments on the dates
due constitutes (or in the case of the interest payment due February 15, 1999
will, with the passage of time constitute) events of default in accordance with
the terms of the Note, and
Whereas the Company may not be able to repay the principal amount of the Note in
the amount stated above when such amount becomes due on August 15, 2000, and
Whereas the Board of Directors of the Company unanimously agreed on February 19,
1999 to reduce the conversion price of the Note from $0.70 per share to $0.30
per share;
Now, therefore, the Company and the Holder hereby agree as follows:
1. The Holder hereby agrees and elects to convert the entire Note, the past
due interest on the Note, and interest due on the past due interest, all as
shown in Attachment I hereto, into Common stock of the Company at the rate
of $0.30 per share. The Holder and the Company agree that rounding to the
nearest whole share will be in lieu of a cash payment for any fractional
share.
2. Upon the signing hereof and the surrender of the Note, the Company will
promptly issue instructions to it's transfer agent to issue to the Holder
certificates for a total of SHARES~ shares of its common stock, in
denominations as shown in Attachment I hereto. Certificates for these
shares shall bear the restrictive legend set forth in Attachment II hereto.
3. The Company agrees to use its reasonable best efforts to register the
shares issued in connection with this Agreement within one year of the date
hereof, unless the Company shall furnish an opinion of counsel to the
Company that such registration is not required under the Securities Act of
1933 or unless the shares are eligible for sale pursuant to Rule 144 under
such Act.
4. The Holder hereby waives all events and prospective events of default under
the Note (including those described above) and will not seek to enforce any
rights or remedies against the Company provided in the Note or otherwise
based on or resulting from such defaults.
5. The Company hereby extends the expiration date of the Warrant to be issued
to the Holder upon conversion of the Note from August 15, 2000 to February
28, 2002, and further agrees to reduce the exercise price of said Warrant
from $1.50 per share to $0.65 per share. The Holder agrees that if the
common stock of Sono-Tek trades at a price equal to or greater than $1.95
per share for a period of thirty (30) consecutive days, the Company shall
have the right to require that the warrant be exercised at the reduced
exercise price of $0.65 within ninety (90) days of providing notice to the
Holder of such event. If the Warrant is not exercised as herein described,
the Company shall have the right to repurchase the Warrant at $0.001 per
share. The Holder agrees that the Warrant to be issued to the Holder will
reflect the provisions of this paragraph 5.
6. Holder, by his signature hereto, agrees to all of the provisions of
Attachment II hereto.
Sono-Tek Corporation February 26, 1999
- --------------- ---------------
James L. Kehoe NAME
Chief Executive Officer
<PAGE>
Fourth Note Amendment Agreement - Attachment II
The undersigned understands, agrees, represents and warrants as follows:
1. The shares referred to in paragraph 1 of the Fourth Note Amendment
Agreement are referred to as the "Shares" in this Attachment II.
2. Holder's right to transfer the Shares will be highly restricted. The Shares
may not be transferred except (a) pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), (b) if,
in the opinion of counsel to the Company, such transfer may be made
pursuant to an exemption from the registration requirements of the Act, or
(C) pursuant to SEC Rule 144 under the Act. Holder is familiar with the
provisions of Rule 144, including without limitation the holding periods
required by said Rule. Holder is prepared to bear the economic risk of this
investment for an indefinite period of time.
3. The certificates for the Shares may bear a legend reading substantially
as follows:
"These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged, hypothecated or
otherwise transferred in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel to
the Company that such registration is not required or unless sold pursuant
to Rule 144 under such Act."
Appropriate stop transfer instructions with respect to certificates for
the Shares will be placed with the Company's transfer agent. 4. Holder is
acquiring the Shares for Holder's own account for investment purposes and
not for sale or with a view to distribution of all or any part of such
Shares. Holder agrees not to make any transfer of the Shares unless the
Shares are the subject of an effective registration statement under the
Act or unless an exemption from the registration requirements of the Act is
available.
5. The Company has provided Holder with all information, documents, books and
records which Holder has requested for deciding whether to purchase the
Shares, including without limitation true and complete copies of the
Company's Annual Report to Shareholders for its fiscal year ended February
28, 1998; its definitive proxy statement dated July 13, 1998 for its annual
meeting of shareholders held August 20, 1998, its annual report on Form
10-K for its fiscal year ended February 28, 1998, its quarterly reports on
Form 10-Q for its fiscal quarters ended May 31, 1998, August 31, 1998 and
November 30, 1998, and its Form 8-A amendment No. 2 dated February 23,
1999. Holder is aware that the Company has not made the interest payments
described in the Fourth Note Amendment Agreement, to any holders of the
Company's Convertible Secured Subordinated Notes in the aggregate principal
sum of $530,000. Holder confirms that Holder has been granted the
opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares.
6. Holder recognizes that investment in the Shares involves certain risks, and
Holder has taken full cognizance of and understands all of the risks
related to the purchase of the Shares. Holder is an "accredited investor"
within the meaning of SEC Regulation D promulgated under the Act, has the
financial sophistication, knowledge and experience in financial and
business matters to evaluate and analyze the merits and risks of an
investment in the Shares, and is able to bear the risk of loss of such
investment. If Holder is a natural person, Holder represents that Holder's
individual net worth, or joint net worth with that person's spouse, exceeds
$1,000,000 or that Holder had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year. If
Holder is not a natural person, Holder represents that it was not organized
for the specific purpose of making this particular investment.
7. This Attachment II is not transferable or assignable by Holder.
DATED: February 26, 1999 ACCEPTED
- ------------------------------ -----------------------------
NAME~ Sono-Tek Corporation
STREET~ James L. Kehoe
TOWN~ Chief Executive Officer
<PAGE>
Exhibit 4(j) Mr. Kehoe's Personal Guarantee for the Bank of New York
THE
BANK OF
NEW GENERAL GUARANTEE
YORK
285 Main Mall, Poughkeepsie February 15, 1999
(Banking Office)
FOR VALUE RECEIVED, and in consideration of loans made or to be made or credit
otherwise extended or to be extended by THE BANK OF NEW YORK (the "Bank") to or
for the account of Sono-Tek Corporation (the "Borrower") of 2012 Route 9W, Bldg.
3, Milton, NY from time to time and at any time and for other good and valuable
consideration and to induce the Bank, in its discretion, to make or commit to
make such loans or extensions of credit and to make or grant such renewals,
extensions, releases of collateral or relinquishments of legal rights as the
Bank may deem advisable, the undersigned (jointly and severally, if more than
one guarantor, whether executing the same instrument or separate instruments)
absolutely and unconditionally guarantees to the Bank the prompt payment when
due, whether by acceleration or otherwise, of all present or future obligations
and liabilities of any and all kinds of the Borrower to the Bank and of all
instruments of any nature evidencing or relating to any such obligations and
liabilities upon which the Borrower or one or more parties and the Borrower is
or may become liable to the Bank, whether incurred by the Borrower as maker,
indorser, drawer, acceptor, guarantor, accommodation party, counterparty,
purchaser, seller or otherwise, and whether due or to become due, secured or
unsecured, absolute or contingent, joint and/or several, and howsoever or
whensoever acquired by the Bank (all of which are referred to as the
"Obligations"), and irrespective of the genuineness, validity, regularity,
discharge, release or enforceability of such Obligations, or of any instrument
evidencing any of the Obligations or of any collateral therefor or of the
existence or extent of such collateral or of the obligations of the undersigned
under this guarantee. The Obligations shall include interest accruing thereon
before or after the commencement of any insolvency, bankruptcy or reorganization
proceeding in respect of the Borrower or any other guarantor of the Obligations
whether or not such interest is an allowable claim in any such proceeding and
irrespective of the discharge or release of the Borrower or any other guarantor
in such proceeding.
The undersigned assents that the Bank may at any time and from time to time,
either before or after the maturity thereof, without notice to or further
consent of the undersigned, extend the time of payment of, exchange, release,
substitute or surrender any collateral for, renew or extend any of, or change
the amount of, the Obligations or increase the interest rate thereon, and may
also make any agreement with the Borrower or with any other party to or person
liable on any of the Obligations or any guarantor of or hypothecator of
collateral or other surety for such Obligations or interested therein, for the
extension, renewal, payment, compromise, discharge or release thereof, in whole
or in part, or for any modification of the terms thereof or of any agreement
between the Bank and the Borrower of any such other party or person, without in
any way impairing or affecting this guarantee.
The undersigned agrees that this guarantee shall not be impaired or otherwise
affected by any failure to call for, take, hold, protect or perfect, continue
the perfection of or enforce any security interest in or other lien upon, any
collateral for the Obligations, or by an failure to exercise, delay in the
exercising or waiver of, or forbearance with respect to, any right or remedy
available to the Bank with respect to the Obligations.
The undersigned acknowledges that it has derived or expects to derive a
financial or other benefit from each and every Obligation incurred by the
Borrower to the Bank.
The undersigned waives notice of the acceptance of this guarantee and of the
making of any such loans or extensions of credit or the incurrence of any
Obligation, presentment to or demand of payment from anyone whomsoever liable
upon any of the Obligations, protest, notice or presentment, nonpayment or
protest and notice of any sale or other disposition of collateral security or
any default of any sort.
To secure the liabilities of the undersigned under this guarantee, the
undersigned grants to the Bank a security interest in and a lien upon all
personal property of the undersigned or in which the undersigned may have an
interest which is now or may at any time hereafter come into the possession or
control of the Bank, or of any third party acting on behalf of the Bank, whether
for the express purpose of being used by the Bank as collateral security or for
custody or for any other or different purpose, including such personal property
as may be in transit by mail or carrier for any purpose or covered or affected
by any documents in the Bank's possession or control, or in the possession or
control of any third party acting on behalf of the Bank, or any collateral which
secures any other obligations of the undersigned to the Bank. The undersigned
authorizes the Bank in its discretion, at any time, to appropriate and apply
upon any of the liabilities of the undersigned under this guarantee any such
property of the undersigned and to charge any of such liabilities against any
balance of any account standing to the credit of the undersigned on the books of
the Bank. To satisfy the liabilities of the undersigned under this guarantee,
the Bank shall have, in addition to all other rights and remedies allowed by
law, the rights and remedies of a secured party under the Uniform Commercial
Code and without limiting the generality of the foregoing, the Bank may
immediately, without demand of performance and without notice of intention to
sell or otherwise dispose of or of the time or place of sale or other
disposition or of redemption or other notice or demand whatsoever to the
undersigned, all of which are expressly waived, to the extent permitted by law,
and without advertisement, sell at public or private sale, grant options to
purchase or otherwise realize upon, in the State of New York, or elsewhere, the
whole or from time to time any part of said collateral upon which the Bank shall
have a security interest and lien as aforesaid, and after deducting from the
proceeds of sale or other disposition of the said collateral all expenses
(including all reasonable expenses for legal services of every kind and other
expenses as set forth below), the Bank shall apply the residue of such proceeds
towards the payment of any of the liabilities of the undersigned under this
guarantee in such order as the Bank shall elect, the undersigned remaining
liable for any deficiency remaining unpaid after such application. If notice of
any sale or other disposition is required by law to be given, the undersigned
hereby agrees that notice sent at least five days before the time of any
intended public sale or of the time after which any private sale or other
disposition of the said collateral is to be made, shall be reasonable notice of
such sale or other disposition.
At any such sale or other disposition the Bank or any other person designated by
the Bank may itself purchase the whole or any part of the collateral sold or
otherwise disposed of, free from any right of redemption on the part of the
undersigned, which right, to the extent permitted by law, is hereby waived and
released.
The undersigned agrees to pay on demand, all expenses (including, but not
limited to, reasonable attorneys' fees and expenses, whether or not litigation
is commenced, and cost of any insurance and payment of taxes or other charges)
of, or incidental to, the custody, care, sale or collection of, or realization
upon, any of the said collateral.
This is a continuing guarantee and shall apply to all Obligations
notwithstanding that at any particular time any or all of the Obligations shall
have been paid in full. This guarantee shall remain in full force and effect and
be binding upon the undersigned, and the undersigned's successors and assigns,
until written notice of its revocation shall actually be received by the Bank.
No such revocation shall release the undersigned or affect in any manner the
rights, remedies, powers, security interests and liens of the Bank under this
guarantee with respect to any of the Obligations which shall have been created,
contracted, assumed or incurred prior to actual receipt by the Bank of such
written notice of revocation and any renewals or extensions thereof or any
Obligations which shall have been created, contracted, assumed or incurred after
actual receipt of such written notice pursuant to any agreement entered into by
the Bank prior to actual receipt of such written notice and any renewals or
extensions thereof. Any such revocation by one of the undersigned shall not
affect the continuing liabilities hereunder of such of the undersigned as do not
give notice of revocation. If any on the present or future Obligations are
guaranteed by persons, partnerships, limited liability companies or corporations
in addition to the undersigned, the death, release or discharge in whole or in
part, or the bankruptcy, liquidation or dissolution of one or more of them,
shall not discharge or affect the liabilities of the undersigned under this
guarantee.
This guarantee shall continue to be effective, or shall be reinstated, as the
case may be, if at any time payment of all or any part of any payment of any of
the Obligations is rescinded or must be restored or returned by the Bank whether
under any insolvency, bankruptcy, receivership or reorganization proceeding or
otherwise.
This guarantee may be assigned by the Bank and its benefits shall inure to the
successors, indorsees and assigns of the Bank.
This guarantee is a guarantee of payment and not of collection, and the Bank
shall be under no obligation to take any action against the Borrower or any
other person liable with respect to any of the Obligations or resort to any
collateral security securing any of the Obligation or this guarantee as a
condition precedent to the undersigned being obligated to make payment and to
perform as agreed herein. The undersigned hereby waives any right to claim or
interpose any defense, counterclaim or offset of any nature and description
which it may have or which may exist between and among the Bank, the Borrower
and/or the undersigned or to seek injunctive relief.
Promptly upon the Bank's request, the undersigned agrees to furnish such
information (including financial statements and tax returns of the undersigned)
to the Bank and to permit the Bank to inspect and make copies of its books and
records, as the Bank shall reasonable request from time to time.
The undersigned authorizes the Bank to date this guarantee and to complete any
blank space herein according to the terms upon which this guarantee was given.
Any notice to the Bank shall be effective only upon receipt by the Bank and if
directed to the Bank at its banking office set forth above or any other address
hereafter specified by written notice from the Bank to the undersigned.
Until such time as the Bank shall have received payment in full in cash
satisfaction of all of the Obligations, the undersigned waives any right to be
subrogated to the rights of the Bank with respect to the Obligations, and the
undersigned waives any right to and agrees that it will not institute or take
any action against the Borrower seeking contribution, reimbursement or
indemnification by the Borrower with respect to any payment made by the
undersigned to the Bank hereunder.
The undersigned agrees to pay all costs and expenses incurred by the Bank
incidental to or in any way relating to the enforcement of the Obligation or the
obligations of the undersigned hereunder or the protection of the rights of the
Bank hereunder or with respect to any of the Obligations including, but not
limited to, reasonable attorneys' fees and expenses, whether or not litigation
is commenced.
Every provision of this guarantee is intended to be severable; if any term or
provision of this guarantee shall be invalid, illegal or unenforceable for any
reason whatsoever, the validity, legality and enforceability of the remaining
provision hereof shall not in any way be affected or impaired thereby.
No failure on the part of the Bank to exercise, and no delay in exercising, any
right, remedy or power hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by the Bank of any right, remedy or power
hereunder preclude any other or future exercise thereof or the exercise of any
other fight, remedy or power.
Each and every right, remedy and power hereby granted to the Bank or allowed it
by law or other agreement shall be cumulative and not exclusive of any other
right, remedy or power, and may be exercised by the Bank at any time and from
time to time.
This guarantee contains the entire agreement and understanding between the Bank
and the undersigned with respect to the subject matter hereof and supersedes all
prior agreements and understanding relating to the subject matter hereof. This
guarantee may not be amended, and compliance with its terms may not be waived,
orally or by course of dealing, but only by a writing signed by an authorized
officer of the Bank.
Until cash payment in full of the obligation, the liability of the undersigned
under this guarantee shall not be released.
IF THE UNDERSIGNED IS A CORPORATION:
The undersigned represents and warrants that the undersigned is a corporation
duly organized, validly existing- and in good standing under the laws of the
state of' its incorporation; that the execution, delivery and performance of
this guarantee are within the undersigned's corporate powers and have been duly
authorized by all necessary action of its board of directors arid shareholders;
and that each person executing this guarantee has the authority to execute and
deliver this guarantee on behalf of the undersigned.
IF THE UNDERSIGNED IS A LIMITED LIABILITY COMPANY:
The undersigned represents and warrants that the undersigned is a limited
liability company duly organized, validly existing and in good standing under
the laws of the state of' its organization; that the execution, delivery and
performance of this guarantee are within the undersigned's company powers and
have been duly authorized by all necessary action of its members; and that each
person executing this guarantee has the authority to execute and deliver this
guarantee on behalf of the undersigned.
IF THE UNDERSIGNED IS A PARTNERSHIP:
The undersigned represents and warrants that the undersigned is a partnership
duly formed under the laws of the state of' its formation; that the execution,
delivery and performance of this guarantee are within the undersigned's
partnership powers and have been duly authorized by all necessary action of its
partners and do not contravene the provision of its partnership agreement; and
that each person executing this guarantee has the authority to execute and
deliver this guarantee on behalf of the undersigned.
THIS GUARANTEE SHALL BE CONSTRUED AND INTERPRETED, AND ALL RIGHTS AND
OBLIGATIONS HEREUNDER SHALL BE DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. UNLESS THE
TEXT OTHERWISE REQUIRES, ALL TERMS USED HEREIN SHALL HAVE THE MEANINGS SPECIFIED
IN THE UNIFORM COMMERCIAL CODE. THE UNDERSIGNED SUBMITS TO THE JURISDICTION OF
STATE AND FEDERAL COURTS LOCATED IN THE CITY AND STATE OF NEW YORK IN PERSONAM
AND AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO
THIS GUARANTEE SHALL BE LITIGATED ONLY IN SAID COURTS OR COURTS LOCATED
ELSEWHERE AS THE BANK MAY SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS. THE
UNDERSIGNED WAIVES PERSONAL SERVICE UPON IT AND CONSENTS TO SERVICE OF PROCESS
OUT OF SAID COURTS BY MAILING A COPY THEREOF TO IT BY REGISTERED OR CERTIFIED
MAIL.
THE UNDERSIGNED AND THE BANK WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY CONNECTED TO THIS GUARANTEE
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THE OBLIGATIONS.
IN WITNESS HEREOF, this guarantee has been executed by the undersigned as of the
date first written above.
NAME OF GUARANTOR: James L. Kehoe
12 Lenape Lane
Salisbury Mills, NY 12577
SIGNATURE OF GUARANTOR
OR AUTHORIZED SIGNER:-/s/James L. Kehoe
If Authorize Signer
Name: James L. Kehoe
ACKNOWLEDGEMENT FOR INDIVIDUAL
State of New York
County of Ulster
On the 15th day of February, 1999, before me personally came James L. Kehoe, to
me known to be the individual described in and who executed the foregoing
instrument, and acknowledged that (s)he executed the same
/s/ Claudine Y. Corda
Claudine Y. Corda
Notary Public State of New York
Reg No. 01C06005915
Qualified in Dutchess County
Commission Expires 4/20/2000
LIMITATION OF LIABILITY
(the following provisions shall be effective only if executed by a duly
authorized officer of the Bank)
Notwithstanding the aggregate amount of the Obligations which may become due to
the Bank from the Borrower at any time and from time to time, the liability of
the guarantor under this guarantee shall be limited to the sum of (i) $
_________________ (hereinafter referred to as the "Maximum Amount"), (ii) such
portion of the interest, legal expenses, insurance, taxes and other charges and
expenses as are provided for in the instruments or other documents (if any)
evidencing the Obligations of the Borrower as the Maximum Amount bears to the
aggregate principal amount of all Obligations of the Borrower to the Bank at the
time the Bank demands payment under this guarantee and (iii) all expenses
(including, but not limited to, reasonable attorneys' fees and expenses, whether
or not litigation is commenced) in any way relating to the enforcement or
protection of the rights of the Bank under this guarantee. It is understood,
however, that the Obligations of the Borrower to the Bank may at any time exceed
the Maximum Amount without affecting the liabilities of the guarantor under this
guarantee.
BANK OFFICER
<PAGE>
Exhibit10(f) Bank of New York Line of Credit
THE
BANK OF
NEW MASTER PROMISSORY NOTE
YORK (PRIME RATE)
$ 300,000.00 February 15, 1999
FOR VALUE RECEIVED, the undersigned (the "Borrower") hereby promises to pay to
the order of THE BANK OF NEW YORK (the "Bank") at its 285 Main Mall,
Poughkeepsie, New York office, the principal sum of THREE HUNDRED THOUSAND
Dollars ($300,000.00) or the aggregate unpaid principal amount of all advances
made by the Bank to the Borrower (which aggregate unpaid principal amount shall
be equal to the amount duly indorsed and set forth opposite the date last
appearing on the schedule attached to this note), whichever is less.
Advances evidenced by this note shall be payable ON DEMAND.
The Borrower agrees to pay interest on the unpaid principal balance of each
advance evidenced hereby from the date such advance is made at a rate per annum
equal to the Prime Rate plus 2.0%, but not to exceed the maximum rate permitted
by law. If any payment which is to be made hereunder is not paid when due, the
Borrower agrees to pay interest on such payment, payable on demand, at a rate
per annum equal to the rate specified in the preceding sentence plus 2%, but not
to exceed the maximum rate permitted by law. "Prime Rate" shall mean, for any
day, the prime commercial lending rate of the Bank as publicly announced to be
in effect from time to time, such rate to be adjusted automatically, without
notice, on the effective date of any change in such rate. The Borrower
acknowledges that the Prime Rate is not the lowest rate at which the Bank may
make loans or other extensions of credit. Interest shall be computed on the
basis of a 360 day year for the actual number of days elapsed and shall be
payable on the ____ day of each month and at maturity of each advance evidenced
by this note (whether by acceleration or otherwise).
If any payment of principal of or interest on the advances evidenced by this
note becomes due and payable on a Saturday, Sunday or other day on which the
Bank is permitted or required by law to be closed, then such payment shall be
extended to the next succeeding business day, and interest shall be payable at
the rate set forth above during such extension.
Advances evidenced by this note may be prepaid at any time without penalty, but
with interest on the amount being prepaid through the date of prepayment.
If the Bank shall make a new advance on a day on which the Borrow is to repay an
advance hereunder, the Bank shall apply the proceeds of the new advance to make
such repayment and only the amount by which the amount being advanced exceed the
amount being repaid shall be made available to the Borrower in accordance with
the terms of this note.
The Borrow authorizes the Bank to accept oral (including telephonic) and written
(including facsimile) instructions from the Borrower or an authorized
representative of the Borrower to make an advance hereunder or receive any
payment hereof and to indorse on the schedule attached hereto the amount of all
advances hereunder and all principal payments hereof received by the Bank. The
Borrower agrees that the Bank may rely on instructions believed by the Bank to
be genuine and given by the Borrower or an authorized representative of the
Borrower.
The Bank is authorized to charge any deposit account of the Borrower maintained
at the Bank for each principal prepayment hereof on the date made, and for each
principal payment and for each interest payment due hereunder on the due date
thereof. The Bank shall credit the Borrower's deposit account maintained at the
Bank in the amount of each advance hereunder on the date of such advance, which
credit will be confirmed to the Borrower by standard advice of credit or
notation in the monthly statement sent to the Borrower in connection with such
account. The Borrower agrees that the actual crediting of the amount of the
advance to the Borrower's deposit account shall constitute conclusive evidence
that the advance was made, and neither the failure of the Bank to indorse on the
schedule attached hereto the amount of the advance nor the failure of the Bank
to forward an advice of credit to the Borrower or note such advance in the
monthly statement sent to the Borrower shall effect the Borrower's obligations
hereunder.
The Bank shall have a lien on the balances of the Borrower now or hereafter on
deposit with or held as custodian by the Bank and the Bank shall have full
authority to set off such balances against the indebtedness evidenced by this
note or any other Obligation (which term shall include any and all present and
future obligations or liabilities of the Borrower as maker, indorser, drawer,
acceptor, guarantor, accommodation party, counterparty, purchaser, seller or
otherwise, and whether due or to become due, secured or unsecured, absolute or
contingent, joint and/or several, and howsoever and whensoever acquired by the
Bank) and may at any time, without notice, to the extent permitted by law, apply
the same to the advances evidenced by this note or such other Obligations,
whether due or not.
All obligations of the Borrower to the Bank under this note are secured pursuant
to the terms of any security agreement executed by the Borrower in favor of the
Bank dated of even date herewith as such agreement may be amended or modified
from time to time and any other security agreement that the Borrower shall have
executed or shall at any time execute in favor of the Bank, and the Bank is
entitled to all the benefits thereof.
The Borrower acknowledges that the advances evidence hereby are payable on
demand and payment thereof may be demanded by the Bank at any time for any
reason in the sole and absolute discretion of the Bank.
All advances evidenced hereby together with all accrued interest thereon shall
become immediately and automatically due and payable, without demand,
presentment, protest or notice of any kind, upon the commencement by or against
the Borrower, any guarantor of this note or any hypothecator of collateral
securing this note of a case or proceeding under any bankruptcy, insolvency or
other law relating to the relief of debtors, the readjustment, composition or
extension of indebtedness or reorganization or liquidation.
The Borrower waives presentment, demand, protest and notice of protest,
non-payment or dishonor of this note.
The Borrower agrees to pay all costs and expenses incurred by the Bank
incidental to or in any way relating to the Bank's enforcement of the
obligations of the Borrower hereunder or the protection of the Bank's rights in
connection herewith, including, but not limited to, reasonable attorneys' fees
and expenses, whether or not litigation is commenced.
Promptly upon the Bank's request, the Borrower agrees to furnish such
information (including, without limitation, financial statements and tax returns
of the Borrower) to the Bank and to permit the Bank to inspect and make copies
of its books and records, as the Bank shall reasonably request from time to
time.
So long as any obligation of the Borrower to the Bank is or may be outstanding
and unpaid, the Borrower agrees that it will not grant, without the prior
written consent of the Bank, a security interest in, a lien upon or an
assignment of, any of its current assets (as classified in accordance with
generally accepted accounting principles) now owned or hereafter acquired, to
secure any obligation for the payment of borrowed money indebtedness except
indebtedness owed to the Bank.
The Borrower waives any right to claim or interpose any counterclaim or set-off
of any kind in any litigation relating to this note or the transactions
contemplated hereby.
This note may not be amended. and compliance with its terms may not be waived,
orally or by course of dealing, but only by a writing signed by an authorized
officer of the Bank.
This note may be assigned or indorsed by the Bank and its benefits shall inure
to the successors, indorsees and assigns of the Bank.
The Borrower authorizes the Bank to date this note and to complete any blank
space herein according to the terms upon which said advances were granted.
No failure on the part of the Bank to exercise, and no delay in exercising, any
right, remedy or power hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by the Bank of any right, remedy or power
hereunder preclude any other or future exercise thereof or the exercise of any
other right, remedy or power.
Each and every right, remedy and power hereby granted to the Bank or allowed it
by law or other agreement shall be cumulative and not exclusive of any other
right, remedy or power, and may be exercised by the Bank at any time and from
time to time.
Every provision of this note is intended to be severable; if any term or
provision of this note shall be invalid, illegal or unenforceable for any
reason, the validity, legality and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
IF THE BORROWER IS A CORPORATION:
The Borrower represents and warrants that the Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the state of'
its incorporation and is duly qualified to do business in the State of New York;
that the execution, delivery and performance of this note are within the
Borrower's corporate powers and have been duly authorized by all necessary
action of its board of directors and shareholders; and that each person
executing this note has the authority to execute and deliver this note on behalf
of the Borrower.
IF THE BORROWER IS A LIMITED LIABILITY COMPANY:
The Borrower represents and warrants that the Borrower is a limited liability
company duly organized, validly existing- and in good standing under the laws of
the state of' its organization and is duly qualified to do business in the State
of New York; that the execution, delivery and performance of this note are
within the Borrower's company powers and have been duly authorized by all
necessary action of its members; and that each person executing this note has
the authority to execute and deliver this note on behalf of the Borrower.
IF THE BORROWER IS A PARTNERSHIP:
The Borrower represents and warrants that the Borrower is a partnership duly
formed under the laws of the state of' its formation and is duly qualified to do
business in the State of New York; that the execution, delivery and performance
of this note are within the Borrower's partnership powers and have been duly
authorized by all necessary action of its partners and do not contravene the
provisions of its partnership agreement; and that each person executing this
note has the authority to execute and deliver this note on behalf of the
Borrower.
THE PROVISIONS OF THIS NOTE SHALL BE CONSTRUED AND INTERPRETED, AND ALL RIGHTS
AND OBLIGATIONS HEREUNDER DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER
SUBMITS TO THE JURISDICTION OF STATE AND FEDERAL COURTS LOCATED IN THE CITY AND
STATE OF NEW YORK IN PERSONAM AND AGREES THAT ALL ACTIONS AND PROCEEDINGS
RELATED DIRECTLY OR INDIRECTLY TO THIS NOTE SHALL BE LITIGATED ONLY IN SAID
COURTS OR COURTS LOCATED ELSEWHERE AS SELECTED BY THE BANK AND THAT SUCH COURTS
ARE CONVENIENT FORUMS. THE BORROWER WAIVES PERSONAL SERVICE UPON IT AND CONSENTS
TO SERVICE OF PROCESS BY MAILING A COPY THEREOF TO IT BY REGISTERED OR CERTIFIED
MAIL.
THE BORROWER AND THE BANK WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY CONNECTED TO THIS NOTE OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
Name of Borrower: Sono-Tek Corporation
Address of Borrower: 2012 Route 9W, Bldg. 3
Milton, NY 12547
Signature of Borrower
or Authorized Signer: /s/James L. Kehoe
Name: James L. Kehoe
Title: CEO
Signature of Borrower
or Authorized Signer: /s/Kathleen N. Martin
Name: Kathleen N. Martin
Title: CFO, Treasurer
<PAGE>
Exhibit 23(a) Independent Auditors' Consent
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-60481 on Form S-8 of our report dated May 5, 1999 (May 13, 1999 as to Note
16) appearing in the Annual Report on Form 10-K of Sono-Tek Corporation for the
year ended February 28, 1999.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
May 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806172
<NAME> Sono-Tek Corporation
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1
<CASH> 70,051
<SECURITIES> 0
<RECEIVABLES> 264,217
<ALLOWANCES> 6,000
<INVENTORY> 787,200
<CURRENT-ASSETS> 1,163,507
<PP&E> 127,892
<DEPRECIATION> 407,486
<TOTAL-ASSETS> 1,335,649
<CURRENT-LIABILITIES> 890,591
<BONDS> 0
0
0
<COMMON> 62,817
<OTHER-SE> 335,865
<TOTAL-LIABILITY-AND-EQUITY> 1,335,649
<SALES> 2,902,951
<TOTAL-REVENUES> 2,902,951
<CGS> 1,616,617
<TOTAL-COSTS> 1,616,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,448
<INCOME-PRETAX> (810,702)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (810,702)
<EPS-BASIC> (.18)
<EPS-DILUTED> (.18)
</TABLE>
