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 29, 2000
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 19, 2000 the aggregate market value of the Registrant's Common
Stock held by non-affiliates of the Registrant was approximately $13,042,779
computed by reference to the average of the bid and asked prices of the Common
Stock on said date, which average was $1.875.
The Registrant had 8,952,292 shares of Common Stock outstanding as of May
19, 2000.
<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.
On May 5, 1999, the Company commenced an offering to raise $500,000 of its
securities through a private placement of its securities. The Company offered
for sale 1,666,667 shares of its common stock, $0.01 par value per share (the
"Common Stock"), at $0.30 per share (the "Private Placement"). During Fiscal
Year 2000 the Company completed the sale of 1,166,667 shares of Common Stock
pursuant to the Private Placement. Of the total shares sold, 388,333 were
purchased by directors and officers of the Company. The gross proceeds from the
Private Placement were used to pay certain costs associated with the acquisition
of S&K and for general working capital purposes.
On August 3, 1999, the Company purchased all the outstanding stock of S&K
Products International, Inc., a New Jersey Corporation ("S&K"). S&K is a
supplier of cleaning and drying systems for the semiconductor, disk drive, and
precision cleaning industries. S&K's product line includes vapor dryers, pod/box
cleaners, solvent reprocessors and polymer removal systems which can be sold
individually or as an integrated system. S&K is a wholly owned subsidiary of the
Company. The acquisition complements the Company's core business including
industry focus and manufacturing similarities. The Company believes efficiencies
will be realized by integrating the operations of the two companies because S&K
historically outsourced much of its manufacturing process which can now be done
by Sono-Tek.
During Fiscal Year 1999, the Company signed an agreement with Flowtech Srl, an
Italian company, ("Flowtech") whereby Flowtech agreed to sell the Company's line
of ultrasonic nozzles and related products out of their sales offices throughout
Europe, South America and Asia.
During Fiscal Year 1999, in an effort to further diversify its product line, the
Company began test marketing Flowtech's full range of pressure nozzles in the
U.S. market. On January 22, 2000, the Company entered into a joint venture with
Flowtech to form PNR America, LLC, a Delaware limited liability company ("PNR
America"), to market and sell Flowtech's (and its affiliates') pressure nozzles
in the U.S.. The Company has a 49% ownership interest in PNR America. Pressure
nozzles are commodity items, relatively inexpensive, generate a continuous
source of revenue because of their limited useful life and do not compete
against the Company's ultrasonic nozzles. The Company will provide
administrative and operational support for PNR America and will allocate such
costs to PNR America, accordingly.
(b) Financial Information about Industry Segments.
During Fiscal Year 2000 the Company was engaged in two industry segments:
spraying systems and cleaning and drying systems. The Company's spraying systems
segment is engaged in the business of developing, manufacturing, marketing,
selling, installing and servicing ultrasonic spray equipment. The Company's
cleaning and drying systems segment, which commenced with the acquisition of
S&K, is engaged in the business of developing, manufacturing, marketing,
selling, installing and servicing cleaning and drying systems for the
semiconductor, disk drive and precision cleaning industries.
(c) Description of Business.
Background
Spraying Systems - The Company's spraying systems segment is engaged in the
business of developing, manufacturing, marketing, selling and installingg
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 manufactured to include 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.
During 1999 and continuing through the formation of PNR America, the Company
acted as the U.S. distributor for Flowtech by selling pressure nozzles.
Cleaning and Drying Systems - The Company's cleaning and drying systems segment
is engaged in the business of developing, manufacturing, marketing, selling and
installing cleaning, rinsing and drying systems. The product line includes vapor
dryers, pod/box cleaners, solvent reprocessors and polymer removal systems which
can be sold individually or as an integrated system.
Marketing Overview
During Fiscal Year 2000, spraying systems products accounted for 82% of the
Company's sales and cleaning and drying systems accounted for 18% of the
Company's sales. During Fiscal Year 2000 one customer accounted for 16% of net
spraying systems sales. During Fiscal Year 1999, a different customer accounted
for 17% of net spraying system sales. No single customer accounted for more than
10% of spraying systems net sales in Fiscal Year 1998. During Fiscal Year 2000,
four customers accounted for more than 10% of net cleaning and drying systems
sales, for a combined total of 75% of sales
Spraying Systems - The SonoFlux System accounted for approximately 68% of the
spraying system's sales during Fiscal Year 2000, 71% during Fiscal Year 1999,
and 76% during Fiscal Year 1998. Nozzle systems accounted for 10%, 18%, and 21%
of sypraying system sales, during 2000, 1999 and 1998, respectively. Sales of
the MCSoSystems accounted for 11% of the spraying system's sales during Fiscal
Year 2000, 9% during Fiscal Year 1999 and 3% during Fiscal Year 1998.
The Company markets ultrasonic nozzles to customers requiring specialized
applications of liquids to their products. A majority of sales leads are
generated via participation in trade shows and seminars, by inquires from the
Company's presence on the Internet, advertisements and technical articles in
trade journals, and product news releases, . 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. Six employees located
in the Company's facilities in Milton, New York currently sell the Company's
spraying systems.
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 Reps are paid a commission on sales after
the Company receives payment from the customer. The Company currently has
seventeen such Reps 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, South American and Far Eastern countries. The Company
currently has nine such distributors under contract.
Initial sales of the MCS AccuoMist and MCSoInfinity Systems were made during
Fiscal Year 1998 to companies for general top-down spraying applications. During
Fiscal Year 1999 sales were made for 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 Flowtech 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.
Cleaning and Drying Systems - The Company markets its cleaning and drying
systems to the semi-conductor industry for integration into automated wet bench
systems. The systems are used in the photo resist stripping and polymer removal
applications.
The Company markets its drying systems to the disk drive head and media
industries for decreasing particle contamination. Isopropyl alcohol based drying
equipment is used for drying flat panel displays and large glass plates. A new
technology using a non-volatile, non-ozone depleting, organic compound, has
recently been developed by the Company.
Solvent based cleaning, rinsing and drying equipment for precision parts
manufacturing is sold to the aerospace, circuit board, electromechanical
equipment, medical device and precision optics industries. A new product, the
Series 5000 Cleaning System ("Series 5000"), has been developed to clean Front
Opening Universal Pods ("FOUPS") used to transport 300mm semiconductor wafers
during the manufacturing process. The Company has delivered multiple systems in
Fiscal Year 2000, however, revenue recognition has been deferred to Fiscal Year
2001 due to acceptance terms as defined in the purchase contract. Subsequent to
year end, revenues from such sales are expected to be included in the Company's
first quarter revenues for the period ended May 31, 2000 The Company uses trade
shows, industry specific trade magazines and the world wide web to market its
cleaning and drying systems.. It also employs three people in a Chestnut Ridge,
New York office who perform sales functions for the cleaning and drying systems.
The Company has four domestic independent representatives under contract with a
total of approximately sixteen people performing direct sales. All
representatives are paid a commission under a contract.
Markets for the Company's Products
Spraying Systems
Nozzle Systems - The Company markets ultrasonic nozzles to customers requiring
specialized applications of liquids to their products, which may include
applying chemicals to 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, chemical vapor deposition 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.
MCSoInfinity and MCS AccuoMist Systems - The MCSoInfinityoSystem 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 target market for
this system include non-woven fabrics, float glass lines, flat panel display
manufacturing, and the spraying of mold release agents.
The MCS AccuoMistoSystem is targeted for markets where the surface area to be
coated is generally small (as low as one quarter of an inch). The initial target
market for this system is the specialized electronic assembly market because it
involves the application of liquid solder flux to individual leads or
connectors.
Pressure Nozzles - During Fiscal Year 1999, the Company began to distribute
Flowtech pressure nozzles in the U.S.. During Fiscal Year 2000, the Company
entered into a joint venture with Flowtech to form PNR America to sell pressure
nozzles in the U.S. market. These nozzles are manufactured by Flowtech, the
leading developer and manufacturer of pressure nozzles in Europe. Pressure
nozzles are commodity items and do not compete against the Company's ultrasonic
nozzles used in capital equipment.
Cleaning and Drying Systems
The Company markets cleaning and drying systems to customers who require an
environmentally sound, highly efficient method to remove excess particles and
contaminants. The Company is currently targeting the 300mm wafer industry for
the cleaning of FOUPS.
Product Development
For the Fiscal Years ended February 29, 2000 and February 28, 1999, and February
28, 1998, the Company expended approximately $648,000, $488,000, and $410,000,
respectively, on research and development for new product development and
enhancing existing systems. There were product development costs for cleaning
and drying systems in Fiscal Year 2000 only.
Management believes that the Company's long-term growth and stability is linked
to the development and release of products that provide total solutions to
customer needs across a wide spectrum of industries, while advancing the utility
of the Company's core technology.
Spraying Systems
SonoFlux System - The SonoFlux 9500 is based on a proven design which utilizes
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 help 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(TM)
interface from a personal computer and has the capacity to store up to 250
customized programs.
Several SonoFlux 9500 models are currently 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. This system is "CE" compliant, which is a prerequisite to selling
into the European market.
MCS AccuoMist 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 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 Year 1998, released the MCS AccuoMist System
to address this need. The MCS AccuoMist 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 MCSoInfinity System is a precise, highly efficient
spray coating system designed for general top-down spraying applications. This
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 - Liquid delivery systems 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.
Cleaning and Drying Systems
During Fiscal Year 2000, the Company began the manufacture of the Series 5000
and shipped multiple units in the fourth quarter. The revenue recognition has
been deferred to Fiscal Year 2001 due to acceptance terms as defined in the
purchase contract. The cleaning and drying system is for 300mm wafer carriers or
FOUPS. This system uses solvents to remove particles and contaminants to yield a
result that has been measured by a third party to yield superior cleaning
results when compared to competing technologies or equipment.
Manufacturing
The Company currently employs eighteen people for its manufacturing and quality
control activities. Indirect manufacturing activities are shared by the spraying
systems and cleaning and drying segments. Direct production staff is shared on
an as needed basis. 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 and increasing sales, the Company may need to
expand its facilities.
The Company's current manufacturing areas consists of (i) a machine shop, (ii) a
nozzle assembly/test area, (iii) an electronics assembly area, (iv) two system
assembly areas, (v) a cleanroom/test area, and (vi) a receiving and shipping
area.
The machine shop produces machined parts for spraying systems and cleaning and
drying systems, plus components for development projects and custom parts to
satisfy unique customer requirements. During the fourth quarter of Fiscal Year
1998, the Company purchased new production equipment which has reduced
production costs and improved quality.
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 for both
the spraying systems and cleaning and drying systems. 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 areas combine the assembled modules from the electronics
assembly area, and additional sheet metal and wiring to complete SonoFlux
systems, MCSoInfinity Systems, Liquid Delivery Systems, and MCS AccuoMist
Systems and all the cleaning and drying 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 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 and was recertified in
September 1999. 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
Spraying Systems - 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 nozzle having an axial feed
tube expired in October 1999. The Company's patent on its central bolt design,
used in current product offerings, expires in July 2004. 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".
Cleaning and Drying Systems - S&K has four approved patents that enter on S&K's
line of vapor dryers, Megasonics cleaners, solvent reprocessors, polymer removal
and cassette box cleaning.. There are two patents that cover the use of
Isopropyl alcohol in vapor drying, one of which expires in February 2007, the
other in September 2008. The other two patents expire December 2003 and August
2007. The Company believes these patents are enforceable and will provide S&K
with a significant market advantage. In addition, the Company may be unable, for
financial or other reasons, to enforce its rights under its patents.
Competition
Spraying Systems - 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. During Fiscal Year
2000, several major suppliers of wave soldering equipment have upgraded their
software to integrate the operation of the Company's SonoFlux System.
The Company believes that a large market exists for industrial spray nozzles in
the U.S. PNR America competes with several well established companies in this
market. The Company believes PNR America 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.
Cleaning and Drying Systems - The cleaning systems have about a dozen United
States and Japanese competitors. The use of non-ozone depleting solvents to
facilitate the drying process in most of the Company's products meets the
highest standards demanded by manufacturing processes where extreme cleanliness,
dryness and neutral electrical charge are required. In this respect, the
Company's co-solvent products are often superior to our competitors aqueous and
semi-aqueous cleaning systems or spin-type drying equipment, particularly for
parts with complex geometries or blind holes.
Although management believes that it has competed against larger 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.
Employees
As of May 19, 2000, the Company had 50 full-time employees and 2 part-time
employees. The Company believes that its relationship with its employees is
good. At the present time, PNR America has no employees and is supported by one
full-time and an allocation of five Sono-Tek employees.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
The Company has focused primarily on the North American market. The Company
utilizes independent sales representatives or sales representative companies
throughout North America to sell spraying systems and cleaning and drying
systems on a commission basis. The Company also has a distribution agreement
with Flowtech 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. During Fiscal Years 2000, 1999, and 1998 the sales to foreign
customers accounted for approximately $992,000, $620,000, and $435,000,
respectively, or 21%, 17%, and 12%, respectively, of total revenues. Fiscal Year
2000 sales to foreign customers were approximately $807,000, or 17% of total
revenue for spraying systems and approximately $185,000, or 4% of total revenue
for cleaning and drying systems.
(e) Backlog
The backlog of orders for the Company's products was approximately $1,143,000,
$115,000, and $104,000 as of February 29, 2000, February 28, 1999, and February
28, 1998, respectively. The Company anticipates that it will ship all of its
February 29, 2000 backlog during Fiscal Year 2001.
ITEM 2 PROPERTIES
The Company's offices, product development, manufacturing and assembly
facilities are located in two buildings consisting of 13,200 square feet and
3,500 square feet of space at 2012 Route 9W, Milton, New York, pursuant to a
lease which will expire on November 30, 2002. The Company also leases 2,000
square feet of warehouse space in the same complex. In addition, a sales office
is located at 80 Red Schoolhouse Road, Chestnut Ridge, New York, pursuant to a
lease which will expire August 3, 2000. The Chestnut Ridge facility is leased
from an S&K employee and beneficial shareholder.
As the Company increases its sales of new products, the Company may need to
expand into a larger facility or 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 STOCKHOLDERS MATTERS
(a) The Company's Common Stock trades in the over-the-counter market on the OTC
Bulletin Board. The following table sets forth the range of high and low closing
bid quotations for the Company's Common Stock for the periods indicated as
furnished by the National Quotations Bureau, Incorporated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 29, FEBRUARY 28,
2000 1999
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $0.4375 $0.24 $0.875 $0.5
Second Quarter 0.565 0.35 0.643 0.4375
Third Quarter 1.025 0.51 0.46875 0.21875
Fourth Quarter 2.875 0.51 0.37 0.13
</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 19, 2000 there were 315 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 and
for other corporate purposes. The Company has entered into debt and equity
agreements that restrict the payments of cash dividends.
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA1
<TABLE>
<CAPTION>
Year Ended 02/29/00 02/28/99 02/28/98 02/28/97 02/29/96
<S> <C> <C> <C> <C> <C>
Net Sales $4,797,611 $2,902,951 $3,570,379 $3,110,672 $2,747,891
Net (Loss)Income $ (672,726) $ (810,702) 2 $ 252,047 $ 152,639 $ 155,078
Basic (Loss) Earnings
Per Share $ (0.09) $ (0.18) $ 0.06 $ 0.04 $ 0.04
Diluted (Loss) Earnings
Per Share $ (0.09) $ (0.18) $ 0.05 $ 0.03 $ 0.04
Cash Dividends None None None None None
Weighted Average
Shares - Basic 7,511,186 4,386,799 4,376,064 4,204,913 4,204,913
Weighted Average
Shares - Diluted3 7,511,186 4,386,799 4,773,667 4,507,441 4,477,646
Total Assets $4,514,1254 $1,335,649 $1,728,678 $1,251,868 $1,199,717
Long-Term Liabilities $ 805,6045 $ 46,3766 $ 585,898 $ 576,722 $ 668,082
</TABLE>
<PAGE>
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 29, 2000, the Company had working capital of $36,579 and
stockholders' equity of $727,630. This compares to working capital of $272,916
and stockholders' equity of $398,682 on February 28, 1999. The net decrease in
working capital of $236,337 is due to a decrease in cash and cash equivalents
plus increases in inventory and accounts receivable that were offset by
increases in debt, accounts payable and deferred revenue. The net increase of
$328,948 in the Company's stockholders' equity is a result of the sale of
$350,000 in common stock through the May 1999 Private Placement, the addition of
$195,640 for warrants exercised and $294,015 for the issuance of stock for the
purchase of S&K, net of the Fiscal Year 2000 operating loss.
During Fiscal Year 2000, the Company entered into an agreement with a Small
Business Investment Corporation, Norwood Ventures Corporation, ("Norwood
pursuant to which the Company obtained a five year loan in the principal amount
of $450,000. The terms of the loan require interest payments only for the first
two years followed by monthly payments of $12,500 plus interest through
September 30, 2004. The Company also granted a warrant to purchase 1,100,000
shares of the Company's common stock which can be put to the Company. Such
warrants were valued at $77,000 which is accounted for as a discount and will be
imputed as additional interest expense over the term of the loan.
During Fiscal Year 2000, the Company entered into a short term loan of $100,000
with an outside non-affiliated individual. The loan and related interest was
repaid in May 2000. As part of the loan agreement, when the loan was repaid, the
lender received a warrant to purchase 50,000 shares of the Company's common
stock at a price of $1.00 per share.
The Company maintains a revolving line of credit which provide maximum
borrowings of $350,000, $300,000 and $150,000 at Fiscal Years ended February 29,
2000, February 28, 1999 and 1998, respectively. This line of credit is
collateralized by accounts receivable, inventory and all other personal property
of the Company, and guaranteed by the Chief Executive Officer of the Company
subject to certain priority liens to assets made by certain lenders of S&K. As
of May 19, 2000, the Company has borrowed $350,000 under the line of credit
agreement. During Fiscal Year 2000, 1999 and 1998 the Company repaid $114,622,
$55,457 and $94,173, respectively, on notes payable and equipment loans.
Capital expenditures increased $139,000 during Fiscal Year 2000 to $183,000 from
$44,000 during Fiscal Year 1999. The increase was mainly due to the fact that
the Company constructed a Class 100 cleanroom and performed leasehold
improvements in a new office/production space in Milton, NY. During Fiscal Year
2000, the Company entered into a collateralized $73,000 term loan agreement with
a bank to purchase the cleanroom. During Fiscal Year 2000, $4,056 was paid on
the cleanroom loan. During Fiscal Year 1998, the Company entered into a
collateralized $57,000 term loan with a bank to purchase new production
equipment.
The Company's Convertible Secured Subordinated Promissory Notes that were
scheduled to mature on August 15, 2000 were converted to Common Stock under the
Fourth Note Amendment Agreement dated February 26, 1999. This agreement provided
for the reduction in the conversion price from $.70 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. During Fiscal Year 2000,
warrants for 300,985 shares of stock were exercised, resulting in $195,640 of
new capital.
Due to the losses incurred during Fiscal Years 2000 and 1999, the Company was
required to borrow on a short term basis from two officers and a director of the
Company. During Fiscal Year 2000 a total of $247,000 was loaned by these
individuals to the Company. Of this amount, $50,000 was repaid in Fiscal Year
2000 and $126,000 was repaid subsequent to year end. An additional $51,051, of
which $5,135 was accrued interest, was used, in a non-cash transaction, to
exercise warrants to purchase 78,540 shares of the Company's common stock. As of
February 29, 2000, the balance owed the officers and director was $239,084. As
an acknowledgement of the loans, 300,000 warrants were issued each to an officer
and a director of the Company in Fiscal Year 2000. Each warrant expires May 12,
2004 and has an exercise price of $0.30 per share). The Company recognized a
non-cash interest charge of $102,626 based on the fair market value of the
warrants granted. Subsequent to the Fiscal Year end warrants to purchase 50,000
shares of the Company's common stock were issued to an officer of the Company in
acknowledgment of short term loans granted to the Company in Fiscal Year 2000.
Subsequent to year end, the Company entered into a long term debt agreement with
a bank for the purchase of new production equipment. The five year loan for
$45,359 has an interest rate of prime plus 2% and is collateralized by the
equipment purchased.
As necessary, the Company plans on funding the operations by using the available
borrowings under its current line of credit, and, if necessary, obtaining
additional loans from officers and directors.
At times, the losses also limited the Company's ability to pay trade creditors
in a timely manner.
Although there can be no assurances, management believes that the continued
sales and expanding the market for ultrasonic nozzles, and the sales of cleaning
and drying equipment will lead to broader markets and increases in sales and
profits. These factors, and the anticipated success of PNR America, should allow
the Company to meet its current obligations as they become due. The backlog at
February 29, 2000 gives the Company a reason to anticipate increased sales in
Fiscal Year 2001.
Results of Operations - 2000 Compared to 1999
The Company's sales increased $1,894,660 or 65% from $2,902,951 in Fiscal Year
1999 to $4,797,611 in Fiscal Year 2000. The increase in sales was a result of
new sales of cleaning systems, and increased sales of Fluxers and new spray
products that were offset by a decrease in nozzle sales. Sales of the newly
added line of cleaning systems were $884,435 for Fiscal Year 2000, or 18% of
total sales. Sales of fluxing systems increased by $603,515 or 29% from
$2,059,928 in Fiscal Year 1999 to $2,663,443 in Fiscal Year 2000. The Company
attributes the increase in sales of this product to a resurgence in the
electronics assembly industry over the past year. Sales of new spray products
systems increased by $111,782 or 36% from $309,594 in Fiscal Year 1999 to
$421,376 in Fiscal Year 2000. The increase is a result of expanding into new
applications and markets. Sales of the Company's nozzle systems decreased by
$124,161 from $527,084 in Fiscal Year 1999 to $402,923 in Fiscal Year 2000. This
decrease was a result of lower sales and nozzle repairs.
The Company's cost of goods sold increased $975,047 or 60% from $1,616,617 for
Fiscal Year 1999 to $2,591,664 for Fiscal Year 2000. The increase in cost of
goods sold is a result of a $179,047 charge for inventory obsolescence, an
increase in sales of the Company's products, and the related increase in
material costs. The gross profit margin increased $919,613 or 71% from
$1,286,334 in Fiscal Year 1999 to $2,205,947 in Fiscal Year 2000. The gross
profit margin was 46% and 44% of sales for Fiscal Years 2000 and 1999. The
increase was a result of an increase in sales plus the realization of cost
reductions through the consolidation of the operations of the Company and S&K.
Research and product development costs increased $159,831 or 33% from $487,788
in Fiscal Year 1999 to $647,619 in Fiscal Year 2000. The increase is
attributable to added personnel cost from the purchase of S&K, plus
non-recurring engineering consulting costs for the new Series 5000 FOUP cleaner.
General and administrative costs increased $398,033 or 80% from $498,517 in
Fiscal Year 1999 to $896,550 in Fiscal Year 2000. The increase is attributable
to added personnel and occupancy costs from the purchase of S&K, increased
depreciation on new assets, plus goodwill amortization of $49,873.
Sales and marketing expense increased $400,923 or 57% from $707,215 in Fiscal
Year 1999 to $1,108,138 in Fiscal Year 2000. The increase is attributable to
added personnel and occupancy costs from the purchase of S&K, expenses related
to exhibit costs at additional trade shows for Fiscal Year 2000, increased
commissions and startup costs associated with expenses incurred in the
distribution of pressure nozzles.
The Company's operating loss decreased $315,106 or 41% from a loss of $761,466
in Fiscal Year 1999 to a loss of $446,360 in Fiscal Year 2000. The decrease in
the loss was a result of $354,280 non-cash charge in Fiscal Year 1999 and
increased revenue in Fiscal Year 2000.
Interest and other income(loss) decreased $16,534 or (147%) from an income of
$11,212 in Fiscal Year 1999 to a (loss) of ($5,322) in Fiscal Year 2000. The
increase is attributable to recording the proportionate share of the affiliates
loss. Interest expense increased $160,596 or 266% from $60,448 in Fiscal Year
1999 to $221,044 in Fiscal Year 2000. The increase is due to a non cash charge
of $102,626 associated with the issuance of warrants, the addition of the S&K
and Norwood loan interest, additional balances on the line of credit and a new
equipment loan.
Results of Operations - 1999 Compared to 1998
The Company's sales decreased $667,428 or 19% from $3,570,379 for Fiscal Year
1998 to $2,902,951 for Fiscal Year 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 Year 1998 to $2,059,928
in Fiscal Year 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 Year 1998 to $527,084 in Fiscal Year
1999. This decrease was a result of lower sales and a decrease in nozzle
repairs. During Fiscal Year 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 Year 1998 to $1,616,617 in Fiscal Year 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 Year 1998 to $1,286,334 in Fiscal Year
1999. The gross profit margin was 44% and 51% of sales for Fiscal Years 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 Year 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 Year 1998 to $487,788 in Fiscal Year 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 Year 1998 to $498,517 in Fiscal Year 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 Year 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 Year
1998 to $707,215 in Fiscal Year 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 Year 1998 to a loss of $761,466 in Fiscal Year 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 Year 1998 to
$11,212 in Fiscal Year 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 Year 1998 to $60,448 in Fiscal
Year 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 Years 2000 or 1999.
Year 2000 Compliance
As of May 19, 2000, the Company has not experienced any material disruptions or
other effects caused by the Year 2000 problem, nor does the Company expect to
experience any material disruption or other effects caused by the Year 2000
problem in the future.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTH MARKET RISK
The Company is exposed to market risk related to changes in interest 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
29, 2000, the negative effect on the Company's results of operations would
approximate $4,000.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial information required by Item 8 is included in Part IV, Item 14 of this
report on Form 10-K.
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 37 Director
Harvey L. Berger 61 President and a Director
Christopher L. Coccio 58 Director*
James L. Kehoe 53 Chairman, Chief Executive Officer
and a Director
Kevin Schumacher 39 Director
Samuel Schwartz 80 Director*
J. Duncan Urquhart 46 Director*
</TABLE>
* Member of the Audit Committee and Compensation Committee.
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. Schumacher has been a Director since August 1999. 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. 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, Schumacher, Schwartz and
Urquhart run until the annual meeting to be held in 2000, and the term of Dr.
Berger and Messrs. Antretter and Coccio run until the annual meeting to be held
in 2001, and in each case until their respective successors are duly elected and
qualified.
(b) Identification of Executive Officers
<TABLE>
<CAPTION>
Name Age Position with the Company
<S> <C> <C>
Harvey L. Berger 61 President and a Director
James L. Kehoe 53 Chairman, Chief Executive Officer and a Director
Kathleen N. Martin 47 Chief Financial Officer and Treasurer
William J. McCormick 43 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 August 1999 to December 1999, Mr. Antretter
was Acting CEO of S&K Products International, Inc. 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. 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 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 currently has his own consulting business. Mr. Coccio 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.
JAMES L. KEHOE has been Chairman of the Board since May 1999, Chief Executive
Officer of the Company since August 1993 and a Director of the Company since
June, 1991.. From 1987 until 1993, he was President and Chief Executive Officer
of Plasmaco, Inc., which he founded in 1987. 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.
KEVIN SCHUMACHER has been Vice President of S&K since 1985 and Director of the
Company since August 1999. Prior to joining S&K, he worked at Lucas Aerospace
providing electrical and mechanical engineering and support in building Harrier
Jet Engines and Jet Engine test cells for the U.S. Marine Corps. He has a B.S.
in Aeronautical Engineering from Thomas Edison University and Aeronautical
Engineering and Flight Training from Embrey Riddle University. During Mr.
Schumacher's tenure as Vice President of S&K, S&K filed a voluntary petition for
protection under Chapter 11 of the United States Bankrupcy Code in March 1998.
In April 1999, the bankruptcy court issued a Final Decree Order stating the
Chapter 11 voluntary petition be deemed closed.
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
Not applicable.
ITEM 11 EXECUTIVE COMPENSATION
The following table sets forth the aggregate remuneration paid or accrued by the
Company through February 29, 2000 for each named officer of the Company. No
other executive officer received aggregate remuneration that equaled or exceeded
$100,000 for the Fiscal Year ended February 29, 2000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Annual Compensation Compensation
Name and Awards, Securities All Other
Principal Position Year Salary ($) Bonus ($) Underlying Options (#) Compensation ($)1
<S> <C> <C> <C> <C> <C>
James L. Kehoe 2000 $132,309 $38,375 400,000 $2,088
Chief Executive Officer 1999 115,000 0 0 2,300
1998 102,000 0 200,000 1,244
</TABLE>
1 Dollar amounts are Company contributions under the Company's retirement plan.
The following table sets forth information regarding option exercises during the
Fiscal Year ended February 29, 2000, as well as any unexercised options held as
of February 29, 2000 by each named executive who receives in excess of $100,000
in salary and bonus.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the Money Options
Shares at Fiscal Year End (#) At Fiscal Year End ($)
Acquire on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
James L. Kehoe 0 0 540,000 0 $179,200 0
</TABLE>
Audit Committee
The Company's Board of Directors has formed an Audit Committee composed of
Christopher L. Coccio, Samuel Schwartz and J. Duncan Urquhart, all Directors of
the Company. The Audit Committee is responsible for (i) selecting an independent
public accountant for ratification by the stockholders, (ii) reviewing material
accounting items affecting the consolidated financial statements of the Company,
and (iii) reports its findings to the Board of Directors.
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, Mr. Kehoe and Mr. Schumacher 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 19, 2000 to indicate beneficial
ownership of the Company's Common Stock by each Director, by each named
executive officer who has a salary and bonus in excess of $100,000, 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 420,0001 4.6%
*Harvey L. Berger 366,7002 4.1%
*Christopher L. Coccio 40,000 **
*James L. Kehoe 731,3173 7.8%
*Kevin Schumacher 410,000 4.6%
*Samuel Schwartz 977,0834 10.7%
*J. Duncan Urquhart 10,0005 **
All Executive Officers and Directors as a Group 2,955,1006 29.6%
Additional 5% owners
Herbert Spiegel 513,692 5.8%
425 East 58th Street
New York, NY 10022
Norwood Venture Corporation 1,100,0007 11.0%
1430 Broadway
New York, NY 10018
</TABLE>
*c/o Sono-Tek Corporation, 2012 Route 9W, Bldg. 3, Milton, NY 12547.
** Less than 1%
1 Includes 50,000 shares in the name of Mr. Antretter's wife, options to
purchase 20,000 shares under the 1993 Plan, and 200,000 warrants deemed
exercisable awarded by the Board of Directors in August 1999.
2 Includes 4,000 shares in the name of Dr. Berger's wife and 45,000 options
deemed exercisable issued under the 1993 Plan.
3 Includes 240,000 options deemed exercisable issued under the 1993 Plan, plus
300,000 warrants deemed exercisable awarded by the Board of Directors in May
1999.
4 Includes 300,000 warrants deemed exercisable awarded by the Board of Directors
in May 1999.
5 Includes 10,000 options deemed exercisable granted in May 1999 under the 1993
Plan.
6 Includes 315,000 options deemed exercisable issued under the 1993 Plan,
600,000 warrants deemed exercisable awarded by the Board of Directors in May
1999, 200,000 warrants deemed exercisable awarded by the Board of Directors in
August 1999.
7 Includes 1,100,000 warrants deemed exercisable issued on September 30, 1999 in
conjunction with a loan made to the Company.
ITEM. 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Short term loans - From time to time the Company has required short-term loans
to meet its payment obligations. Most of these loans, which are payable on
demand, have been provided by certain officers and directors of the Company at
an interest rate of prime plus 2% computed at the time of the loan. The interest
rate on such short term loans range from 9.75% to 10.75% at February 29, 2000.
As of February 29, 2000 and February 28, 1999 the amount of these loans
outstanding was $239,084 and $88,000, respectively. During Fiscal Year 2000 a
total of $247,000 was loaned by these individuals to the Company. Of this
amount, $50,000 was repaid in Fiscal Year 2000 and $126,000 was repaid
subsequent to year end. An additional $51,051, of which $5,135 was accrued
interest, was used, in a non-cash transaction, to exercise warrants to purchase
78,540 shares of the Company's common stock. Interest expense for the twelve
month period ended February 29, 2000 and February 28, 1999 was $17,989 and
$1,320, respectively. Accrued interest was $13,165 and $1,320 at February 29,
2000 and February 28, 1999, respectively.
As an acknowledgement of the loans, 300,000 warrants were issued each to an
officer and a director of the Company in Fiscal Year 2000. Each warrant expires
May 12, 2004 and has an exercise price of $0.30 per share. The Company
recognized a non-cash interest charge of $102,626 based on the fair market value
of the warrants granted. Subsequent to the Fiscal Year end, warrants were issued
to an officer of the Company in acknowledgment of short term loans granted to
the Company in Fiscal Year 2000. One warrant is to purchase 25,000 shares of the
Company's common stock at $0.50 per share, the other warrant is to purchase
25,000 shares of the Company's common stock at $1.00 per share. Both warrants
expire March 3, 2005.
Subordinated convertible loans- Two convertible subordinated notes issued to the
shareholders of S&K or members of their immediate family, for an aggregate
principal amount of $150,000 were assumed by the Company on August 3, 1999, the
date of the S&K acquisition (the "S&K Notes"). The S&K Notes are subordinate to
the long-term debt with S&K's bank and the Company's bank. The S&K Notes are
payable August 3, 2002 with interest accruing at a rate of 6% per annum. The
unpaid principal balance on the S&K Notes is convertible into Common Stock at
$1.00 per share. If the Company's Common Stock trades at a value equal to or
greater than $2.00 per share for thirty consecutive trading days, the unpaid
principal balance shall automatically convert to Common Stock. Interest expense
for the twelve month period and three month period ended February 29, 2000 was
$5,250 and $2,225, respectively. Accrued interest was $5,250 at February 29,
2000.
On May 5, 1999, the Company commenced the Private Placement of 1,666,667 shares
of its Common Stock for $500,000. During Fiscal Year 2000, the Company completed
the Private Placement. Of the total shares sold, 388,333 were purchased by
directors and officers of the Company. The gross proceeds from the Private
Placement were used to pay certain cost associated with the acquisition of S&K
and for general working capital purposes.
At the time of the acquisition of S&K, two stock grants for a total of 250,000
shares of the Company's Common Stock were made to two directors of the Company,
and 200,000 warrants were issued to a non-employee director of the Company, as
an acknowledgment of their services in consummating the acquisition. The value
of the stock issued to the non-employee director and the warrants granted were
accounted for as additional purchase price. An additional 5,000 warrants were
issued to a consultant of the Company for services rendered in the Private
Placement..
PART IV
ITEM 14 EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) The consolidated financial statements and schedules listed in the
accompanying "Index to Consolidated Financial Statements" are filed as a part of
this annual report.
(2) See (a)(1) above.
(3) Exhibits
Ex. No. Description
3(a)1 Certificate of Incorporation of the Company and all amendments thereto.
3(b)2 By-laws of the Company as amended.
3(c)3 Certificate of Amendment of the Certificate of Incorporation, dated
September 30, 1999.
4(a)1 Form of Convertible Note.
4(b)4 Form of Warrant.
4(c)4 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)5 Form of 1995 Amendment to Convertible Note.
4(f)6 Form of 1996 Amendment to Convertible Note.
4(g)7 Form of 1997 Amendment to Convertible Note
4(h)8 Letter agreement between the Company and The Bank of New York.
4(i)9 Form of 1999 Amendment to Convertible Note.
4(j)9 Mr. Kehoe's Personal Guarantee for the Bank of New York.
4(k)3 Note and Warrant Purchase Agreement dated September 29, 1999 by and
between the Company and Norwood Venture Corp.
4(l)3 Note issued by the Company, dated September 29, 1999, in the principal
sum of $450,000
4(m)3 Common Stock Purchase Warrant, dated September 29, 1999, issued by the
Company to Norwood Venture Corp.
4(n)3 General Security Agreement, dated September 29, 1999, issued by the
Company in favor of Norwood Venture Corp.
10(a) Lease for the Company's facilities in Milton, NY dated December 1, 1999.
10(b) Lease for the Company's facilities in Milton, NY dated January 1, 2000.
10(c) Lease for the Company's facilities in Milton, NY dated January 1, 2000.
*10(e)10 1993 Stock Incentive Plan as amended.
10(f)9 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 the Company's Form 10-K for the
year ended February 28, 1994.
2 Incorporated herein by reference to exhibit 2 to Amendment No. 1 to
Form 8-A, SEC file #0-16035.
3 Incorporated herein by reference to the Company's Form 10-Q Quarterly
Report for the quarter ended November 30, 1999.
4 Incorporated herein by reference to the Company's Form 10-Q Quarterly
Report for the quarter ended November 30, 1993.
5 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 28, 1995.
6 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 29, 1996.
7 Incorporated herein by reference to the Company's Form 10-K for the
year ended February 28, 1997.
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, 1999.
10 Incorporated herein by reference to the Company's Form 10-Q quarterly
report for the quarter ended August 31, 1994.
(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 CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
FOR THE YEAR ENDED FEBRUARY 29, 2000
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS (ITEM 8):
Consolidated Balance Sheets at February 29, 2000 and February 28, 1999
Consolidated Statements of Operations
For the Years Ended February 29, 2000 and February 28, 1999 and 1998
Consolidated Statements of Stockholders' Equity (Deficiency)
For the Years Ended February 29, 2000 and February 28, 1999 and 1998
Consolidated Statements of Cash Flows
For the Years Ended February 29, 2000 and February 28, 1999 and 1998
Notes to the Consolidated 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 consolidated 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 consolidated balance sheets of Sono-Tek
Corporation and subsidiary (the "Company") as of February 29, 2000 and February
28, 1999 and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for each of the three years in the period
ended February 29, 2000. Our audits also included the consolidated financial
statement schedule listed in the index at item 14d. These consolidated financial
statements and consolidated financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and consolidated financial statement
schedule based on our audits. We conducted our audits in accordance with
auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, such consolidated financial
statements present fairly, in all material respects, the financial position of
Sono-Tek Corporation and subsidiary as of February 29, 2000 and February 28,
1999 and the results of their operations and their cash flows for each of the
three years in the period ended February 29, 2000 in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
Deloitte & Touche LLP
Stamford, CT
May 26, 2000
<PAGE>
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
ASSETS
<CAPTION>
February 29, February 28,
<S> <C> <C>
Current Assets 2000 1999
Cash and cash equivalents $8,176 $70,051
Accounts receivable (less allowance of $39,997 and $6,000
in 2000 and 1999, respectively) 1,619,639 264,217
Inventories (Note 6) 1,224,380 787,200
Prepaid expenses and other current assets 88,275 42,039
Total current assets 2,940,470 1,163,507
Equipment, furnishings and leasehold improvements (less accumulated
depreciation of $469,011 and $407,486 in 2000 and 1999,
respectively) (Note 7) 256,994 127,892
Intangible assets, net:
Goodwill (Note 5) 1,232,571 0
Patents and patents pending (Note 3) 31,642 38,333
Deferred financing fees 32,563 0
Total intangible assets 1,296,776 38,333
Long term equity investment (Note 8) 5,343 0
Other assets 14,542 5,917
TOTAL ASSETS $4,514,125 $1,335,649
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $847,135 $324,192
Deferred revenue 725,491 0
Accrued expenses (Note 9) 437,342 267,948
Revolving Line of Credit (Note 10) 334,307 199,948
Short term loans-related parties (Note 19) 239,084 88,000
Current maturities of long term debt (Note 12) 220,532 10,503
Short term convertible loan (Note 11) 100,000 0
Total current liabilities 2,903,891 890,591
Subordinated mezzanine debt (Note 13) 382,060 0
Long term debt, less current maturities (Note 12) 273,544 37,293
Subordinated convertible loans-related parties (Note 19) 150,000 0
Noncurrent rent payable 0 9,083
Total liabilities 3,709,495 936,967
Commitments and Contingencies (Note 14) - -
Put Warrants (Note 13) 77,000 0
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 and 12,000,000 shares authorized,
8,866,612 and 6,281,667 issued and outstanding in
2000 and 1999, respectively 88,666 62,817
Additional paid-in capital 5,711,800 4,735,975
Accumulated deficit (5,072,836) (4,400,110)
Total stockholders' equity 727,630 398,682
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,514,125 $1,335,649
See notes to consolidated financial statements.
</TABLE>
<PAGE>
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
February 29, February 28, February 28,
2000 1999 1998
<S> <C> <C> <C>
Net Sales (Note 20) $4,797,611 $2,902,951 $3,570,379
Cost of Goods Sold 2,591,664 1,616,617 1,740,217
Gross Profit 2,205,947 1,286,334 1,830,162
Operating Expenses
Research and product development 647,619 487,788 409,722
Marketing and selling 1,108,138 707,215 723,919
General and administrative 896,550 498,517 395,954
Non-cash charge for conversion of debt (Note 18) 0 354,280 -
Total Operating Expenses 2,652,307 2,047,800 1,529,595
Operating (Loss) Income (446,360) (761,466) 300,567
Interest Expense (221,044) (60,448) (48,888)
Interest and Other Income (Loss) (5,322) 11,212 368
(Loss) Income Before Income Taxes (672,726) (810,702) 252,047
Income Tax Expense (Note 15) - - -
Net (Loss) Income $(672,726) ($810,702) $252,047
Basic (Loss) Earnings Per Share ($0.09) ($0.18) $0.06
Diluted (Loss) Earnings Per Share ($0.09) ($0.18) $0.05
Weighted Average Shares - Basic 7,511,186 4,386,799 4,346,064
Weighted Average Shares - Diluted 7,511,186 4,386,799 4,773,667
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
<TABLE>
<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, 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
Issuance of common stock 1,166,667 11,667 338,333 350,000
Cost of private placement (31,589) (31,589)
Purchase of subsidiary 810,000 8,100 234,900 243,000
Stock issued to consultant 150,000 1,500 43,500 45,000
Stock issued to officer and director 100,000 1,000 29,000 30,000
Issuance of warrants 148,215 148,215
Warrants exercised 300,985 3,009 192,631 195,640
Conversion of bonus 57,294 573 16,615 17,188
Non-employee stock option 4,220 4,220
Net Loss - - - (672,726) (672,726)
Balance - February 29, 2000 8,866,612 $88,666 $5,711,800 ($5,072,836) $727,630
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended
February 29, February 28, February 28,
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net (Loss) Income $(672,726) ($810,702) $252,047
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Loss on equity investment 14,257 - -
Provision for inventory obsolescence 179,047 - -
Depreciation and amortization 121,049 44,941 37,182
Imputed interest expense on subordinated
mezzanine debt 9,060 -
Provision (benefit) for doubtful accounts 33,997 5,000 (34,814)
Non-cash charge for stock options & warrants 106,846 4,243 -
Non-cash charge for conversion of debt - 354,280 -
(Increase) decrease in:
Accounts receivable (1,183,047) 541,343 (244,368)
Inventories (547,564) (171,741) (146,218)
Prepaid expenses and other current assets (49) (26,258) (1,131)
Other assets (8,625) - 13,564
Increase (decrease) in:
Accounts payable and accrued expenses 434,675 (125,661) 204,518
Deferred revenue 725,491 - -
Non-current rent payable (9,083) 1,000 7,417
Net Cash (Used In) Provided by Operating Activities (796,672) (183,555) 88,197
CASH FLOWS FROM INVESTING ACTIVITIES-
Acquisition of business net of cash acquired (383,427) - -
Purchase of equipment, furnishings and leasehold improvements (182,794) (43,964) (95,011)
(566,221) (43,964) (95,011)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 134,359 149,948 50,000
Proceeds from short term loans-related parties 247,000 88,000 -
Proceeds from equipment loans 73,000 - 57,000
Proceeds from issuance of stock 350,000 1,320 -
Proceeds from short term convertible loan 100,000 - -
Proceeds from exercise of warrants 195,640 - -
Proceeds from subordinated mezzanine debt 450,000 - -
Deferred financing fees (34,359) - -
Repayments of note payable and equipment loans (114,622) (55,457) (94,173)
Repayment of long term debt - related party (50,000) - -
Repayment of short term debt-related party (50,000) - -
Net Cash Provided by Financing Activities 1,301,018 183,811 12,827
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (61,875) (43,708) 6,013
CASH AND CASH EQUIVALENTS
Beginning of year 70,051 113,759 107,746
End of year $8,176 $70,051 $113,759
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SONO-TEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
NOTE 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. The Company also develops,
manufactures, installs and services cleaning systems for the semiconductor, disk
drive and precision cleaning industries through its wholly owned subsidiary S&K
Products International, Inc.
NOTE 2: FINANCIAL CONSIDERATIONS AND MANAGEMENT'S PLANS
The Company incurred net losses during Fiscal Years 2000 and 1999 of $672,726
and $810,702, respectively. The Fiscal 2000 loss was due to increased operating
costs and expense. The increase in operating costs is attributable to additional
overhead costs added by the acquisition of S&K (see Note 5), an increase in
personnel costs, expenses related to the sale of Flowtech nozzles prior to the
formation of PNR America and adding a reserve for raw material obsolecence. As
part of the S&K acquisition, efforts were completed in the fourth quarter of
Fiscal Year 2000, to consolidate operations. The finance, engineering and
production departments of S&K have now relocated to the Company's Milton
location, thus decreasing the overhead costs at the Chestnut Ridge location. In
conjunction with the new Series 5000 FOUP cleaner, the Company expensed
non-recurring engineering consulting fees. Interest expenses increased due to a
non cash interest charge of $102,626 for the issuance of warrants, the addition
of the S&K and Norwood loan interest, additional balances on the line of credit
and a new equipment loan. The Company continues to increase sales through
diversifying the product line offered, and to expand into new markets in North
America and overseas.
As necessary, the Company plans on funding its 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, the Company believes
that these steps are appropriate and will help the Company return to
profitability in Fiscal Year 2001.
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements of Sono-Tek
Corporation, a New York Corporation (the "Company"), include the accounts of the
Company and its wholly owned subsidiary, S&K Products International, Inc., a New
Jersey Corporation ("S&K"), which the Company acquired on August 3, 1999 (the
"Acquisition"). All significant intercompany accounts and transactions are
eliminated in consolidation. The inclusion of S&K's results since August 3, 1999
has an effect on the comparison of the Company's Fiscal Year 2000 results to
prior periods.
Cash and Cash Equivalents - Cash and cash equivalents consist of money market
mutual funds and short-term certificates of deposit with original maturities of
90 days or less.
Supplemental Cash Flow Disclosure -
<TABLE>
<CAPTION>
Years Ended
February 29, February 28, February 28,
2000 1999 1998
<S> <C> <C> <C>
Interest paid $78,012 $17,960 $29,208
Income taxes paid - - -
Non-cash items:
Conversion of accrued interest to equity $40,984 $67,788
Conversion of debt to equity - $884,280 -
Interest expense for issuance of warrants $106,846
Conversion of accrued bonus to equity $17,188 - -
Conversion of related party loan
and accrued interest to equity $51,051- -
Stock issued and warrants granted for
professional fees in connection with
Private Placement (Note 17) $31,589 - -
Stock issued for acquisition (Note 5) $288,000 - -
Warrants issued for acquisition (Note 5) $44,000 - -
</TABLE>
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, Furnishings and Leasehold Improvements - Equipment, furnishings and
leasehold improvements are stated at cost. Depreciation of equipment and
furnishings is computed by use of the straight-line method based on the
estimated useful lives of the assets which range from three to five years.
Product Warranty - Expected future product warranty expense is recorded when the
product is sold.
Goodwill - Goodwill is being amortized on a straight-line basis over 15 years.
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. The accumulated amortization is $80,053 and $78,697 at February 29,
2000 and February 28, 1999, respectively.
Deferred Financing Fees - Deferred financing fees of $35,523 at February 29,
2000 are being amortized over the term of the related debt. Accumulated
amortization was $2,960 at February 29, 2000.
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 (loss) 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.
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 29, 2000 and February 28, 1999 and 1998 was $142,209, $110,805,
and $113,153, respectively.
Equity Method Investment - The Company accounts for its investment in PNR
America LLC ("PNR America") on the equity method, whereby the Company records
its proportionate share of the earnings/loss of PNR America (Note 8).
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.
Recognition of Revenue - Sales are recorded at the time title passes to the
customer, which, based on shipping terms, generally occurs when the product is
shipped to the customer. Based on prior experience, the Company reasonably
estimates its sales returns and warranty reserves. In connection with the
acquisition of S&K, the introduction of new product lines, and the terms of
certain equipment sales contracts with specific acceptance and return
provisions, the Company has no reasonable basis for recognizing revenue related
to certain deliveries that fall into this category. Accordingly, the Company has
billed its customers upon shipment of the equipment and deferred the revenue
recognition until such point in time that the earnings process is complete.
In connection with the sale of capital equipment and services, the Company also
sells extended service contracts. The related revenue is deferred at the date
the contract is sold and recognized ratably over the life of the contract.
Management Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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.
NOTE 4: SEGMENT INFORMATION
The Company has adopted the Statement of Financial Accounting Standard No 131
("SFAS 131") "Disclosures About Segments of an Enterprise and Related
Information". The Company has two reportable segments: spraying systems and
cleaning and drying systems. The spraying systems segment is primarily engaged
in the business of developing, manufacturing, selling, installing and servicing
ultrasonic spray equipment. The cleaning and drying systems segment is engaged
in the business of developing, manufacturing, selling, installing and servicing
cleaning systems for the semiconductor, disk drive and precision cleaning
industries.
Summary financial information concerning the Company's reportable segments is
shown in the following table:
<TABLE>
Years Ended February 29, 2000
<CAPTION>
Spraying Cleaning/Drying
Systems Systems* Total
<S> <C> <C> <C>
Net Sales $3,913,176 $884,435 $4,797,611
Net Income (Loss) (126,527) (546,199) (672,726)
Identifiable Assets 143,826 113,168 256,994
Capital Expenditures 58,792 124,002 182,794
Depreciation and Amortization Expense 52,509 68,540 121,049
</TABLE>
*Represents operating results commencing on August 3, 1999, the date of the S&K
Acquisition (Note 5).
The Company operated in a single reportable segment for the years ended February
28, 1999 and 1998.
NOTE 5: ACQUISITION
On August 3, 1999 the Company purchased all the outstanding stock of S&K, a
supplier of cleaning and drying systems for the semiconductor, disk drive, and
precision cleaning industries. S&K is a wholly owned subsidiary of the Company.
The aggregate consideration tendered by the Company in respect to the
acquisition described above was $5,000 of cash and 810,000 shares of the
Company's common stock with a valuation of $0.30 per share. Also at the time of
the closing, two stock grants for a total of 250,000 shares of the Company's
common stock were made to two directors of the Company and 200,000 warrants were
issued to a non-employee director of the Company as an acknowledgment of their
services in consummating the acquisition. The estimated fair value of the stock
issued and warrants granted to the non-employee director was accounted for as
additional purchase price. Professional fees of $101,345 associated with the
acquisition were also accounted for as additional purchase price. During the
remainder of Fiscal Year 2000, the Company recorded purchase accounting
adjustments resulting from the implementation of the Company's accounting
policies on S&K. The fair value of net assets acquired were:
Cash $26,648
Accounts Receivable 206,372
Inventory 68,663
Equipment & Furnishings 27,640
Other Assets 46,285
Accounts Payable (142,977)
Accrued Expenses (153,007)
Long Term Debt (687,901)
Net Liabilities Assumed (608,277)
Acquisition Costs (674,166)
Goodwill $1,282,443
The aggregate purchase price exceeded the fair value of net assets acquired
resulting in goodwill that will be amortized on the straight-line basis over 15
years. Accumulated amortization of goodwill at February 29, 2000 was $49,873.
The following unaudited proforma information presents a summary of the
consolidated results of operations of Sono-Tek and S&K as if the acquisition had
occurred on March 1, 1998.
<TABLE>
<CAPTION>
Proforma Consolidated Statement of Operations
Years ended
February 29, 2000 February 28, 1999
<S> <C> <C>
Net Sales $5,471,311 $4,987,255
Cost of Goods Sold 3,211,072 3,046,549
Gross Profit 2,260,239 1,940,706
Operating Expenses 3,255,606 3,460,249
Operating Loss (995,367) (1,519,543)
Interest Expense (249,920) (169,302)
Interest & Misc. Income 76,369 22,484
Net Loss $(1,168,918) $(1,666,361)
</TABLE>
These unaudited proforma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense as
a result of goodwill and the elimination of extraordinary items associated with
the S&K reorganization. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred on
March 1, 1998, or of future results of operations of the consolidated entities.
NOTE 6: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
<S> <C> <C>
Raw Materials $636,020 $618,653
Work-in-process 48,224 56,119
Consignment 11,908 10,868
Finished Goods 734,392 128,677
Totals $1,430,544 $814,317
Less: Allowance (206,164) (27,117)
$1,224,380 $787,200
</TABLE>
NOTE 7: EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS
Equipment, furnishings and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
<S> <C> <C>
Laboratory equipment $ 79,441 $ 79,441
Machinery and equipment 335,873 324,444
Leasehold improvements 20,535 0
Furniture and fixtures 290,156 131,493
Totals 726,005 535,378
Less: accumulated depreciation (469,011) (407,486)
$256,994 $127,892
</TABLE>
NOTE 8: LONG-TERM EQUITY INVESTMENT
In January 2000, in connection with the formation of PNR America, LLC, a
Delaware limited liability company ("PNR America"), the Company pledged $19,600
to PNR America for a 49% ownership interest which was paid subsequent to year
end. Flowtech Srl, an Italian company ("Flowtech"), a pressure nozzle
manufacturer owns the remaining 51%. PNR America was formed to market and sell
nozzles imported from Flowtech in the U.S.. The PNR America product line
compliments the Company's existing business as there are certain basic nozzle
properties common to both product lines and capitalizes on the Company's
existing relationships with its customers. Prior to the formation of PNR
America, the Company had conducted business with Flowtech as a U.S. distributor.
Certain of the Company's officers and directors are also officers and directors
of PNR America, however, PNR America's board of directors are controlled by
Flowtech. The Company does not control PNR America and it is therefor not
consolidated for reporting purposes.
The Company shares its facilities and personnel with PNR America. The Company
allocated costs of $13,967 to PNR America from January 22, 2000 (the date of
formation) to February 29, 2000. A balance of $13,967 remains outstanding at
February 29, 2000 and is included in prepaid expenses and other current assets
and is expected to be repaid out of PNR America's fiscal year 2000 operating
cash flows.
The Company's net investment in PNR America at February 29, 2000 was $5,343. The
Company recognized, during the period from PNR America's inception to February
29, 2000, $14,257 as its estimate of the proportionate share of the net loss of
PNR America. PNR America's year end is December 31, however, for financial
reporting purposes the Company will reflect its proportionate share of the
operating results of PNR America on a monthly basis, as the records are compiled
by Sono-Tek. The condensed financial information of PNR America as of February
29, 2000 and for the period from inception to February 29, 2000 is as follows:
Net loss - based on 38 days of operation $(29,095)
Total assets - current $17,344
Due to Sono-Tek $13,967
Due to Flowtech 32,472
Liabilites 46,439
Stockholder's deficiency (29,095)
Total liabilities and stockholder's deficiency $17,344
NOTE 9: ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
<S> <C> <C>
Accrued compensation $119,614 $120,203
Professional fees 108,426 93,076
Estimated warranty costs 61,653 17,800
Accrued commissions 49,008 5,593
Customer deposits 29,390 0
Other accrued expenses 29,293 29,912
Accrued interest 20,358 1,364
Due to affiliate 19,600 0
$437,342 $267,948
</TABLE>
NOTE 10: 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% (10.75% at February 29, 2000). On February 15,
1999, the line of credit was restructured and increased to $300,000. On February
1, 2000, the line of credit was increased to $350,000. 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 subject to certain
priority liens to assets made by certain lenders of S&K. The line of credit is
payable on demand. As of February 29, 2000 and February 28, 1999, the balance
was $334,307 and $199,948, respectively.
NOTE 11: SUBORDINATED CONVERTIBLE LOAN
On February 15, 2000, the Company entered into a 90 day $100,000 subordinated
convertible loan with an non-affiliated individual convertible into common stock
at $1.00 per share. The loan and related interest of 8 % was repaid upon
maturity, May 15, 2000. As part of the loan agreement, the lender was eligible
to receive a warrant to purchase 50,000 shares of the Company's common stock, if
the loan was not converted to equity or was not repaid. When the loan was
repaid, the lender received a five-year warrant to purchase 50,000 shares of the
Company's common stock at $1.00 per share in accordance with the provisions of
the agreement. The warrant expires on May 15, 2005.
Note 12: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
<S> <C> <C>
Equipment loan, bank, collateralized by related production
equipment, payable in monthly installments of $1,225,
including interest at 2% over the bank's prime rate
(10.75% at February 29, 2000) through February 2003. $37,508 $47,796
Equipment loan, bank, collateralized by related cleanroom
equipment, payable in monthly installments of principal
of $2,028 plus interest at 2% over the bank's prime rate
(10.75% at February 29, 2000) through December 2002. 68,944 0
Note payable, bank, collateralized by all assets of S&K,
personally guaranteed by the two former owners of S&K,
payable in monthly installments of $17,852, including
interest at 9.5% through February 2002. 387,624 0
Total long term debt 494,076 47,796
Due within one year (220,532) (10,503)
Due after one year $273,284 $37,293
</TABLE>
Long-term debt is payable as follows (as of February 29, 2000):
Fiscal Year ending February,
2001 $220,532
2002 239,043
2003 34,501
$494,076
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 29, 2000, the Company was in compliance
with the terms of the covenants related to the bank loan.
Subsequent to year end, the Company entered into a long term debt agreement with
a bank for purchase of new production equipment in the amount of $45,359 (see
Note 21).
NOTE 13: SUBORDINATED MEZZANINE DEBT
On September 30, 1999, the Company entered into a Note and Warrant Purchase
Agreement with a Small Business Investment Corporation, Norwood Venture
Corporation ( "Norwood Note") pursuant to which the Company obtained a loan,
subordinated to the note payable, bank (see Note 12) in the principal amount of
$450,000 with an interest rate of 12%. The five year loan requires interest only
payments for the first two years, followed by monthly principal payments of
$12,500 and interest for years three to five. The Norwood Note is collateralized
by certain assets of the Company, equity interests in S&K and assigned life
insurance policies on two directors of the Company. The Norwood Note, among
other things, restricts the payment of dividends.
In addition, the Norwood Note was issued with a detachable stock purchase
warrant (the "Put Warrants") to purchase 1,100,000 shares of the Company's
common stock at a exercise price of $.30, the fair market value of the Company's
common stock on September 30, 1999. The fair market value, as determined by an
independent appraisal, of the Put Warrants was determined to be $0.07 per share,
and is accounted for as a discount to the Norwood Note and will be amortized
over the life of the principal repayment term of the agreement. The unamortized
discount at February 29, 2000 is $67,940. The Put Warrants can be put to the
Company from May 29, 2006 to May 29, 2007 as otherwise defined by the agreement
and they expire on September 30, 2010, and have certain put options as defined
by the agreement.
The deferred financing fees incurred to acquire the Norwood Note will be
amortized over the life of the loan. Accumulated amortization of the deferred
financing fees was $2,960 at February 29, 2000.
NOTE 14: 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 - During Fiscal Year 2000, the Company entered into multiple lease
agreements for existing and additional office, test, production and warehouse
space in Milton, NY. These leases, which terminate November 30, 2002, have
annual rents totaling $105,000.
The Company has the option to renew the leases for a period of three years after
expiration.
The Company also leased an office and production space in Chestnut Ridge, NY
pursuant to a one year lease executed on August 3, 1999. The annual base rent
for the Company's Chestnut Ridge, NY facility was $72,000. On February 1, 2000,
the Company adjusted the lease and no longer leases the production space. The
annual base rent for the remaining office space is now $24,000. The building is
owned by an employee of the Company and former owner of S&K.
Total rent expense was approximately $109,000, $73,000, and $73,000 for the
years ended February 29, 2000 and February 28, 1999, and 1998, respectively.
The Company has the following future annual minimum obligations under these
leases as follows:
Fiscal Year ending February
2001 $117,000
2002 105,000
2003 78,750
$300,750
NOTE 15: 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 29, February 28, February 28,
2000 % 1999 % 1998 %
<S> <C> <C> <C> <C> <C> <C>
Computed tax (benefit)
expense at maximum rate ($228,727) (34.0) ($275,639) (34.0) $85,700 34.0
Non-deductible goodwill 16,957 2.5 - - - -
Other permanent differences 8,782 1.3 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 (202,988) 30.2 151,167 18.7 (87,030) (34.5)
Provision for
income taxes $ - - $ - - $ - -
</TABLE>
The net deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
<S> <C> <C>
Allowance for doubtful accounts $ 13,000 $ 2,000
Accumulated depreciation 31,000 24,000
Accumulated amortization 8,000 8,000
Inventory 157,000 52,000
Noncurrent rent payable 4,000 4,000
Accrued vacation 15,000 10,000
Accrued expenses 50,000 60,000
Net operating losses and other
carryforwards 1,877,000 1,452,000
Net deferred tax assets before
valuation allowance 2,155,000 1,612,000
Deferred tax asset valuation allowance(2,155,000) (1,612,000)
Net deferred tax asset $ - $ -
</TABLE>
The change in the valuation allowance was $543,000 and $207,000 for the years
ended February 29, 2000 and February 28, 1999, respectively.
At February 29, 2000, the Company has available net operating loss carryforwards
of approximately $4,352,000 for income tax purposes which expire between fiscal
2001 and fiscal 2020. The Company also has research and development credits of
approximately $136,000, which expire between fiscal 2010 and fiscal 2020. The
net operating loss and credit carryforwards generated by S&K prior to the
acquisition are subject to limitations under Section 382 of the Internal Revenue
Code.
NOTE 16: CAPITAL STOCK
At the Company's annual meeting of shareholders, held September 30, 1999, the
shareholders voted to increase the number of authorized shares of the Company's
common stock from 12,000,000 shares to 25,000,000 shares.
On May 5, 1999, the Company issued a Private Placement Memorandum to raise
$500,000 by offering 1,666,667 shares of common stock at $0.30 per share (the
"Private Placement"). During Fiscal Year 2000 the Company completed the sale of
1,166,666 shares of common stock pursuant to the Private Placement. Of the total
shares sold, 388,333 were purchased by directors and officers of the Company.
The gross proceeds from the Private Placement were used to pay certain costs
associated with the acquisition of S&K and for working capital. At the time of
offering, two officers of the Company converted previously unpaid bonuses in the
amount of $17,188 for 57,294 shares of common stock at $0.30 per share.
During Fiscal Year 1999, in connection with the conversion of the Convertible
Secured Subordinated Promissory Notes, 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 on the 756,840 warrants outstanding (See
Note 17). During Fiscal Year 2000, 300,985 of the above mentioned warrants were
exercised to purchase 300,985 shares of the Company's common stock, resulting in
$195,640 of new capital.
NOTE 17: STOCK OPTIONS AND WARRANTS
Stock Options - Under the 1993 Stock Incentive Plan, as amended, ("1993 Plan")
options can be granted to officers, directors, consultants and employees of the
Company and its subsidiaries to purchase up to 1,500,000, as amended on
September 30, 1999 to authorize an additional 750,000 shares, 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 Year 2000, the Company granted options for 365,000 shares
exercisable at between $0.35 per share and $0.75 per share to qualified
employees, and 20,000 shares exercisable at $0.24 per share to a Director of the
Company and 10,000 shares exercisable at $0.563 per share to a consultant of the
Company. During Fiscal Year 2000, compensation expense of $7,783 was recognized
based on the fair value of fully vested options granted to non-employees. During
Fiscal Year 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 Year 1999 compensation expense of $4,243 was recognized based on the fair
value of fully vested options granted to non-employees. During Fiscal Year 1998,
the Company granted options for 299,000 shares exercisable at between $.37 per
share and $.82 per share to qualified employees.
A summary of the 1993 Plan activity for the three year period ended February 29,
2000 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Stock Options Exercise Price
Outstanding Exercisable Outstandin Exercisable
<S> <C> <C> <C> <C>
Balance - March 1, 1997 303,624 221,544 $.40 $.35
Granted Fiscal Year 1998 299,000 .42
Canceled Fiscal Year 1998 (45,000) (.52)
Balance - February 28, 1998 557,624 457,875 .40 .38
Granted Fiscal Year 1999 192,500 .55
Canceled Fiscal Year 1999 (43,500) (.39)
Exercised Fiscal Year 1999 (4,000) (.33)
Balance - February 28, 1999 702,624 512,049 .44 .39
Granted Fiscal Year 2000 395,000 .59
Canceled Fiscal Year 2000 (127,500) (.07)
Balance - February 29, 2000 970,124 598,699 $.48 $.41
</TABLE>
The fair value of options granted under the Company's fixed stock option plans
during Fiscal Years 2000, 1999, and 1998 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 94%,
83%, and 75% in Fiscal Years 2000, 1999, and 1998, respectively, risk free
interest rate of approximately 5.71%, 5.25%, and 6% in Fiscal Years 2000, 1999,
and 1998, respectively, and expected lives of option grants of approximately
five years.
The estimated fair value of options granted during Fiscal Years 2000, 1999, and
1998 were $.24 per share, $.25 per share, and $.17 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 29, 2000, February 28,1999 and 1998 would
have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Net (Loss)Income:
As reported $(672,726) $(810,702) $252,047
Pro forma $(744,821) $(882,675) $210,896
Basic earnings (loss) per share:
As reported $(.09) $(.18) $.06
Pro forma $(.10) $(.20) $.05
Diluted earnings (loss) per share (see Note 18):
As reported $(.09) $(.18) $.05
Pro forma $(.10) $(.20) $.04
</TABLE>
Warrants - During Fiscal 2000, the following warrants were issued.
At the time of the acquisition of S&K, a warrant to purchase 200,000 shares of
the Company's common stock was issued to a non-employee director of the Company
as an acknowledgment of his services in consummating the acquisition. At the
same time, a warrant was issued to purchase 5,000 shares of the Company's common
stock to a consultant as an acknowledgement of his services in executing the
Private Placement. The fair value of this warrant was recorded as professional
fees in connection with the Private Placement as a reduction of additional paid
in capital.
As an acknowledgment of the short term loans provided by two directors of the
Company, a warrant was issued to purchase 300,000 shares of the Company's common
stock to each lender. Each warrant expires May 12, 2004 and has an exercise
price of $0.30 per share. The Company recognized a non-cash interest charge of
$102,626 based on the fair market value of the warrants granted.
As part of an agreement with a Small Business Investment Corporation pursuant to
which the Company obtained a five year loan in the principal amount of $450,000,
the Company also granted a warrant to purchase 1,100,000 shares of the Company's
common stock (see Note 13). The exercise price is $0.30 per share and the
warrant expires September 30, 2010.
During Fiscal Year 1999, the Company converted the Convertible Secured
Subordinated Promissory Notes on February 26, 1999 to equity concurrent with
changing the conversion price from $.70 to $.30 per share. In addition, 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 were 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 of $354,280 was recorded during Fiscal
Year 1999 for the conversion of debt and modification of the warrants.
During Fiscal Year 2000, 300,985 of the above mentioned warrants were exercised
to purchase 300,985 shares of the Company's common stock.
Note 18: EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
February 29, February 28, February 28,
2000 1999 1998
<S> <C> <C> <C>
Numerator-
Numerator for basic and diluted earnings
(loss) per share - net (loss) income $(672,726) $(810,702) $252,047
Denominator:
Denominator for basic earnings (loss) per
share -weighted average shares 7,511,186 4,386,799 4,346,064
Effects of dilutive securities:
Stock options for employees
and outside consultants 0* 0* 427,603
Denominator for diluted earnings (loss)
per share 7,511,186** 4,386,799** 4,773,667**
Basic Earnings (Loss) Per Share $(.09) $.(18) $.06
Diluted Earnings (Loss) Per Share $(.09)*** $(.18)*** $.05***
</TABLE>
* Stock options for employees and outside consultants are antidilutive during
Fiscal Year 2000 and 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 Year 1999, the convertible secured subordinated
promissory notes and related warrants, the warrants issued at the time of the
acquisition of S&K, the warrants issued in acknowledgement of the short term
loans, the warrants issued in connection with the Private Placement and the
Norwood warrants (see Note 17) at February 29, 2000 and February 28, 1999 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 10,570,740, 5,766,578, and 5,530,507 at February 29, 2000, February 28,
1999, and 1998, respectively.
NOTE 19: 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 officers and a director of the Company, at the rate of prime
plus 2% (9.75% to 10.75% at February 29, 2000). During Fiscal Year 2000 a total
of $247,000 was loaned by these individuals to the Company, of which $50,000 was
repaid. An additional $51,051, of which $5,135 was accrued interest, was used,
in a non-cash transaction, to exercise warrants to purchase 78,540 shares of the
Company's common stock. During Fiscal Year 2000 and 1999, interest expense
relating to these loans was $17,989 and $1,320, respectively. Subsequent to year
end, three loans for a total of $126,000 were repaid with interest. A non cash
charge of $102,626 was made to interest expense for the issuance of warrants to
the note holders (see Note 17).
Subordinated convertible loans - related parties - Two subordinated convertible
loans for a total of $150,000 were converted from S&K debt to Company debt on
August 3, 1999, the date of acquisition. The notes are subordinate to the long
term debt with S&K's bank. The notes are payable August 3, 2002 with interest of
6%. The unpaid principal balance is convertible into common stock at $1.00 per
share. If the Company's common stock trades at a value equal to or greater than
$2.00 per share for thirty consecutive trading days, the unpaid principal
balance shall automatically convert to common stock.
Consulting agreement - At February 29, 2000 and February 28, 1999, accrued
expense 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.
NOTE 20: SIGNIFICANT CUSTOMERS AND FOREIGN SALES
For the year ended February 29, 2000, one customer accounted for 16% of the
spraying systems sales and 13% of the consolidated sales of the Company. At
February 29, 2000, this customer accounted for 29% of spraying systems trade
receivables and 14% of the consolidated trade receivables. For the year ended
February 29, 2000, four customers accounted for 75% of the cleaning and drying
systems sales, and 14% of the consolidated sales of the Company. At February 29,
2000, one customer accounted for 13% of cleaning and drying systems trade
receivables and 7% of the consolidated trade receivables. For the year ended
February 28, 1999, one spraying systems 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 year ended February 28, 1998.
Export sales to customers located outside the United States were approximately
as follows:
<TABLE>
<CAPTION>
February 29, February 28, February 28,
2000 1999 1998
<S> <C> <C> <C>
Western Europe $437,000 $235,000 $41,000
Far East 163,000 100,000 163,000
Other 392,000 285,000 231,000
$992,000 $620,000 $435,000
</TABLE>
NOTE 21: SUBSEQUENT EVENTS
On May 11, 2000, the Company entered into a collateralized loan agreement with a
bank to purchase production equipment. The five year loan for $45,359 carries an
interest rate of prime plus 2%, which was 10.75% at the date of inception. The
loan will be repaid in equal monthly installments plus interest.
On May 15, 2000, the Company repaid the $100,000 subordinated convertible loan
(Note 11) and issued a warrant to purchase 50,000 shares of the Company's common
stock at $1.00 per share. The warrant expires on May 15, 2005.
On May 16, 2000, the Company signed a letter of intent to purchase all the
outstanding stock of a corporation to further expand the Company's product base.
Although the letter of intent contemplates negotiation and execution of a
definitive stock purchase agreement, closing of the transaction is subject to
numerous conditions, including, but not limited to (i) due diligence review by
the Company with results reasonably satisfactory to the Company, (ii) receipt by
the Company of financing necessary to consummate the transaction, and (iii)
receipt of necessary consents including shareholder and third party consents.
The letter of intent is to remain in effect for thirty (30) days and may be
extended by either party for an additional thirty (30) day term. Should either
party decide not to consummate the proposed transaction, outside of the
aforementioned conditions above, a break-up fee of $100,000, plus out of pockets
costs will be paid to the other party.
Subsequent to year end, the Company repaid $126,000 of principal plus interest
on three of its short term related party loans (Note 19). In addition,
subsequent to the fiscal year end warrants were issued to an officer of the
Company in acknowledgment of short term loans granted to the Company in Fiscal
Year 2000. One warrant is to purchase 25,000 shares of the Company's common
stock at $0.50 per share, the other warrant is to purchase 25,000 shares of the
Company's common stock at $1.00 per share. Both warrants expire March 3, 2005.
Subsequent to fiscal year end warrant holders (Note 18) exercised warrants for
85,680 shares of the Company's common stock, resulting in $55,692 of new
capital.
<PAGE>
SCHEDULE II
SONO-TEK CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<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
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended February 29, 2000 $6,000 $33,997 $ 0 $39,997
Year Ended February 28, 1999 1,000 5,000 0 6,000
Year Ended February 28, 1998 35,814 (34,814) - 0 1,000
</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: May 30, 2000
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/s/ James L. Kehoe May 30, 2000 /s/ John J. Antretter May 30, 2000
James L. Kehoe John J. Antretter
Chairman, Chief Executive Officer and Director Director
/s/ Harvey L Berger May 30, 2000 /s/ Christopher L. Coccio May 30, 2000
Harvey L. Berger Christopher L. Coccio
President and Director Director
/s/ Kevin Schumacher May 30, 2000 /s/ Samuel Schwartz May 30, 2000
Kevin Schumacher Samuel Schwartz
Director Director
/s/ J. Duncan Urquhart May 30, 2000 /s/ Kathleen N. Martin May 30, 2000
J. Duncan Urquhart Kathleen N. Martin
Director Treasurer and Chief Financial Officer
</TABLE>
<PAGE>
Exhibit 10(a)
LEASE
LEASE MADE THIS 10th DAY OF November , 1999
BETWEEN Jean K. Woodward, owner, as may be represented by William Woodward
(William Woodward Enterprises) residing at 50 Riverview Drive, Marlboro, New
York 12542-5310 herein referred to as Lessor,
AND Sono-Tek Corporation, having it's principal place of business at
2012 Route 9-W, Milton Industrial Park, Milton, New York 12547, herein referred
to as Lessee.
RECITALS:
1: Lessor is the sole owner of the premises described below and
desires to lease the premises to a suitable Lessee for
business purposes.
2: Lessee desires to lease the premises for the
purpose of conducting a business of light
manufacturing, electronics and related machinery
and equipment.
3: The parties desire to enter a lease agreement defining their rights, duties
and liabilities relating to the premises.
In consideration of the mutual covenants contained herein, the parties agree as
follows:
I. SUBJECT AND PURPOSES:
Lessor leases approximately 3,575 square feet of space in a portion of
the building known as Phase II, Building 1, in the south west sector of the
Milton Industrial Park, in the County of Ulster, State of New York and more
particularly described as follows:
A space separated by party walls and measuring 41 feet wide, 80 feet long, (3280
square feet) with jogs in the party wall adding 5 ft 6 inches by 40 feet (220
feet) and 3 feet by 25 feet (57 feet) and located adjoining the offices of W. J.
Woodward Construction, Inc.
and Rural Opportunities.
II. TERM AND RENT:
Lessor demises the above premises for a term of three (3) Years,
commencing December 1, 1999 and terminating on November 30, 2002 at five o'clock
P.M., or sooner as provided herein, at the annual rental of Eighteen Thousand
Dollars ($18,000.00).
Such sums are payable in advance on December first for the first year
and on the anniversary date for each succeeding year. However and provided the
lessee is not otherwise in default, the lessee for convenience and with the
consent of the lessor may pay such annual rent in equal monthly installments in
advance on the first day of each month for that month's rental, during the term
of this lease. All rental payments shall be made to Lessor at the address
specified above. Lessee shall pay the rent as specified herein and in Section
Three hereof.
III. ADDITIONAL RENT:
All taxes, charges, costs, and expenses that Lessee assumes or agrees
to pay hereunder, together with all interest and penalties that may accrue
thereon in the event of the failure of Lessee to pay those items, and all other
damages, costs, expenses, and sums that Lessor may suffer or incur, or that may
become due by reason of any default of Lessee or failure by Lessee to comply
with the terms and conditions of this lease shall be deemed to be additional
rent, and, in the event of nonpayment, lessor shall have all the rights and
remedies as herein provided for failure to pay rent.
IV. UTILITIES NOT FURNISHED BY LESSOR - ENTIRE RESPONSIBILITY OF LESSEE:
Lessee shall initiate, contract for, and obtain, in its name, electric,
natural gas, and telephone utility services as required on the demised premises.
Lessee shall indemnify and hold harmless lessor from any claims
whatsoever arising out of lessee's failure to pay for utility services and/or
the charges therefor. Lessee shall pay Lessor's attorney's fees arising out of
any claims against Lessor arising out of charges for Lessee's utility services.
Except in the case of acts of negligence committed by Lessor, Lessor
shall not be liable for any personal injury or property damage resulting form
the negligent operation or faulty installation of utility services provided for
use on the demised premises, nor shall Lessor be liable for any injury or damage
suffered by lessee as a result of the failure to make necessary repairs to the
utility facilities.
Lessee shall be liable for any injury or damages to the equipment of
service lines of the utility suppliers that are located on the demised premises,
resulting from the negligent or deliberate acts of lessee, or the agents or
employees of lessee.
V. BROKERS COMMISSION:
There is no Broaker's Commission payable or due from either the Lessor
or the Lessee.
VI. IMPROVEMENTS TO BE MADE TO PREMISES:
Lessor shall make the following improvements to the premises: Open a
section of the north wall of the demised premises and make the existing 12 X 14
over head door operable.
The above improvements shall be completed no later than December 1,
1999.
Lessee shall install at his own expense, a separate gas meter and a
separate electric meter to meter and pay for his own gas and electric utility
expenses. The lessor gives permission to the lessee to work I the electric
panels to facilitate the deperation of services. All work must be done by a
licensed electrician
VII: ALTERATIONS, ADDITIONS AND IMPROVEMENTS:
1. Subject to the limitation that no portion of the building on
the demised premises shall be demolished or removed by Lessee
without the prior written consent of Lessor, and , if
necessary, of any mortgagee. Lessee may at any time during the
lease term subject to the conditions set forth below and at
his own expense, make alterations, additions, or improvements
in and to the demised premisses and the building. Alterations
shall be performed in a workmanlike manner and shall not
weaken or impair the structural strength, or lessen the value,
of the building on the premises, or change the purposes for
which the building, or any pert thereof, may be used.
2. Conditions with respect to alterations, additions or improvements are as
follows:
1. Before commencement of any work all plans and specifications shall be filed
with and approved by all governmental departments or authorities having
jurisdiction and any public utility company having an interest therein, and
all work shall be done in accordance with requirements of local
regulations. The plans and specifications of any alterations shall be
submitted to the Lessor for written approval prior to commencing work. Said
approval not to be unreasonably withheld. As of the date hereof, lessor
agrees that lessee may remove the damaged carpet and replace it with floor
tile, may construct new offices near the main entrance, install a modular
(removable) Class 100 clean room, and install a telephone cable overhead
between the lessess' current premises and the demised premises herein. The
lessee shall have the right to install one identification sign at the main
entrance to the demised premises. Such sign shall not violate local
building codes. At the end of the term of this lease the lessee shall at
the option of lessor remove such alterations as are designated by lessor.
2. Prior to commencement of any work Lessee shall pay the amount of any
increase in premiums on insurance policies provided for herein because of
endorsements to be made covering the risk during the course of work. 1.
3. Alterations, additions and improvements on or in the demised
premises may commence upon the signing of this agreement. All
additions and improvements that may be erected or installed
prior to or during the term, shall become part of the demised
premises and the sole property of Lessor, except that all
movable trade fixtures, and a modular Class 100 clean room if
installed by lessee shall be and remain the property of
Lessee.
VIII. TAXES AND OTHER CHARGES:
Lessor shall pay and discharge when due all state, municipal and local
real estate taxes, inheritance, succession and , assessments, levies and other
charges, general and special, ordinary and extraordinary, of whatever name,
nature and kind that are or may be during the term hereof or any renewal,
beginning with the fiscal year 2000, levied, assessed, imposed or charged on the
land or the premises hereby demised or on the (building or buildings) and
improvements now thereon or hereafter to be built or made thereon, and all of
which may be levied, assessed, imposed or charged on or against the leasehold
estate hereby created and on the reversionary estate in the demised premises
during the term hereof or any renewal.
If at any time during the term of this lease, the present method of
taxation or assessment should be changed so that the whole or any part of the
taxes, assessments, levies or charges now levied, assessed or imposed on the
real estate hereby demised and improvements thereon, shall be transferred to the
rentals received from such real estate, lessee shall pay such proportionate
share of taxes and assessments levied and assessed on such rentals as shall
proportionately relieve the taxes and assessments on such real estate, it being
the intent of the parties hereto that lessor shall receive the rents reserved
herein with deduction of taxes (except gift, estate, inheritance, succession and
income taxes on the interest of lessor), assessments levies or charges in
respect to the real estate and improvements thereon, but that lessee shall not
be obligated to pay full taxes and assessments on such real estate and
improvements and also on such rentals.
IX. REPAIRS:
Lessee shall, at all times during the lease and at his own cost and
expense, repair, replace and maintain in good, safe and substantial condition,
all buildings and any improvements, additions, and alterations on the demised
premises, and shall use all reasonable precaution to prevent waste, damage or
injury to the demised premises. It is intended that this clause refers to
non-structural repairs, unless structural repairs are necessitated by the
conduct of lessee, its agents or assigns. In such case, lessee shall be
responsible for structural repairs.
Lessor shall maintain the building exterior, lawn and landscaping.
Lessor shall be responsible for snow removal, and grounds cleaning. Lessor shall
replace all shrubs to the property which have died.
Lessee shall remove snow and debris from walkways and in front of
doors.. Lessee shall be responsible for office cleaning, window cleaning, refuse
removal, maintenance of light fixtures, bi-annual service of heating and air
condition equipment, and to maintain all plumbing fixtures against leaks and
water wasting.
X. SECURITY DEPOSIT:
Lessee shall deposit $1,500.00 with lessor upon the signing here of,
which amount shall be held by Lessor as security for the full and timely
performance by lessee of the terms and conditions herein and of the payment of
any final judgement that may be rendered against Lessee for a breach of those
terms and conditions. The funds shall be deposited in a day of deposit/day of
withdrawal interest bearing account for the benefit of the Lessee, who shall
provide their Federal I.D. number for such purposes. The rights of Lessor
against Lessee for a breach of this lease shall in no way be limited or
restricted by this security deposit, but Lessor shall have the absolute right to
pursue any available remedy to protect its interests herein, as if this security
deposit had not been made. The deposit shall be returned to Lessee at the
expiration of the lease provided that all the terms and conditions herein
contained have been fully performed by Lessee. Should the demised premises be
sold, Lessor may transfer or deliver this security deposit to the purchaser of
the interest, and Lessor shall then be discharged from any further liability
with respect to the security deposit.
XI. INSURANCE:
1. In the term of the lease and for any further time that Lessee
shall hold the demised premises, Lessee shall obtain and
maintain at his expense the following types and mounts of
insurance:
Personal Injury and Property Damage Insurance.
Insurance against liability for bodily injury and property
damage in the sum of Two Million Dollars ($2,000,000.00) per
claimant and in the sum of Five Million Dollars
($5,000,000.00) per occurrence.
2. All insurance provided by Lessee as required by this section shall be
carried in favor of Lessor and Lessee as their respective interests may
appear, and in the case of insurance against damage to the demised premises
by fire and other casualty, shall provide that loss, if any, shall be
adjusted with and be payable to Lessor. If required by Lessor, any
insurance against fire or other casualty shall provide that loss shall be
payable to the holder under a standard mortgage clause. Rent insurance and
the proceeds are hereby assigned to lessor to be held by Lessor as security
for the payment of the rent and any additional rent hereunder until
restoration of the premises. All insurance shall be written with
responsible companies that Lessor shall approve, and the policies shall be
held by lessor, or when appropriate, by the holder of any mortgage in which
case copies of the policies or certificates of insurance shall be delivered
by Lessee to Lessor. All policies shall require 30 days notice by
registered mail to Lessor of any cancellation or change affecting any
interest of Lessor.
XII. UNLAWFUL OR DANGEROUS ACTIVITY:
Lessee shall neither use nor occupy the demised premises or any part
thereof for any unlawful, disreputable or ultra hazardous business purpose nor
operate or conduct his business in a manner constituting a nuisance of any kind.
Lessee shall immediately, on discovery of any unlawful, disreputable or ultra
hazardous use, take action to halt such activity and keep such premises
environmentally clean and safe.
XIII. DEFAULT OR BREACH:
Each of the following events shall constitute a default or breach of
this lease by Lessee:
1. If Lessee, or any successor or assignee of Lessee while in
possession, shall file a petition in bankruptcy or insolvency
or for reorganization under any bankruptcy act, or shall
voluntarily take advantage of any such act by answer or
otherwise, or shall make an assignment fo the benefit of
creditors.
2. If involuntary proceedings under any bankruptcy law or
insolvency act shall be institute against Lessee, or if a
receiver or trustee shall be appointed of all or substantially
all of the property of Lessee, and such proceedings shall not
be dismissed or the receivership or trusteeship vacated within
20 days after the institution or appointment.
3. If Lessee shall fail to pay Lessor any rent owed or additional
rent when the rent shall become due within five days after
written notice of such failure to lessee at the address above
given. Lessee shall pay as additional rent the sum of $300.00.
If such rent is not received on or before the 1st day of the
month and lessor sends such written notice of default. Lessor
shall extend to lessee, a five (5) day grace period relative
to such rent payment.
4. If lessee shall fail to perform or comply with any of the
conditions of this lease and if the nonperformance shall
continue for a period of 10 days after notice thereof by
Lessor to Lessee or, if the performance cannot be reasonably
had within the 10 day period, Lessee shall not in good faith
have commenced performance within the 10 day period and shall
not diligently proceed to completion of performance.
5. If this lease or the estate of Lessee hereunder shall be
transferred to or shall pass to or devolve on any other person
or party, except in the manner herein permitted.
6. If Lessee fails to take possession of the demised premises on
the term commencement date, or within 10 days after notice
that the demised premises are available for occupancy, if the
term commencement date is not fixed herein or shall be
deferred as herein provided.
XIV. EFFECT OF DEFAULT:
In the event of any default hereunder, as set forth in Section I, the
rights of Lessor shall be as follows:
1. Lessor shall have the right to cancel and terminate this
lease, as well as all of the right, title and interest of
lessee hereunder, by giving to lessee not less than 10 days
notice of the cancellation and termination. On expiration of
the time fixed in the notice; this lease and the right, title
and interest of lessee hereunder, shall terminate in the same
manner and with the same force and effect, except as to
lessee's liability, as if the date fixed in the notice of
cancellation and termination were the end of the term
cancellation and termination were the end of the term herein
originally determined.
2. Lessor may elect, but shall not be obligated to make any
payment required by lessee herein or comply with any
agreement, term or condition required hereby to be performed
by Lessee, and the lessor shall have the right to enter the
demised premises for the purpose of correcting or remedying
any such default and to remain until the default has been
corrected or remedied, but any expenditure for the correction
by lessor shall not be deemed to waive or release the default
of lessee or the right of lessor to take any action as may be
other wise permissible hereunder in the case of any default.
3. Lessor may re-enter the premises immediately and remove the
property and personnel of lessee, and store the property in a
public warehouse or at a place selected by lessor, at the
expense of lessee. After re-entry lessor may terminate the
lease on giving 10 days written notice of termination to
lessee. Without the notice, re-entry will not terminate the
lease. On termination, the lessor may recover from lessee all
damages proximately resulting from the breach, including the
costs recovering the premises, and the present worth of the
balance of this lease over the present worth of the reasonable
rental value of the premises for the remainder of the lease
term, which sum shall be immediately due lessor from lessee.
4. After re-entry, lessor may relet the premises or any part
thereof for any term without terminating the lease, at the
rent and on the terms as lessor may choose. Lessor may make
alterations and repairs to the premises. The duties and
liabilities of the parties if the premises are relet as
provided herein shall be as follows:
a. In addition to lessee's liability to lessor for
breach of the lease, lessee shall be liable for all expenses
of the reletting, for the alterations and repairs made, and
for the difference between the rent received by lessor under
the new lease agreement and the rent installments that are due
for the same period under this lease.
b. Lessor shall have the right, but shall not be
required, to apply the rent received from the reletting for
the premises (1) to reduce the indebtedness of lessee to
lessor under the lease, not including indebtedness for rent,
(2) to expenses of the reletting and alterations and repairs
made, (3) to rent due under this lease, or (4) to payment of
future rent under this lease as it becomes due.
If the new lessee does not pay a rent installment
promptly to lessor, and the rent installment has been credited
in advance of payment to the indebtedness of lessee other than
rent, or if rentals from the new lessee have been otherwise
applied by Lessor as provided for herein and during any rent
installment period are less than the rent payable for the
corresponding installment period under this lease, lessee
shall pay lessor the deficiency, separately for each rent
installment deficiency period, and before the end of that
period. Lessor may at any time after a reletting terminate the
lease for the breach on which lessor had based the re-entry
and subsequently relet the premises.
5. After re-entry, lessor may procure the appointment of a
receiver to take possession and collect rents and profits of
the business of lessee, and, if necessary to collect the rents
and profits. The receiver may take possession of the personal
property used in the business of lessee, including inventory,
trade fixtures, and furnishings, and use them in the business
without compensating lessee. Proceedings for appointment of a
receiver by lessor, or the appointment of a receiver, shall
not terminate and forfeit this lease unless lessor has given
written notice of termination to lessee as provided herein.
XV. CONDEMNATION:
Rights and duties in the event of condemnation are as follows:
1. If the whole of the demised premises shall be taken or
condemned by any public, or quasi-public use or purpose, this
lease shall cease and terminate as of the date on which title
shall vest thereby in that authority, and the rent reserved
hereunder shall be apportioned and paid up to that date.
2 .If only a portion of the demised premises shall be taken or
condemned, this lease and the terms hereof shall not cease of
terminate, but the rent payable after the date on which lessee
shall be required to surrender possession of such portion
shall be reduced in proportion to the decreased use suffered
by lessee as the parties may agree or as shall be determined
by arbitration.
3. In the event of any taking or condemnation in whole or in
part, the entire resulting award of consequential damages
shall belong to lessor without any deduction therefrom for the
value of the unexpired term of this lease or for any other
estate or interest in the demised premises now or later vested
in lessee. Lessee assigns to lessor all his right, title and
interest in any and all such awards. If a separate award is
made for moving expenses, business interruption and fixtures
then such award of moving expenses, business interruption and
fixtures shall belong to the lessee.
4. In the event of a partial taking, lessor shall promptly
proceed to restore the remainder of the building on the
demised premises to a self-contained architectural unit.
5. In case of any governmental action not resulting in the taking
or condemnation of any portion of the demised premises but
creating a right to compensation therefor, or if less than a
fee title to all or any portion of the demised premises shall
be taken or condemned by any governmental authority for
temporary use of occupancy, this lease shall continue in full
force and effect without reduction or abatement of rent, and
the rights of the parties shall be unaffected by the other
provisions of this section, but shall be governed by
applicable law.
XVI. DESTRUCTION OF PREMISES:
In the event of a partial destruction of the premises (not
caused by lessee and/or its' agents and/or independent
contractors) by fire or other cause for which lessee has
provided insurance payable to lessor under paragraph XIII or
condemnation during the term, lessor shall forth with repair
the same, provided the repairs can be made within 30 days of
receipt of such insurance or governmental authorities. Any
partial destruction shall neither annul nor void this lease.
If the repairs cannot be made in the specified time, lessor
may, at lessor's option, make repairs within a reasonable
time, this lease continuing in full force and effect and the
rent to be proportionately rebated. In the event that lessor
does not elect to make repairs that cannot be made in the
specified time, or those repairs cannot be made under the laws
and regulations of the applicable governmental authorities,
this lease may be terminated at the option of either party.
Should the building in which the demised premises are situated
be destroyed as set forth herein or condemned to the extent of
not less than 75 percent (75%) of the replacement cost
thereof, this lease shall be terminated.
XVII. SUBORDINATION:
This lease and all rights of lessee hereunder shall be subject
and subordinate to the lien of any and all mortgages that may now or
hereafter affect the demised premises, or any part thereof, and to any
and all renewals, modifications or extensions of any such mortgages.
Lessee shall on demand execute, acknowledge and deliver to lessor,
without expense to lessor, any and all instruments that may be
necessary or proper to subordinate this lease and all rights therein to
the lien of any such mortgage or mortgages and each renewal,
modification or extension, and if lessee shall fail at any time to
execute, acknowledge and deliver any such subordination instrument,
lessor in addition to any other remedies available in consequence
thereof, may execute, acknowledge and deliver the same as lessee's
attorney in fact and in lessee's name. Lessee hereby irrevocably makes,
constitutes and appoints lessor, its successors and assigns, his
attorney in fact for that purpose.
Lessor hereby covenants and warrants that, subject to Section
XVIII, he is owner of the demised premises and that lessee, on payment
of the rents herein provided for and the performance of the provisions
hereof on its part to be performed, shall and may peacefully possess
and enjoy the demised premises during the term hereof without any
interruption or disturbance.
XVIII. ACCESS TO PREMISES; SIGNS POSTED BY LESSOR:
Lessee shall permit lessor or its agents to enter the demised
premises at all reasonable hours to inspect the premises or make
repairs that lessee may neglect or refuse to make in accordance with
the provisions of this lease, and also to show the premises to
prospective buyers. At any time within one year prior to expiration of
the term, lessor may show the premises to persons prior to expiration
of the term, permit the usual notices of "For Rent" and "For Sale" to
be place on the demised premises and to remain thereon without
hindrance and molestation.
XIX. EASEMENTS, AGREEMENTS OR ENCUMBRANCES:
The parties shall be bound by all existing easements,
agreements and encumbrances of record relating to the demised premises,
and lessor shall not be liable to lessee for any damages resulting from
any action taken by a holder of an interest pursuant to the rights of
that holder thereunder.
XX. LIABILITY OF LESSOR:
Lessee shall be in exclusive control and possession of the
demised premises, and lessor (except for acts of negligence of lessor)
shall not be liable for any injury or damages to any property or to any
person on or about the demised premises nor for any injury to any
property of lessee. The provisions herein permitting lessor to enter
and inspect the demised premises are made to insure that lessee is in
compliance with the terms and conditions hereof and makes repairs that
lessee has failed to make. Lessor shall not be liable to lessee for any
entry on the premises for inspection purposes (except for acts of
negligence of Lessor).
XXI. RENT ABATEMENT:
No abatement, diminution or reduction of rent shall be claimed
or allowed to lessee or any person claiming under him under any
circumstances, whether for inconvenience, discomfort, interruption of
business or otherwise, arising from and during the restoration of the
demised premises after the destruction or damage thereof by fire or
other cause or the taking or condemnation of a portion only of the
demised premises.
XXII. STORAGE OF TOXIC MATERIALS, EXPLOSIVES AND FLAMMABLES PROHIBITED:
Lessee shall not, at anytime whatsoever, keep for use on the
demised premises any toxic materials, explosives or inflammable
substances.
XXIII. REPRESENTATIONS BY LESSOR:
At the commencement of the term lessee shall accept the
buildings and improvements and any equipment in their existing
condition and state of repair and lessee agrees that no
representations, statements or warranties, express or implied, have
been made by or on behalf of lessor in respect thereto except as
contained in the provisions of this lease.
XXIV. WAIVERS:
The failure of lessor to insist on a strict performance of any
of the terms and conditions hereof shall be deemed a waiver of the
rights or remedies that lessor may have regarding that specific
instance only, and shall not be deemed a waiver of any subsequent
breach or default in any terms and conditions.
XXV. NOTICE:
All notices to be given with respect to this lease shall be in
writing. Each notice shall be sent by registered or certified mail,
postage prepaid and return receipt requested, to the party to be
notified at the address set forth herein or at such other address as
either party may from time to time designate in writing.
Every notice shall be deemed to have been given at the time it
shall be deposited in the United States mails in the manner prescribed
herein. Nothing contained herein shall be construed to preclude
personal service of a summons or other legal process.
XXVI. ASSIGNMENT, MORTGAGE OR SUBLEASE:
Neither lessee nor his successors or assigns shall assign,
mortgage, pledge or encumber this lease or sublet the demised premises
in whole or in part, or permit the premises to be used or occupied by
others, nor shall this lease be assigned or transferred by operation of
law, without the prior consent in writing of lessor in each instance.
Exception to this would be legal subsidiaries of lessee. After two
years such consent is not to be unreasonably withheld. If this lease is
assigned or transferred, or if all or any part of the demised premises
is sublet or occupied by anybody other than lessee, lessor may, after
default by lessee, collect rent from the assignee, transferee,
subtenant, or occupant, and apply the net amount collected to the rent
reserved herein, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any agreement or condition
hereof , or the acceptance of the assignee, transferee, subtenant or
occupant as lessee. Lessee shall continue to be liable hereunder in
accordance with the terms and conditions of this lease and shall not be
released from the performance of the terms and conditions hereof. The
consent by lessor to an assignment, mortgage, pledge or transfer shall
not be construed to relieve lessee from obtaining the express written
consent of lessor to any future transfer of interest.
XXVII. OPTION TO RENEW:
Lessor grants to lessee an option to renew this lease for a period of
Three (3) years after expiration of the term of this lease. The rental rate
shall be increased an amount equal to the Consumer Price Index (CPI) as noted
for New York and area, each year of the renewal. All other terms and condition
of this renewal lease to be the same as those herein. To exercise this option,
lessee must give lessor written notice of the intention to do so at least six
(6) months before this lease expires.
XXVIII. SURRENDER OF POSSESSION:
Lessee shall, on the last day of the term, or on earlier
termination and forfeiture of the lease, peaceably and quietly
surrender and deliver the demised premises to lessor free of
subtenancies, including all buildings, additions and improvements
constructed or placed thereon by lessee, except moveable trade
fixtures, all in good condition and repair subject to reasonable wear
and tear (except to the extent provided for under paragraph XI, and XVI
herein. Any trade fixtures or personal property not used in connection
with the operation of the demised premises and belonging to Lessee, if
not removed at the termination of default, and if lessor shall so
elect, shall be deemed abandoned and become the property of lessor
without any payment or offset therefor. Lessor may remove such fixtures
or property from the demised premises and store them at the risk and
expense of lessee if lessor shall not so elect. Lessee shall repair and
restore all damage to the demised premises caused by the removal of
equipment, trade fixtures and personal property.
XXIX. REMEDIES OF LESSOR:
A. In the event of a breach or a threatened breach by lessee of
any of the terms or conditions hereof, lessor shall have the
right of injunction to restrain lessee and the right to invoke
any remedy allowed by law or in equity, as if the specific
remedies of indemnity or reimbursements were not provided
herein.
B. The rights and remedies given to lessor in this lease are
distinct, separate and cumulative and no one of them, whether
or not exercised by lessor, shall be deemed to be in exclusion
of any of the others herein, by law, or by equity provided.
C. In all cases hereunder, and in any suit, action or proceeding
of any kind between the parties, it shall be presumptive
evidence of the fact of the existence of a charge being due if
lessor shall produce a bill, notice or certificate of any
public official entitled to give that notice to the effect
that such charge appears of record on the books in his office
and has not been paid.
D. No receipt of money by lessor from lessee after default or cancellation of
this lease in any lawful manner shall (1) reinstate, continue or extend the
term or affect any notice given to lessee, (2) operated as a waiver of the
right of lessor to enforce the payment of rent and additional rent then due
or falling due, or (3) operated as a waiver of the right of lessor to
recover possession of the demised premises by proper suit, action,
proceeding or other remedy. After (1) service of notice of termination and
forfeiture as herein provided and the expiration of the time specified
therein (2) the commencement of any suit, action, proceeding or other
remedy, or (3) final order or judgement for possession of the monies due,
without in any manner affecting such notice, order or judgement. Any and
all such monies so collected shall be deemed to be payment on account of
the use and occupation of the demised premises or at the election of
lessor, on account of the liability of lessee hereunder.
XXX. TOTAL AGREEMENT; APPLICABLE TO SUCCESSORS:
This lease contains the entire agreement between the parties
and cannot be changed to terminated except by a written instrument
subsequently executed by the parties hereto. This lease and the terms
and conditions hereof apply to and are binding on the heirs, legal
representatives, successors and assigns of both parties.
XXXI. INDEMNIFICATION - LIABILITIES AND LOSSES:
Lessee shall, at all times prior to the termination of this
lease and to the delivery to a lessor possession of the demised
premises and all improvements thereon, indemnify lessor against all
liability, loss, cost, damage or expense sustained by lessor, including
attorney's fees and other expenses of litigation arising prior to
termination of the lease term and delivery to lessor of possession of
the premises:
1. On account of or through the use of the demised premises or
improvements or any part thereof or by any other reason for
any purpose inconsistent with the provisions of this lease.
2. Arising out of, or directly or indirectly due to, any failure
of lessee in any respect promptly and faithfully to satisfy
his obligations under this lease.
3. Arising out of, or directly or indirectly due to, any accident
or other occurrence causing injury to any person or persons or
property resulting from the use of the demised premises and
improvements or any part thereof.
4. For which the demised premises and improvements or any part
thereof or the lessor as owner thereof or interested therein
may hereafter without fault by lessor become liable, and
especially, but not exclusively, any such liability, loss,
cost, damage or expense that may arise under any statute,
ordinance or regulation except such requirements as to which
compliance is related to the improvements on the demised
premises (other than improvements made by Lessee) and are not
caused by use and occupancy of lessee. It is not intended by
this clause that Lessee shall be responsible for liabilities
imposed by the acts of others committed prior to the date of
this lease.
Lessee also shall, at all times prior to termination of the
lease term and delivery to lessor of possession of the premises,
indemnify lessor against all liens and charges of any and every nature
that may at any time be established against the premises or any
improvements thereon or any part thereof as a consequence, direct or
indirect, of any act or omission of lessee or as a consequence, direct
or indirect, of the existence of lessee's interest under this lease.
XXXII. NOTICE BY LESSEE OF LITIGATION - PAYMENT OF ATTORNEY'S FEES AND COSTS:
Within five days after lessee has knowledge of any material
litigation or other proceeding that shall be instituted against lessee,
against the demised premises to secure or recover possession thereof,
or that may affect the title to or the interest of lessor in the
demised premises, lessee shall give written notice thereof to lessor.
Lessee shall pay all reasonable attorney's fees and costs on
behalf of lessor if (a) lessor institutes litigation against lessee for
a breach of the terms and conditions of this lease, (b) lessor
institutes litigation against lessee for an unlawful detainer of the
demised premises, or (c) lessor is made a part to litigation against
lessee instituted by a third party, relating to the demised premises,
wherein lessor is not at fault. The reasonable attorney's fees and
costs incurred by lessor herein shall be paid by lessee whether
litigation is prosecuted to judgement or not.
The payment of all attorney's fees and court costs required
hereby shall be made to lessor as additional rental and shall be due in
full on the next regular date for a rental payment. This additional
rental shall be subject to an interest charge of eighteen (18%) per
cent per annum, and lessor may enforce the payment by using any remedy
available at law or under this lease of the collection of past due
rent.
XXXIII. APPLICABLE LAW:
This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this lease in
the State of New York the day and year first above written.
/s/ Jean K. Woodward
Jean K. Woodward, Lessor
By: /s/ James L. Kehoe
James L. Kehoe, Lessee
/s/ Kathleen N. Martin
Witness
<PAGE>
Exhibit 10(b)
LEASE
LEASE MADE THIS 29th DAY OF December , 1999
BETWEEN Jean K. Woodward, owner, as may be represented by William Woodward
(William Woodward Enterprises) residing at 50 Riverview Drive, Marlboro, New
York 12542-5310 herein referred to as Lessor,
AND Sono-Tek Corporation, having it's principal place of business at
2012 Route 9-W, Milton Industrial Park, Milton, New York 12547, herein referred
to as Lessee.
RECITALS:
A. Lessor is the sole owner of the premises described below and
desires to lease the premises to a suitable Lessee for
business purposes.
B. Lessee desires to lease the premises for the purpose of conducting a business
of C. light manufacturing, electronics and related machinery and equipment.
D. The parties desire to enter a lease agreement defining their rights, duties
and liabilities relating to the premises.
In consideration of the mutual covenants contained herein, the parties agree as
follows:
I. SUBJECT AND PURPOSES:
Lessor leases a building known as Phase III, Building 2, in the Milton
Industrial Park, in the County of Ulster, State of New York and more
particularly described as follows: A free standing building containing
approximately 13,000 square feet of space in the north west sector of the Milton
Industrial Park to include the parking lot located west of the building
containing approximately 24 parking spaces, one drive-in overhead door and one
shipping and receiving dock.
II. TERM AND RENT:
Lessor demises the above premises for a term of two (2) Years, and
eleven (11) months commencing January 1, 2000 and terminating on November 30,
2002 at five o'clock P.M., or sooner as provided herein, at the annual rental of
Seventy-Eight Thousand Dollars ($78,000.00) or as proportioned thereof.
Such sums are payable in advance on January first for the first year
and on the anniversary date for each succeeding year. However and provided the
lessee is not otherwise in default, the lessee for convenience and with the
consent of the lessor may pay such annual rent in equal monthly installments of
Six Thousand Five Hundred Dollars ($6,500.00) in advance on the first day of
each month for that month's rental, during the term of this lease. All rental
payments shall be made to Lessor at the address specified above. Lessee shall
pay the rent as specified herein and in Section Three hereof.
III. ADDITIONAL RENT:
All taxes, charges, costs, and expenses that Lessee assumes or agrees
to pay hereunder, together with all interest and penalties that may accrue
thereon in the event of the failure of Lessee to pay those items, and all other
damages, costs, expenses, and sums that Lessor may suffer or incur, or that may
become due by reason of any default of Lessee or failure by Lessee to comply
with the terms and conditions of this lease shall be deemed to be additional
rent, and, in the event of nonpayment, lessor shall have all the rights and
remedies as herein provided for failure to pay rent.
IV. UTILITIES NOT FURNISHED BY LESSOR - ENTIRE RESPONSIBILITY OF LESSEE:
Lessee shall initiate, contract for, and obtain, in its name, electric,
natural gas, and telephone utility services as required on the demised premises.
Lessee shall indemnify and hold harmless lessor from any claims
whatsoever arising out of lessee's failure to pay for utility services and/or
the charges therefor. Lessee shall pay Lessor's attorney's fees arising out of
any claims against Lessor arising out of charges for Lessee's utility services.
Except in the case of acts of negligence committed by Lessor, Lessor
shall not be liable for any personal injury or property damage resulting form
the negligent operation or faulty installation of utility services provided for
use on the demised premises, nor shall Lessor be liable for any injury or damage
suffered by lessee as a result of the failure to make necessary repairs to the
utility facilities.
Lessee shall be liable for any injury or damages to the equipment of
service lines of the utility suppliers that are located on the demised premises,
resulting from the negligent or deliberate acts of lessee, or the agents or
employees of lessee.
V. BROKERS COMMISSION:
There is no Broaker's Commission payable or due from either the Lessor
or the Lessee.
VI. IMPROVEMENTS TO BE MADE TO PREMISES:
Lessor shall make the following improvements to the premises: Pay for
one of two ten (10) ton air conditioning units to be installed in the open
warehouse space of the demised premises. The cost to Lessor shall not exceed
$7,500.00
Lessee shall make the following improvements to the premises: Pay for
one of two ten (10) ton air conditioning units to be installed in the open
warehouse space of the demised premises.
The above improvements shall be at the direction of Sono-Tek
Corporation and completed no later than July 1, 2000. The above improvements
shall be subject to the provisions of paragraph VII .
VII: ALTERATIONS, ADDITIONS AND IMPROVEMENTS:
A. Subject to the limitation that no portion of the building on
the demised premises shall be demolished or removed by Lessee
without the prior written consent of Lessor, and , if
necessary, of any mortgagee. Lessee may at any time during the
lease term subject to the conditions set forth below and at
his own expense, make alterations, additions, or improvements
in and to the demised premisses and the building. Alterations
shall be performed in a workmanlike manner and shall not
weaken or impair the structural strength, or lessen the value,
of the building on the premises, or change the purposes for
which the building, or any pert thereof, may be used.
B. Conditions with respect to alterations, additions or improvements are as
follows:
1. Before commencement of any work all plans and specifications shall be filed
with and approved by all governmental departments or authorities having
jurisdiction and any public utility company having an interest therein, and
all work shall be done in accordance with requirements of local
regulations. The plans and specifications of any alterations shall be
submitted to the Lessor for written approval prior to commencing work. Said
approval not to be unreasonably withheld. . The lessee shall have the right
to install one identification sign at the main entrance to the demised
premises. Such sign shall not violate local building codes. At the end of
the term of this lease the lessee shall at the option of lessor remove such
alterations as are designated by lessor.
2. Prior to commencement of any work Lessee
shall pay the amount of any increase in
premiums on insurance policies provided for
herein because of endorsements to be made
covering the risk during the course of work.
C. Alterations, additions and improvements on or in the demised
premises may commence upon the signing of this agreement. All
additions and improvements that may be erected or installed
prior to or during the term, shall become part of the demised
premises and the sole property of Lessor, except that all
movable trade fixtures, and a modular Class 100 clean room if
installed by lessee shall be and remain the property of
Lessee.
VIII. TAXES AND OTHER CHARGES:
Lessor shall pay and discharge when due all state, municipal and local
real estate taxes, inheritance, succession and , assessments, levies and other
charges, general and special, ordinary and extraordinary, of whatever name,
nature and kind that are or may be during the term hereof or any renewal,
beginning with the fiscal year 2000, levied, assessed, imposed or charged on the
land or the premises hereby demised or on the (building or buildings) and
improvements now thereon or hereafter to be built or made thereon, and all of
which may be levied, assessed, imposed or charged on or against the leasehold
estate hereby created and on the reversionary estate in the demised premises
during the term hereof or any renewal.
If at any time during the term of this lease, the present method of
taxation or assessment should be changed so that the whole or any part of the
taxes, assessments, levies or charges now levied, assessed or imposed on the
real estate hereby demised and improvements thereon, shall be transferred to the
rentals received from such real estate, lessee shall pay such proportionate
share of taxes and assessments levied and assessed on such rentals as shall
proportionately relieve the taxes and assessments on such real estate, it being
the intent of the parties hereto that lessor shall receive the rents reserved
herein with deduction of taxes (except gift, estate, inheritance, succession and
income taxes on the interest of lessor), assessments levies or charges in
respect to the real estate and improvements thereon, but that lessee shall not
be obligated to pay full taxes and assessments on such real estate and
improvements and also on such rentals.
IX. REPAIRS:
Lessee shall, at all times during the lease and at his own cost and
expense, repair, replace and maintain in good, safe and substantial condition,
all buildings and any improvements, additions, and alterations on the demised
premises, and shall use all reasonable precaution to prevent waste, damage or
injury to the demised premises. It is intended that this clause refers to
non-structural repairs, unless structural repairs are necessitated by the
conduct of lessee, its agents or assigns. In such case, lessee shall be
responsible for structural repairs.
Lessor shall maintain the building exterior, lawn and landscaping.
Lessor shall be responsible for snow removal, and grounds cleaning. Lessor shall
replace all shrubs to the property which have died.
Lessee shall remove snow and debris from walkways and in front of
doors.. Lessee shall be responsible for office cleaning, window cleaning, refuse
removal, maintenance of light fixtures, bi-annual service of heating and air
condition equipment, and to maintain all plumbing fixtures against leaks and
water wasting.
X. SECURITY DEPOSIT:
Lessee shall deposit $6,500.00 with lessor upon the signing here of,
which amount shall be held by Lessor as security for the full and timely
performance by lessee of the terms and conditions herein and of the payment of
any final judgement that may be rendered against Lessee for a breach of those
terms and conditions. The funds shall be deposited in a day of deposit/day of
withdrawal interest bearing account for the benefit of the Lessee, who shall
provide their Federal I.D. number for such purposes. The rights of Lessor
against Lessee for a breach of this lease shall in no way be limited or
restricted by this security deposit, but Lessor shall have the absolute right to
pursue any available remedy to protect its interests herein, as if this security
deposit had not been made. The deposit shall be returned to Lessee at the
expiration of the lease provided that all the terms and conditions herein
contained have been fully performed by Lessee. Should the demised premises be
sold, Lessor may transfer or deliver this security deposit to the purchaser of
the interest, and Lessor shall then be discharged from any further liability
with respect to the security deposit.
XI. INSURANCE:
A. In the term of the lease and for any further time that Lessee
shall hold the demised premises, Lessee shall obtain and
maintain at his expense the following types and mounts of
insurance:
Personal Injury and Property Damage Insurance. Insurance
against liability for bodily injury and property damage in the
sum of Two Million Dollars ($2,000,000.00) per claimant and in
the sum of Five Million Dollars ($5,000,000.00) per
occurrence.
B. All insurance provided by Lessee as required by this section shall be
carried in favor of Lessor and Lessee as their respective interests may
appear, and in the case of insurance against damage to the demised premises
by fire and other casualty, shall provide that loss, if any, shall be
adjusted with and be payable to Lessor. If required by Lessor, any
insurance against fire or other casualty shall provide that loss shall be
payable to the holder under a standard mortgage clause. Rent insurance and
the proceeds are hereby assigned to lessor to be held by Lessor as security
for the payment of the rent and any additional rent hereunder until
restoration of the premises. All insurance shall be written with
responsible companies that Lessor shall approve, and the policies shall be
held by lessor, or when appropriate, by the holder of any mortgage in which
case copies of the policies or certificates of insurance shall be delivered
by Lessee to Lessor. All policies shall require 30 days notice by
registered mail to Lessor of any cancellation or change affecting any
interest of Lessor.
XII. UNLAWFUL OR DANGEROUS ACTIVITY:
Lessee shall neither use nor occupy the demised premises or any part
thereof for any unlawful, disreputable or ultra hazardous business purpose nor
operate or conduct his business in a manner constituting a nuisance of any kind.
Lessee shall immediately, on discovery of any unlawful, disreputable or ultra
hazardous use, take action to halt such activity and keep such premises
environmentally clean and safe.
XIII. DEFAULT OR BREACH:
Each of the following events shall constitute a default or breach of
this lease by Lessee:
1. If Lessee, or any successor or assignee of Lessee while in
possession, shall file a petition in bankruptcy or insolvency
or for reorganization under any bankruptcy act, or shall
voluntarily take advantage of any such act by answer or
otherwise, or shall make an assignment fo the benefit of
creditors.
2. If involuntary proceedings under any bankruptcy law or
insolvency act shall be institute against Lessee, or if a
receiver or trustee shall be appointed of all or substantially
all of the property of Lessee, and such proceedings shall not
be dismissed or the receivership or trusteeship vacated within
20 days after the institution or appointment.
3. If Lessee shall fail to pay Lessor any rent owed or additional
rent when the rent shall become due within five days after
written notice of such failure to lessee at the address above
given. Lessee shall pay as additional rent the sum of $300.00.
If such rent is not received on or before the 1st day of the
month and lessor sends such written notice of default. Lessor
shall extend to lessee, a five (5) day grace period relative
to such rent payment.
4. If lessee shall fail to perform or comply with any of the
conditions of this lease and if the nonperformance shall
continue for a period of 10 days after notice thereof by
Lessor to Lessee or, if the performance cannot be reasonably
had within the 10 day period, Lessee shall not in good faith
have commenced performance within the 10 day period and shall
not diligently proceed to completion of performance.
5. If this lease or the estate of Lessee hereunder shall be
transferred to or shall pass to or devolve on any other person
or party, except in the manner herein permitted.
6. If Lessee fails to take possession of the demised premises on
the term commencement date, or within 10 days after notice
that the demised premises are available for occupancy, if the
term commencement date is not fixed herein or shall be
deferred as herein provided.
XIV. EFFECT OF DEFAULT:
In the event of any default hereunder, as set forth in Section I, the
rights of Lessor shall be as follows:
1. Lessor shall have the right to cancel and terminate this
lease, as well as all of the right, title and interest of
lessee hereunder, by giving to lessee not less than 10 days
notice of the cancellation and termination. On expiration of
the time fixed in the notice; this lease and the right, title
and interest of lessee hereunder, shall terminate in the same
manner and with the same force and effect, except as to
lessee's liability, as if the date fixed in the notice of
cancellation and termination were the end of the term
cancellation and termination were the end of the term herein
originally determined.
2. Lessor may elect, but shall not be obligated to make any
payment required by lessee herein or comply with any
agreement, term or condition required hereby to be performed
by Lessee, and the lessor shall have the right to enter the
demised premises for the purpose of correcting or remedying
any such default and to remain until the default has been
corrected or remedied, but any expenditure for the correction
by lessor shall not be deemed to waive or release the default
of lessee or the right of lessor to take any action as may be
other wise permissible hereunder in the case of any default.
3. Lessor may re-enter the premises immediately and remove the
property and personnel of lessee, and store the property in a
public warehouse or at a place selected by lessor, at the
expense of lessee. After re-entry lessor may terminate the
lease on giving 10 days written notice of termination to
lessee. Without the notice, re-entry will not terminate the
lease. On termination, the lessor may recover from lessee all
damages proximately resulting from the breach, including the
costs recovering the premises, and the present worth of the
balance of this lease over the present worth of the reasonable
rental value of the premises for the remainder of the lease
term, which sum shall be immediately due lessor from lessee.
4. After re-entry, lessor may relet the premises or any part
thereof for any term without terminating the lease, at the
rent and on the terms as lessor may choose. Lessor may make
alterations and repairs to the premises. The duties and
liabilities of the parties if the premises are relet as
provided herein shall be as follows:
a. In addition to lessee's liability to lessor for
breach of the lease, lessee shall be liable for
all expenses of the reletting, for the
alterations and repairs made, and for the
difference between the rent received by lessor
under the new lease agreement and the rent
installments that are due for the same period
under this lease.
b. Lessor shall have the right, but shall not be
required, to apply the rent received from the
reletting for the premises (1) to reduce the
indebtedness of lessee to lessor under the lease,
not including indebtedness for rent, (2) to
expenses of the reletting and alterations and
repairs made, (3) to rent due under this lease,
or (4) to payment of future rent under this lease
as it becomes due.
If the new lessee does not pay a rent installment promptly to
lessor, and the rent installment has been credited in advance
of payment to the indebtedness of lessee other than rent, or
if rentals from the new lessee have been otherwise applied by
Lessor as provided for herein and during any rent installment
period are less than the rent payable for the corresponding
installment period under this lease, lessee shall pay lessor
the deficiency, separately for each rent installment
deficiency period, and before the end of that period. Lessor
may at any time after a reletting terminate the lease for the
breach on which lessor had based the re-entry and subsequently
relet the premises.
5. After re-entry, lessor may procure the appointment of a
receiver to take possession and collect rents and profits of
the business of lessee, and, if necessary to collect the rents
and profits. The receiver may take possession of the personal
property used in the business of lessee, including inventory,
trade fixtures, and furnishings, and use them in the business
without compensating lessee. Proceedings for appointment of a
receiver by lessor, or the appointment of a receiver, shall
not terminate and forfeit this lease unless lessor has given
written notice of termination to lessee as provided herein.
XV. CONDEMNATION:
Rights and duties in the event of condemnation are as follows:
1. If the whole of the demised premises shall be taken or
condemned by any public, or quasi-public use or purpose, this
lease shall cease and terminate as of the date on which title
shall vest thereby in that authority, and the rent reserved
hereunder shall be apportioned and paid up to that date.
2 .If only a portion of the demised premises shall be taken or
condemned, this lease and the terms hereof shall not cease of
terminate, but the rent payable after the date on which lessee
shall be required to surrender possession of such portion
shall be reduced in proportion to the decreased use suffered
by lessee as the parties may agree or as shall be determined
by arbitration.
3. In the event of any taking or condemnation in whole or in
part, the entire resulting award of consequential damages
shall belong to lessor without any deduction therefrom for the
value of the unexpired term of this lease or for any other
estate or interest in the demised premises now or later vested
in lessee. Lessee assigns to lessor all his right, title and
interest in any and all such awards. If a separate award is
made for moving expenses, business interruption and fixtures
then such award of moving expenses, business interruption and
fixtures shall belong to the lessee.
4. In the event of a partial taking, lessor shall promptly
proceed to restore the remainder of the building on the
demised premises to a self-contained architectural unit.
5. In case of any governmental action not resulting in the taking
or condemnation of any portion of the demised premises but
creating a right to compensation therefor, or if less than a
fee title to all or any portion of the demised premises shall
be taken or condemned by any governmental authority for
temporary use of occupancy, this lease shall continue in full
force and effect without reduction or abatement of rent, and
the rights of the parties shall be unaffected by the other
provisions of this section, but shall be governed by
applicable law.
XVI. DESTRUCTION OF PREMISES:
In the event of a partial destruction of the premises (not
caused by lessee and/or its' agents and/or independent
contractors) by fire or other cause for which lessee has
provided insurance payable to lessor under paragraph XIII or
condemnation during the term, lessor shall forth with repair
the same, provided the repairs can be made within 30 days of
receipt of such insurance or governmental authorities. Any
partial destruction shall neither annul nor void this lease.
If the repairs cannot be made in the specified time, lessor
may, at lessor's option, make repairs within a reasonable
time, this lease continuing in full force and effect and the
rent to be proportionately rebated. In the event that lessor
does not elect to make repairs that cannot be made in the
specified time, or those repairs cannot be made under the laws
and regulations of the applicable governmental authorities,
this lease may be terminated at the option of either party.
Should the building in which the demised premises are situated
be destroyed as set forth herein or condemned to the extent of
not less than 75 percent (75%) of the replacement cost
thereof, this lease shall be terminated.
XVII. SUBORDINATION:
This lease and all rights of lessee hereunder shall be subject
and subordinate to the lien of any and all mortgages that may now or
hereafter affect the demised premises, or any part thereof, and to any
and all renewals, modifications or extensions of any such mortgages.
Lessee shall on demand execute, acknowledge and deliver to lessor,
without expense to lessor, any and all instruments that may be
necessary or proper to subordinate this lease and all rights therein to
the lien of any such mortgage or mortgages and each renewal,
modification or extension, and if lessee shall fail at any time to
execute, acknowledge and deliver any such subordination instrument,
lessor in addition to any other remedies available in consequence
thereof, may execute, acknowledge and deliver the same as lessee's
attorney in fact and in lessee's name. Lessee hereby irrevocably makes,
constitutes and appoints lessor, its successors and assigns, his
attorney in fact for that purpose.
Lessor hereby covenants and warrants that, subject to Section
XVIII, he is owner of the demised premises and that lessee, on payment
of the rents herein provided for and the performance of the provisions
hereof on its part to be performed, shall and may peacefully possess
and enjoy the demised premises during the term hereof without any
interruption or disturbance.
XVIII. ACCESS TO PREMISES; SIGNS POSTED BY LESSOR:
Lessee shall permit lessor or its agents to enter the demised
premises at all reasonable hours to inspect the premises or make
repairs that lessee may neglect or refuse to make in accordance with
the provisions of this lease, and also to show the premises to
prospective buyers. At any time within one year prior to expiration of
the term, lessor may show the premises to persons prior to expiration
of the term, permit the usual notices of "For Rent" and "For Sale" to
be place on the demised premises and to remain thereon without
hindrance and molestation.
XIX. EASEMENTS, AGREEMENTS OR ENCUMBRANCES:
The parties shall be bound by all existing easements,
agreements and encumbrances of record relating to the demised premises,
and lessor shall not be liable to lessee for any damages resulting from
any action taken by a holder of an interest pursuant to the rights of
that holder thereunder.
XX. LIABILITY OF LESSOR:
Lessee shall be in exclusive control and possession of the
demised premises, and lessor (except for acts of negligence of lessor)
shall not be liable for any injury or damages to any property or to any
person on or about the demised premises nor for any injury to any
property of lessee. The provisions herein permitting lessor to enter
and inspect the demised premises are made to insure that lessee is in
compliance with the terms and conditions hereof and makes repairs that
lessee has failed to make. Lessor shall not be liable to lessee for any
entry on the premises for inspection purposes (except for acts of
negligence of Lessor).
XXI. RENT ABATEMENT:
No abatement, diminution or reduction of rent shall be claimed
or allowed to lessee or any person claiming under him under any
circumstances, whether for inconvenience, discomfort, interruption of
business or otherwise, arising from and during the restoration of the
demised premises after the destruction or damage thereof by fire or
other cause or the taking or condemnation of a portion only of the
demised premises.
XXII. STORAGE OF TOXIC MATERIALS, EXPLOSIVES AND FLAMMABLES PROHIBITED:
Lessee shall not, at anytime whatsoever, keep for use on the
demised premises any toxic materials, explosives or inflammable
substances.
XXIII. REPRESENTATIONS BY LESSOR:
At the commencement of the term lessee shall accept the
buildings and improvements and any equipment in their existing
condition and state of repair and lessee agrees that no
representations, statements or warranties, express or implied, have
been made by or on behalf of lessor in respect thereto except as
contained in the provisions of this lease.
XXIV. WAIVERS:
The failure of lessor to insist on a strict performance of any
of the terms and conditions hereof shall be deemed a waiver of the
rights or remedies that lessor may have regarding that specific
instance only, and shall not be deemed a waiver of any subsequent
breach or default in any terms and conditions.
XXV. NOTICE:
All notices to be given with respect to this lease shall be in
writing. Each notice shall be sent by registered or certified mail,
postage prepaid and return receipt requested, to the party to be
notified at the address set forth herein or at such other address as
either party may from time to time designate in writing.
Every notice shall be deemed to have been given at the time it
shall be deposited in the United States mails in the manner prescribed
herein. Nothing contained herein shall be construed to preclude
personal service of a summons or other legal process.
XXVI. ASSIGNMENT, MORTGAGE OR SUBLEASE:
Neither lessee nor his successors or assigns shall assign,
mortgage, pledge or encumber this lease or sublet the demised premises
in whole or in part, or permit the premises to be used or occupied by
others, nor shall this lease be assigned or transferred by operation of
law, without the prior consent in writing of lessor in each instance.
Exception to this would be legal subsidiaries of lessee. After two
years such consent is not to be unreasonably withheld. If this lease is
assigned or transferred, or if all or any part of the demised premises
is sublet or occupied by anybody other than lessee, lessor may, after
default by lessee, collect rent from the assignee, transferee,
subtenant, or occupant, and apply the net amount collected to the rent
reserved herein, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any agreement or condition
hereof , or the acceptance of the assignee, transferee, subtenant or
occupant as lessee. Lessee shall continue to be liable hereunder in
accordance with the terms and conditions of this lease and shall not be
released from the performance of the terms and conditions hereof. The
consent by lessor to an assignment, mortgage, pledge or transfer shall
not be construed to relieve lessee from obtaining the express written
consent of lessor to any future transfer of interest.
XXVII. OPTION TO RENEW:
Lessor grants to lessee an option to renew this lease for a period of
Three (3) years after expiration of the term of this lease. The rental
rate shall be increased an amount equal to the Consumer Price Index
(CPI) as noted for New York and area, each year of the renewal. All
other terms and condition of this renewal lease to be the same as those
herein. To exercise this option, lessee must give lessor written notice
of the intention to do so at least six (6) months before this lease
expires.
XXVIII. SURRENDER OF POSSESSION:
Lessee shall, on the last day of the term, or on earlier
termination and forfeiture of the lease, peaceably and quietly
surrender and deliver the demised premises to lessor free of
subtenancies, including all buildings, additions and improvements
constructed or placed thereon by lessee, except moveable trade
fixtures, all in good condition and repair subject to reasonable wear
and tear (except to the extent provided for under paragraph XI, and XVI
herein. Any trade fixtures or personal property not used in connection
with the operation of the demised premises and belonging to Lessee, if
not removed at the termination of default, and if lessor shall so
elect, shall be deemed abandoned and become the property of lessor
without any payment or offset therefor. Lessor may remove such fixtures
or property from the demised premises and store them at the risk and
expense of lessee if lessor shall not so elect. Lessee shall repair and
restore all damage to the demised premises caused by the removal of
equipment, trade fixtures and personal property.
XXIX. REMEDIES OF LESSOR:
A. In the event of a breach or a threatened breach by lessee of
any of the terms or conditions hereof, lessor shall have the
right of injunction to restrain lessee and the right to invoke
any remedy allowed by law or in equity, as if the specific
remedies of indemnity or reimbursements were not provided
herein.
B. The rights and remedies given to lessor in this lease are
distinct, separate and cumulative and no one of them, whether
or not exercised by lessor, shall be deemed to be in exclusion
of any of the others herein, by law, or by equity provided.
C. In all cases hereunder, and in any suit, action or proceeding
of any kind between the parties, it shall be presumptive
evidence of the fact of the existence of a charge being due if
lessor shall produce a bill, notice or certificate of any
public official entitled to give that notice to the effect
that such charge appears of record on the books in his office
and has not been paid.
D. No receipt of money by lessor from lessee after default or cancellation of
this lease in any lawful manner shall (1) reinstate, continue or extend the
term or affect any notice given to lessee, (2) operated as a waiver of the
right of lessor to enforce the payment of rent and additional rent then due
or falling due, or (3) operated as a waiver of the right of lessor to
recover possession of the demised premises by proper suit, action,
proceeding or other remedy. After (1) service of notice of termination and
forfeiture as herein provided and the expiration of the time specified
therein (2) the commencement of any suit, action, proceeding or other
remedy, or (3) final order or judgement for possession of the monies due,
without in any manner affecting such notice, order or judgement. Any and
all such monies so collected shall be deemed to be payment on account of
the use and occupation of the demised premises or at the election of
lessor, on account of the liability of lessee hereunder.
XXX. TOTAL AGREEMENT; APPLICABLE TO SUCCESSORS:
This lease contains the entire agreement between the parties
and cannot be changed to terminated except by a written instrument
subsequently executed by the parties hereto. This lease and the terms
and conditions hereof apply to and are binding on the heirs, legal
representatives, successors and assigns of both parties.
XXXI. INDEMNIFICATION - LIABILITIES AND LOSSES:
Lessee shall, at all times prior to the termination of this
lease and to the delivery to a lessor possession of the demised
premises and all improvements thereon, indemnify lessor against all
liability, loss, cost, damage or expense sustained by lessor, including
attorney's fees and other expenses of litigation arising prior to
termination of the lease term and delivery to lessor of possession of
the premises:
1. On account of or through the use of the demised premises or
improvements or any part thereof or by any other reason for
any purpose inconsistent with the provisions of this lease.
2. Arising out of, or directly or indirectly due to, any failure
of lessee in any respect promptly and faithfully to satisfy
his obligations under this lease.
3. Arising out of, or directly or indirectly due to, any accident
or other occurrence causing injury to any person or persons or
property resulting from the use of the demised premises and
improvements or any part thereof.
4. For which the demised premises and improvements or any part
thereof or the lessor as owner thereof or interested therein
may hereafter without fault by lessor become liable, and
especially, but not exclusively, any such liability, loss,
cost, damage or expense that may arise under any statute,
ordinance or regulation except such requirements as to which
compliance is related to the improvements on the demised
premises (other than improvements made by Lessee) and are not
caused by use and occupancy of lessee. It is not intended by
this clause that Lessee shall be responsible for liabilities
imposed by the acts of others committed prior to the date of
this lease.
Lessee also shall, at all times prior to termination of the
lease term and delivery to lessor of possession of the premises,
indemnify lessor against all liens and charges of any and every nature
that may at any time be established against the premises or any
improvements thereon or any part thereof as a consequence, direct or
indirect, of any act or omission of lessee or as a consequence, direct
or indirect, of the existence of lessee's interest under this lease.
XXXII. NOTICE BY LESSEE OF LITIGATION - PAYMENT OF ATTORNEY'S FEES AND COSTS:
Within five days after lessee has knowledge of any material
litigation or other proceeding that shall be instituted against lessee,
against the demised premises to secure or recover possession thereof,
or that may affect the title to or the interest of lessor in the
demised premises, lessee shall give written notice thereof to lessor.
Lessee shall pay all reasonable attorney's fees and costs on
behalf of lessor if (a) lessor institutes litigation against lessee for
a breach of the terms and conditions of this lease, (b) lessor
institutes litigation against lessee for an unlawful detainer of the
demised premises, or (c) lessor is made a part to litigation against
lessee instituted by a third party, relating to the demised premises,
wherein lessor is not at fault. The reasonable attorney's fees and
costs incurred by lessor herein shall be paid by lessee whether
litigation is prosecuted to judgement or not.
The payment of all attorney's fees and court costs required
hereby shall be made to lessor as additional rental and shall be due in
full on the next regular date for a rental payment. This additional
rental shall be subject to an interest charge of eighteen (18%) per
cent per annum, and lessor may enforce the payment by using any remedy
available at law or under this lease of the collection of past due
rent.
XXXIII. APPLICABLE LAW:
This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this lease in
the State of New York the day and year first above written.
/s/ Jean K. Woodward
Jean K. Woodward, Lessor
By: /s/ James L. Kehoe
James L. Kehoe, Lessee
/s/ Kathleen N. Martin
Witness
<PAGE>
Exhibit 10(c)
LEASE BUILDING 5
LEASE MADE THIS 29th. DAY OF December , 1999
BETWEEN Jean K. Woodward, owner, as may be represented by William Woodward
(William Woodward Enterprises) residing at 50 Riverview Drive, Marlboro, New
York 12542-5310 herein referred to as Lessor,
AND Sono-Tek Corporation, having it's principal place of business at
2012 Route 9-W, Milton Industrial Park, Milton, New York 12547, herein referred
to as Lessee.
RECITALS:
A. Lessor is the sole owner of the premises described below and
desires to lease the premises to a suitable Lessee for
business purposes.
B. Lessee desires to lease the premises for the purpose of
conducting a business of light manufacturing, electronics and
related machinery and equipment and storage.
C. The parties desire to enter a lease agreement defining their rights, duties
and liabilities relating to the premises.
In consideration of the mutual covenants contained herein, the parties agree as
follows:
I. SUBJECT AND PURPOSES:
Lessor leases a free standing building containing approximately 2,000
square feet of space known as Phase VI, Building 5, in the south east sector of
the Milton Industrial Park, in the County of Ulster, State of New York and more
particularly described as follows:
A free standing masonry and steel building measuring 50 feet wide and
40 feet deep with a single slope roof and canopy overhang. Building contains one
bathroom, radiant natural gas heat, fluorescent lighting, one truck dock and one
drive-in overhead door.
II. TERM AND RENT:
Lessor demises the above premises for a term of two years and eleven
months, commencing January 1, 2000 and terminating on November 30, 2002 at five
o'clock P.M.., or sooner as provided herein, at the annual rental of Nine
Thousand Dollars ($9,000.00).
Such sums are payable in advance on January first for the first year
and on the anniversary date for each succeeding year. However and provided the
lessee is not otherwise in default, the lessee for convenience and with the
consent of the lessor may pay such annual rent in equal monthly installments of
$750.00 in advance on the first day of each month for that month's rental,
during the term of this lease. All rental payments shall be made to Lessor at
the address specified above. Lessee shall pay the rent as specified herein and
in Section Three hereof.
III. ADDITIONAL RENT:
All taxes, charges, costs, and expenses that Lessee assumes or agrees
to pay hereunder, together with all interest and penalties that may accrue
thereon in the event of the failure of Lessee to pay those items, and all other
damages, costs, expenses, and sums that Lessor may suffer or incur, or that may
become due by reason of any default of Lessee or failure by Lessee to comply
with the terms and conditions of this lease shall be deemed to be additional
rent, and, in the event of nonpayment, lessor shall have all the rights and
remedies as herein provided for failure to pay rent.
IV. UTILITIES NOT FURNISHED BY LESSOR - ENTIRE RESPONSIBILITY OF LESSEE:
Lessee shall initiate, contract for, and obtain, in its name, electric,
gas, and telephone utility services as required on the demised premises. Lessee
agrees to maintain a minimum temperature of 45 degrees F. at all times in the
demised premises and to prevent interior water lines from freezing. Lessee shall
pay all charges for those services as they become due.
Lessee shall indemnify and hold harmless lessor from any claims
whatsoever arising out of lessee's failure to pay for utility services and/or
the charges therefor. Lessee shall pay Lessor's attorney's fees arising out of
any claims against Lessor arising out of charges for Lessee's utility services.
Except in the case of acts of negligence committed by Lessor, Lessor
shall not be liable for any personal injury or property damage resulting form
the negligent operation or faulty installation of utility services provided for
use on the demised premises, nor shall Lessor be liable for any injury or damage
suffered by lessee as a result of the failure to make necessary repairs to the
utility facilities.
Lessee shall be liable for any injury or damages to the equipment of
service lines of the utility suppliers that are located on the demised premises,
resulting from the negligent or deliberate acts of lessee, or the agents or
employees of lessee.
V. BROKERS COMMISSION:
There is no Broker's Commission payable or due from either the Lessor
or the Lessee.
VI. IMPROVEMENTS TO BE MADE TO PREMISES:
The lessor gives permission to the lessee to work in the electric
panels and to construct interior partitions and offices as lessee may require.
All work must be done by a licensed electrician.
VII: ALTERATIONS, ADDITIONS AND IMPROVEMENTS:
A. Subject to the limitation that no portion of the building on
the demised premises shall be demolished or removed by Lessee
without the prior written consent of Lessor, and , if
necessary, of any mortgagee. Lessee may at any time during the
lease term subject to the conditions set forth below and at
his own expense, make alterations, additions, or improvements
in and to the demised premisses and the building. Alterations
shall be performed in a workmanlike manner and shall not
weaken or impair the structural strength, or lessen the value,
of the building on the premises, or change the purposes for
which the building, or any pert thereof, may be used.
B. Conditions with respect to alterations, additions or improvements are as
follows:
1. Before commencement of any work all plans and
specifications shall be filed with and approved by
all governmental departments or authorities having
jurisdiction and any public utility company having an
interest therein, and all work shall be done in
accordance with requirements of local regulations.
The plans and specifications of any alterations shall
be submitted to the Lessor for written approval prior
to commencing work. Said approval not to be
unreasonably withheld. As of the date hereof, lessor
agrees that lessee may install a telephone cable
overhead between the lessees's current premises and
the demised premises herein. The lessee shall have
the right to install one identification sign at the
main entrance to the demised premises. Such sign
shall not violate local building codes. At the end of
the term of this lease the lessee shall at the option
of lessor remove such alterations as are designated
by lessor.
C. Alterations, additions and improvements on or in the demised
premises may commence upon the signing of this agreement. All
additions and improvements that may be erected or installed
prior to or during the term, shall become part of the demised
premises and the sole property of Lessor, except that all
movable trade fixtures installed by lessee shall be and remain
the property of Lessee.
VIII. TAXES AND OTHER CHARGES:
Lessor shall pay and discharge when due all state, municipal and local
real estate taxes, inheritance, succession and , assessments, levies and other
charges, general and special, ordinary and extraordinary, of whatever name,
nature and kind that are or may be during the term hereof or any renewal,
beginning with the fiscal year 2000, levied, assessed, imposed or charged on the
land or the premises hereby demised or on the (building or buildings) and
improvements now thereon or hereafter to be built or made thereon, and all of
which may be levied, assessed, imposed or charged on or against the leasehold
estate hereby created and on the reversionary estate in the demised premises
during the term hereof or any renewal.
IX. REPAIRS:
Lessee shall, at all times during the lease and at his own cost and
expense, repair, replace and maintain in good, safe and substantial condition,
all buildings and any improvements, additions, and alterations on the demised
premises, and shall use all reasonable precaution to prevent waste, damage or
injury to the demised premises. It is intended that this clause refers to
non-structural repairs, unless structural repairs are necessitated by the
conduct of lessee, its agents or assigns. In such case, lessee shall be
responsible for structural repairs.
Lessor shall maintain the building exterior, lawn and landscaping.
Lessor shall be responsible for snow removal, and grounds cleaning. Lessor shall
replace all shrubs to the property which have died.
Lessee shall remove snow and debris from walkways and in front of
doors.. Lessee shall be responsible for office cleaning, window cleaning, refuse
removal, maintenance of light fixtures, bi-annual service of heating equipment,
and to maintain all plumbing fixtures against leaks and water wasting.
X. SECURITY DEPOSIT:
Lessee shall deposit $750.00 with lessor upon the signing here of,
which amount shall be held by Lessor as security for the full and timely
performance by lessee of the terms and conditions herein and of the payment of
any final judgement that may be rendered against Lessee for a breach of those
terms and conditions. The funds shall be deposited in a day of deposit/day of
withdrawal interest bearing account for the benefit of the Lessee, who shall
provide their Federal I.D. number for such purposes. The rights of Lessor
against Lessee for a breach of this lease shall in no way be limited or
restricted by this security deposit, but Lessor shall have the absolute right to
pursue any available remedy to protect its interests herein, as if this security
deposit had not been made. The deposit shall be returned to Lessee at the
expiration of the lease provided that all the terms and conditions herein
contained have been fully performed by Lessee. Should the demised premises be
sold, Lessor may transfer or deliver this security deposit to the purchaser of
the interest, and Lessor shall then be discharged from any further liability
with respect to the security deposit.
XI. INSURANCE:
A. In the term of the lease and for any further time that Lessee
shall hold the demised premises, Lessee shall obtain and
maintain at his expense the following types and mounts of
insurance:
Personal Injury and Property Damage
Insurance. Insurance against liability for bodily injury and
property damage in the sum of Two Million Dollars
($2,000,000.00) per claimant and in the sum of Five Million
Dollars ($5,000,000.00) per occurrence.
B. All insurance provided by Lessee as required by this section shall be
carried in favor of Lessor and Lessee as their respective interests may
appear, and in the case of insurance against damage to the demised premises
by fire and other casualty, shall provide that loss, if any, shall be
adjusted with and be payable to Lessor. If required by Lessor, any
insurance against fire or other casualty shall provide that loss shall be
payable to the holder under a standard mortgage clause. Rent insurance and
the proceeds are hereby assigned to lessor to be held by Lessor as security
for the payment of the rent and any additional rent hereunder until
restoration of the premises. All insurance shall be written with
responsible companies that Lessor shall approve, and the policies shall be
held by lessor, or when appropriate, by the holder of any mortgage in which
case copies of the policies or certificates of insurance shall be delivered
by Lessee to Lessor. All policies shall require 30 days notice by
registered mail to Lessor of any cancellation or change affecting any
interest of Lessor.
XII. UNLAWFUL OR DANGEROUS ACTIVITY:
Lessee shall neither use nor occupy the demised premises or any part
thereof for any unlawful, disreputable or ultra hazardous business purpose nor
operate or conduct his business in a manner constituting a nuisance of any kind.
Lessee shall immediately, on discovery of any unlawful, disreputable or ultra
hazardous use, take action to halt such activity and keep such premises
environmentally clean and safe.
XIII. DEFAULT OR BREACH:
Each of the following events shall constitute a default or breach of
this lease by Lessee:
1. If Lessee, or any successor or assignee of Lessee while in
possession, shall file a petition in bankruptcy or insolvency
or for reorganization under any bankruptcy act, or shall
voluntarily take advantage of any such act by answer or
otherwise, or shall make an assignment for the benefit of
creditors.
2. If involuntary proceedings under any bankruptcy law or
insolvency act shall be institute against Lessee, or if a
receiver or trustee shall be appointed of all or substantially
all of the property of Lessee, and such proceedings shall not
be dismissed or the receivership or trusteeship vacated within
20 days after the institution or appointment.
3. If Lessee shall fail to pay Lessor any rent owed or additional
rent when the rent shall become due within five days after
written notice of such failure to lessee at the address above
given. Lessee shall pay as additional rent the sum of $300.00.
If such rent is not received on or before the 1st day of the
month and lessor sends such written notice of default. Lessor
shall extend to lessee, a five (5) day grace period relative
to such rent payment.
4. If lessee shall fail to perform or comply with any of the
conditions of this lease and if the nonperformance shall
continue for a period of 10 days after notice thereof by
Lessor to Lessee or, if the performance cannot be reasonably
had within the 10 day period, Lessee shall not in good faith
have commenced performance within the 10 day period and shall
not diligently proceed to completion of performance.
5. If this lease or the estate of Lessee hereunder shall be
transferred to or shall pass to or devolve on any other person
or party, except in the manner herein permitted.
6. If Lessee fails to take possession of the demised premises on
the term commencement date, or within 10 days after notice
that the demised premises are available for occupancy, if the
term commencement date is not fixed herein or shall be
deferred as herein provided.
XIV. EFFECT OF DEFAULT:
In the event of any default hereunder, as set forth in Section I, the
rights of Lessor shall be as follows:
1. Lessor shall have the right to cancel and terminate this
lease, as well as all of the right, title and interest of
lessee hereunder, by giving to lessee not less than 10 days
notice of the cancellation and termination. On expiration of
the time fixed in the notice; this lease and the right, title
and interest of lessee hereunder, shall terminate in the same
manner and with the same force and effect, except as to
lessee's liability, as if the date fixed in the notice of
cancellation and termination were the end of the term
cancellation and termination were the end of the term herein
originally determined.
. Lessor may elect, but shall not be obligated to make any
payment required by lessee herein or comply with any
agreement, term or condition required hereby to be performed
by Lessee, and the lessor shall have the right to enter the
demised premises for the purpose of correcting or remedying
any such default and to remain until the default has been
corrected or remedied, but any expenditure for the correction
by lessor shall not be deemed to waive or release the default
of lessee or the right of lessor to take any action as may be
other wise permissible hereunder in the case of any default.
3. Lessor may re-enter the premises immediately and remove the
property and personnel of lessee, and store the property in a
public warehouse or at a place selected by lessor, at the
expense of lessee. After re-entry lessor may terminate the
lease on giving 10 days written notice of termination to
lessee. Without the notice, re-entry will not terminate the
lease. On termination, the lessor may recover from lessee all
damages proximately resulting from the breach, including the
costs recovering the premises, and the present worth of the
balance of this lease over the present worth of the reasonable
rental value of the premises for the remainder of the lease
term, which sum shall be immediately due lessor from lessee.
4. After re-entry, lessor may relet the premises or any part
thereof for any term without terminating the lease, at the
rent and on the terms as lessor may choose. Lessor may make
alterations and repairs to the premises. The duties and
liabilities of the parties if the premises are relet as
provided herein shall be as follows:
a. In addition to lessee's liability to lessor for
breach of the lease, lessee shall be liable for all
expenses of the reletting, for the alterations and
repairs made, and for the difference between the rent
received by lessor under the new lease agreement and
the rent installments that are due for the same
period under this lease. b. Lessor shall have the
right, but shall not be required, to apply the rent
received from the reletting for the premises (1) to
reduce the indebtedness of lessee to lessor under the
lease, not including indebtedness for rent, (2) to
expenses of the reletting and alterations and repairs
made, (3) to rent due under this lease, or (4) to
payment of future rent under this lease as it becomes
due.
If the new lessee does not pay a rent installment promptly to
lessor, and the rent installment has been credited in advance
of payment to the indebtedness of lessee other than rent, or
if rentals from the new lessee have been otherwise applied by
Lessor as provided for herein and during any rent installment
period are less than the rent payable for the corresponding
installment period under this lease, lessee shall pay lessor
the deficiency, separately for each rent installment
deficiency period, and before the end of that period. Lessor
may at any time after a reletting terminate the lease for the
breach on which lessor had based the re-entry and subsequently
relet the premises.
5. After re-entry, lessor may procure the appointment of a
receiver to take possession and collect rents and profits of
the business of lessee, and, if necessary to collect the rents
and profits. The receiver may take possession of the personal
property used in the business of lessee, including inventory,
trade fixtures, and furnishings, and use them in the business
without compensating lessee. Proceedings for appointment of a
receiver by lessor, or the appointment of a receiver, shall
not terminate and forfeit this lease unless lessor has given
written notice of termination to lessee as provided herein.
XV. CONDEMNATION:
Rights and duties in the event of condemnation are as follows:
1. If the whole of the demised premises shall be taken or
condemned by any public, or quasi-public use or purpose, this
lease shall cease and terminate as of the date on which title
shall vest thereby in that authority, and the rent reserved
hereunder shall be apportioned and paid up to that date.
2 .If only a portion of the demised premises shall be taken or
condemned, this lease and the terms hereof shall not cease of
terminate, but the rent payable after the date on which lessee
shall be required to surrender possession of such portion
shall be reduced in proportion to the decreased use suffered
by lessee as the parties may agree or as shall be determined
by arbitration.
3. In the event of any taking or condemnation in whole or in
part, the entire resulting award of consequential damages
shall belong to lessor without any deduction therefrom for the
value of the unexpired term of this lease or for any other
estate or interest in the demised premises now or later vested
in lessee. Lessee assigns to lessor all his right, title and
interest in any and all such awards. If a separate award is
made for moving expenses, business interruption and fixtures
then such award of moving expenses, business interruption and
fixtures shall belong to the lessee.
4. In the event of a partial taking, lessor shall promptly
proceed to restore the remainder of the building on the
demised premises to a self-contained architectural unit.
5. In case of any governmental action not resulting in the taking
or condemnation of any portion of the demised premises but
creating a right to compensation therefor, or if less than a
fee title to all or any portion of the demised premises shall
be taken or condemned by any governmental authority for
temporary use of occupancy, this lease shall continue in full
force and effect without reduction or abatement of rent, and
the rights of the parties shall be unaffected by the other
provisions of this section, but shall be governed by
applicable law.
XVI. DESTRUCTION OF PREMISES:
In the event of a partial destruction of the premises (not
caused by lessee and/or its' agents and/or independent
contractors) by fire or other cause for which lessee has
provided insurance payable to lessor under paragraph XIII or
condemnation during the term, lessor shall forth with repair
the same, provided the repairs can be made within 30 days of
receipt of such insurance or governmental authorities. Any
partial destruction shall neither annul nor void this lease.
If the repairs cannot be made in the specified time, lessor
may, at lessor's option, make repairs within a reasonable
time, this lease continuing in full force and effect and the
rent to be proportionately rebated. In the event that lessor
does not elect to make repairs that cannot be made in the
specified time, or those repairs cannot be made under the laws
and regulations of the applicable governmental authorities,
this lease may be terminated at the option of either party.
Should the building in which the demised premises are situated
be destroyed as set forth herein or condemned to the extent of
not less than 75 percent (75%) of the replacement cost
thereof, this lease shall be terminated.
XVII. SUBORDINATION:
This lease and all rights of lessee hereunder shall be subject
and subordinate to the lien of any and all mortgages that may now or
hereafter affect the demised premises, or any part thereof, and to any
and all renewals, modifications or extensions of any such mortgages.
Lessee shall on demand execute, acknowledge and deliver to lessor,
without expense to lessor, any and all instruments that may be
necessary or proper to subordinate this lease and all rights therein to
the lien of any such mortgage or mortgages and each renewal,
modification or extension, and if lessee shall fail at any time to
execute, acknowledge and deliver any such subordination instrument,
lessor in addition to any other remedies available in consequence
thereof, may execute, acknowledge and deliver the same as lessee's
attorney in fact and in lessee's name. Lessee hereby irrevocably makes,
constitutes and appoints lessor, its successors and assigns, his
attorney in fact for that purpose.
Lessor hereby covenants and warrants that, subject to Section
XVIII, he is owner of the demised premises and that lessee, on payment
of the rents herein provided for and the performance of the provisions
hereof on its part to be performed, shall and may peacefully possess
and enjoy the demised premises during the term hereof without any
interruption or disturbance.
XVIII. ACCESS TO PREMISES; SIGNS POSTED BY LESSOR:
Lessee shall permit lessor or its agents to enter the demised
premises at all reasonable hours to inspect the premises or make
repairs that lessee may neglect or refuse to make in accordance with
the provisions of this lease, and also to show the premises to
prospective buyers. At any time within one year prior to expiration of
the term, lessor may show the premises to persons prior to expiration
of the term, permit the usual notices of "For Rent" and "For Sale" to
be place on the demised premises and to remain thereon without
hindrance and molestation.
XIX. EASEMENTS, AGREEMENTS OR ENCUMBRANCES:
The parties shall be bound by all existing easements,
agreements and encumbrances of record relating to the demised premises,
and lessor shall not be liable to lessee for any damages resulting from
any action taken by a holder of an interest pursuant to the rights of
that holder thereunder.
XX. LIABILITY OF LESSOR:
Lessee shall be in exclusive control and possession of the
demised premises, and lessor (except for acts of negligence of lessor)
shall not be liable for any injury or damages to any property or to any
person on or about the demised premises nor for any injury to any
property of lessee. The provisions herein permitting lessor to enter
and inspect the demised premises are made to insure that lessee is in
compliance with the terms and conditions hereof and makes repairs that
lessee has failed to make. Lessor shall not be liable to lessee for any
entry on the premises for inspection purposes (except for acts of
negligence of Lessor).
XXI. RENT ABATEMENT:
No abatement, diminution or reduction of rent shall be claimed
or allowed to lessee or any person claiming under him under any
circumstances, whether for inconvenience, discomfort, interruption of
business or otherwise, arising from and during the restoration of the
demised premises after the destruction or damage thereof by fire or
other cause or the taking or condemnation of a portion only of the
demised premises.
XXII. STORAGE OF TOXIC MATERIALS, EXPLOSIVES AND FLAMMABLES PROHIBITED:
Lessee shall not, at anytime whatsoever, keep for use on the
demised premises any toxic materials, explosives or inflammable
substances. Except such materials as may be required in the lessee's
day to day business operation and subject to all environmental and OSHA
rules and regulations. Lessor is to be advised of the storage and use
of any such materials.
XXIII. REPRESENTATIONS BY LESSOR:
At the commencement of the term lessee shall accept the
buildings and improvements and any equipment in their existing
condition and state of repair and lessee agrees that no
representations, statements or warranties, express or implied, have
been made by or on behalf of lessor in respect thereto except as
contained in the provisions of this lease.
XXIV. WAIVERS:
The failure of lessor to insist on a strict performance of any
of the terms and conditions hereof shall be deemed a waiver of the
rights or remedies that lessor may have regarding that specific
instance only, and shall not be deemed a waiver of any subsequent
breach or default in any terms and conditions.
XXV. NOTICE:
All notices to be given with respect to this lease shall be in
writing. Each notice shall be sent by registered or certified mail,
postage prepaid and return receipt requested, to the party to be
notified at the address set forth herein or at such other address as
either party may from time to time designate in writing.
Every notice shall be deemed to have been given at the time it
shall be deposited in the United States mails in the manner prescribed
herein. Nothing contained herein shall be construed to preclude
personal service of a summons or other legal process.
XXVI. ASSIGNMENT, MORTGAGE OR SUBLEASE:
Neither lessee nor his successors or assigns shall assign,
mortgage, pledge or encumber this lease or sublet the demised premises
in whole or in part, or permit the premises to be used or occupied by
others, nor shall this lease be assigned or transferred by operation of
law, without the prior consent in writing of lessor in each instance.
Exception to this would be legal subsidiaries of lessee. After two
years such consent is not to be unreasonably withheld. If this lease is
assigned or transferred, or if all or any part of the demised premises
is sublet or occupied by anybody other than lessee, lessor may, after
default by lessee, collect rent from the assignee, transferee,
subtenant, or occupant, and apply the net amount collected to the rent
reserved herein, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any agreement or condition
hereof , or the acceptance of the assignee, transferee, subtenant or
occupant as lessee. Lessee shall continue to be liable hereunder in
accordance with the terms and conditions of this lease and shall not be
released from the performance of the terms and conditions hereof. The
consent by lessor to an assignment, mortgage, pledge or transfer shall
not be construed to relieve lessee from obtaining the express written
consent of lessor to any future transfer of interest.
XXVII. OPTION TO RENEW:
Lessor grants to lessee an option to renew this lease for a period of
Three (3) years after expiration of the term of this lease. The rental rate
shall be increased an amount equal to the Consumer Price Index (CPI) as noted
for New York and area, each year of the renewal. All other terms and condition
of this renewal lease to be the same as those herein. To exercise this option,
lessee must give lessor written notice of the intention to do so at least six
(6) months before this lease expires.
XXVIII. SURRENDER OF POSSESSION:
Lessee shall, on the last day of the term, or on earlier
termination and forfeiture of the lease, peaceably and quietly
surrender and deliver the demised premises to lessor free of
subtenancies, including all buildings, additions and improvements
constructed or placed thereon by lessee, except moveable trade
fixtures, all in good condition and repair subject to reasonable wear
and tear (except to the extent provided for under paragraph XI, and XVI
herein. Any trade fixtures or personal property not used in connection
with the operation of the demised premises and belonging to Lessee, if
not removed at the termination of default, and if lessor shall so
elect, shall be deemed abandoned and become the property of lessor
without any payment or offset therefor. Lessor may remove such fixtures
or property from the demised premises and store them at the risk and
expense of lessee if lessor shall not so elect. Lessee shall repair and
restore all damage to the demised premises caused by the removal of
equipment, trade fixtures and personal property.
XXIX. REMEDIES OF LESSOR:
A. In the event of a breach or a threatened breach by lessee of
any of the terms or conditions hereof, lessor shall have the
right of injunction to restrain lessee and the right to invoke
any remedy allowed by law or in equity, as if the specific
remedies of indemnity or reimbursements were not provided
herein.
B. The rights and remedies given to lessor in this lease are
distinct, separate and cumulative and no one of them, whether
or not exercised by lessor, shall be deemed to be in exclusion
of any of the others herein, by law, or by equity provided.
C. In all cases hereunder, and in any suit, action or proceeding
of any kind between the parties, it shall be presumptive
evidence of the fact of the existence of a charge being due if
lessor shall produce a bill, notice or certificate of any
public official entitled to give that notice to the effect
that such charge appears of record on the books in his office
and has not been paid.
D. No receipt of money by lessor from lessee after default or cancellation of
this lease in any lawful manner shall (1) reinstate, continue or extend the
term or affect any notice given to lessee, (2) operated as a waiver of the
right of lessor to enforce the payment of rent and additional rent then due
or falling due, or (3) operated as a waiver of the right of lessor to
recover possession of the demised premises by proper suit, action,
proceeding or other remedy. After (1) service of notice of termination and
forfeiture as herein provided and the expiration of the time specified
therein (2) the commencement of any suit, action, proceeding or other
remedy, or (3) final order or judgement for possession of the monies due,
without in any manner affecting such notice, order or judgement. Any and
all such monies so collected shall be deemed to be payment on account of
the use and occupation of the demised premises or at the election of
lessor, on account of the liability of lessee hereunder.
XXX. TOTAL AGREEMENT; APPLICABLE TO SUCCESSORS:
This lease contains the entire agreement between the parties
and cannot be changed to terminated except by a written instrument
subsequently executed by the parties hereto. This lease and the terms
and conditions hereof apply to and are binding on the heirs, legal
representatives, successors and assigns of both parties.
XXXI. INDEMNIFICATION - LIABILITIES AND LOSSES:
Lessee shall, at all times prior to the termination of this
lease and to the delivery to a lessor possession of the demised
premises and all improvements thereon, indemnify lessor against all
liability, loss, cost, damage or expense sustained by lessor, including
attorney's fees and other expenses of litigation arising prior to
termination of the lease term and delivery to lessor of possession of
the premises:
1. On account of or through the use of the demised premises or
improvements or any part thereof or by any other reason for
any purpose inconsistent with the provisions of this lease.
2. Arising out of, or directly or indirectly due to, any failure
of lessee in any respect promptly and faithfully to satisfy
his obligations under this lease.
3. Arising out of, or directly or indirectly due to, any accident
or other occurrence causing injury to any person or persons or
property resulting from the use of the demised premises and
improvements or any part thereof.
4. For which the demised premises and improvements or any part
thereof or the lessor as owner thereof or interested therein
may hereafter without fault by lessor become liable, and
especially, but not exclusively, any such liability, loss,
cost, damage or expense that may arise under any statute,
ordinance or regulation except such requirements as to which
compliance is related to the improvements on the demised
premises (other than improvements made by Lessee) and are not
caused by use and occupancy of lessee. It is not intended by
this clause that Lessee shall be responsible for liabilities
imposed by the acts of others committed prior to the date of
this lease.
Lessee also shall, at all times prior to termination of the
lease term and delivery to lessor of possession of the premises,
indemnify lessor against all liens and charges of any and every nature
that may at any time be established against the premises or any
improvements thereon or any part thereof as a consequence, direct or
indirect, of any act or omission of lessee or as a consequence, direct
or indirect, of the existence of lessee's interest under this lease.
XXXII. NOTICE BY LESSEE OF LITIGATION - PAYMENT OF ATTORNEY'S FEES AND COSTS:
Within five days after lessee has knowledge of any material
litigation or other proceeding that shall be instituted against lessee,
against the demised premises to secure or recover possession thereof,
or that may affect the title to or the interest of lessor in the
demised premises, lessee shall give written notice thereof to lessor.
Lessee shall pay all reasonable attorney's fees and costs on
behalf of lessor if (a) lessor institutes litigation against lessee for
a breach of the terms and conditions of this lease, (b) lessor
institutes litigation against lessee for an unlawful detainer of the
demised premises, or (c) lessor is made a part to litigation against
lessee instituted by a third party, relating to the demised premises,
wherein lessor is not at fault. The reasonable attorney's fees and
costs incurred by lessor herein shall be paid by lessee whether
litigation is prosecuted to judgement or not.
The payment of all attorney's fees and court costs required
hereby shall be made to lessor as additional rental and shall be due in
full on the next regular date for a rental payment. This additional
rental shall be subject to an interest charge of eighteen (18%) per
cent per annum, and lessor may enforce the payment by using any remedy
available at law or under this lease of the collection of past due
rent.
XXXIII. APPLICABLE LAW:
This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this lease in
the State of New York the day and year first above written.
By. s/s Jean K. Woodward
Jean K. Woodward, Lessor
By: s/s James L. Kehoe
James L. Kehoe, Lessee
---------------------------------------------
Witness
<PAGE>
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-60481 on Form S-8 of Sono-Tek Corporation of our report dated May 26, 2000
appearing in the Annual Report on Form 10-K of Sono-Tek Corporation for the year
ended February 29, 2000.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
May 26, 2000
--------
1Should be read in conjunction with the Consolidated Financial Statements and
notes thereto.
2 Upon conversion of $530,000 of 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 and Fiscal 2000 as a result of the net loss and therefore are
not considered in the Diluted EPS calculation. 4 Total Assets increased in
Fiscal 2000 due to the purchase of S&K Products International on August 3, 1999
and from the proceeds from financing activites.
5 The Long-Term Liabilities increased in Fiscal 2000 due to a new loan of
$450,000 plus long term and subordinated liabilites assumed in connection with
the S&K acquisition.
6 The Long-Term Liabilities decreased in Fiscal 1999 due to the conversion of
the Subordinated Convertible Debt of $530,000 to equity.
