-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C42MYx0THc9p/cn54CT9naND+924luGXmRj/9CZFQborIkGIFFW7xsMIL8R8u7pr wqXZw6P7zI2okBnaNwDv4Q== 0000806172-96-000002.txt : 19960530 0000806172-96-000002.hdr.sgml : 19960530 ACCESSION NUMBER: 0000806172-96-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960529 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONO TEK CORP CENTRAL INDEX KEY: 0000806172 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 141568099 STATE OF INCORPORATION: NY FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16035 FILM NUMBER: 96573775 BUSINESS ADDRESS: STREET 1: 2012 RT 9W BLDG 3 CITY: MILTON STATE: NY ZIP: 12547 BUSINESS PHONE: 9147952020 MAIL ADDRESS: STREET 1: 2012 RT. AW, BLDG. 3, CITY: MILTON STATE: NY ZIP: 12547 10-K 1 ANNUAL REPORT FOR FISCAL YEAR ENDED 02/29/96 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, 1996 Commission File Number: 0-16035 SONO-TEK CORPORATION (Exact name of Registrant as Specified in its Charter) NEW YORK 14-1568099 (State or other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 2012 Route 9W, Bldg. 3, Milton, New York 12547 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (914) 795-2020 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes __ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] As of May 17, 1996 the aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant was approximately $2,824,000, computed by reference to the average of the bid and asked prices of the Common Stock on said date, which average was $0.78. The Registrant had 4,204,913 shares of Common Stock outstanding as of May 17, 1996. 1 PART I ITEM 1 Business (a) General Development of Business. -------------------------------- Sono-Tek Corporation (the "Company" or "Sono-Tek") was incorporated in New York on March 21, 1975. It was organized for the purpose of engaging in the development, manufacture, assembly, and sale of ultrasonic liquid atomizing units consisting of (i) a nozzle based on patented technology, and (ii) an electrical power supply and related hardware (the "Nozzle Systems"). Nozzle Systems atomize low-to-medium viscosity liquids used in industrial spray processes by converting electrical energy into mechanical motion in the form of high-frequency (ultrasonic) vibrations which break liquids into minute drops that can be applied to surfaces at low-velocity. Throughout the fiscal year ended February 29, 1996 ("Fiscal 1996"), the Company continued production and sales of its established line of Nozzle System products. The Company is continuously striving to improve the performance and versatility of its Nozzle Systems, as well as searching for new industry applications. During Fiscal 1990, the Company initiated the development of the SonoFlux System. This system was the first product of the Company that incorporates its basic Nozzle System technology into an end-user ready machine which can be targeted for a very specific and identifiable market segment, the electronic circuit board assembly industry. The SonoFlux System applies a uniform coating of flux to printed circuit boards immediately prior to the components being soldered in place. The SonoFlux System consists of a liquid delivery system which pumps liquid flux from a reservoir to the ultrasonic nozzle where it is atomized (the Company's Nozzle System), a spray assembly which shapes the atomized flux and directs it toward the bottom surface of the printed circuit board, the necessary electronics to control and operate the system, and an exhaust hood to capture any extraneous vapors. After an initial period of marketing and customer evaluation during Fiscal 1991, the Company realized its initial sales during Fiscal 1992. Sales for the SonoFlux system have grown significantly in each subsequent year until Fiscal 1995 when increased competition contributed to a decline in sales. In Fiscal 1995, the Company commenced development of a new generation of the SonoFlux System which was introduced to the market at a major electronics trade show in February, 1995. This newest product family, the "9500", was developed after conducting significant market research to determine customer requirements. This new generation of machines was designed to enable Sono-Tek to participate in all segments of the spray fluxing market. For prospective customers where price is the most important factor in making a purchase decision, the entry level model of the 9500 is priced 25% lower than the previous SonoFlux System. For that segment of the market where full factory automation is a must, the high-end model of the SonoFlux 9500 is fully automated and computer controlled, and is priced 2 to compete favorably against other products in the market. The 9500, in addition to being designed to satisfy the demands of the market, is significantly easier to manufacture than its predecessor, and takes advantage of "off-the-shelf" components wherever possible to reduce the need for custom designed and manufactured parts. Initial shipments of the SonoFlux 9500 began in May 1995, to customers in the North American market. During the balance of Fiscal 1996, the SonoFlux 9500 proved to be a success in the field. The overall performance, reliability, and ease of use have been complemented by customers. In March 1996, this new system was made available to the international market. (b) Financial Information about Industry Segments. ---------------------------------------------- The Company is engaged in one industry segment and line of business. (c) Description of Business. ------------------------ Background - ---------- The Company is engaged in the development, manufacture, and sale of ultrasonic liquid atomizing units consisting of a nozzle based on patented technology and an electrical power supply unit and related hardware that atomizes low-to-medium viscosity liquids used in industrial spraying applications. Nozzle Systems operate on a different principle from that employed in conventional nozzles, such as compressed gas or hydraulic nozzles ("Conventional Nozzles"), or in other coating methods such as fill and aspiration (when a container is filled with a substance and the excess is removed by various methods) or batch dipping. Nozzle Systems break the liquid stream into a spray of minute drops by intense ultrasonic vibrations concentrated on the head of the nozzle, called the "atomizing surface". The spray pattern depends on the shape of the atomizing surface. The Company manufactures nozzles with atomizing surfaces that produce spray shapes to meet individual customer specifications. In addition, nozzles are made in different sizes and configurations to accommodate various flow rates and to meet other requirements with respect to specific applications. Other components of Nozzle Systems are similarly designed to meet customer specifications. Nozzle Systems produce a soft low-velocity spray of liquid which results in minimal waste or loss to the surrounding environment. Conventional nozzles tend to deliver a hard, high-velocity spray. When applying spray coatings to surfaces using pressure nozzles, much of the often expensive and/or hazardous material bounces off the surface and is lost into the environment. This so-called "overspraying" not only represents increased cost to the user, but is also a source of environmental pollution. Sono-Tek's Nozzle Systems, due to the soft nature of the spray produced, virtually eliminate such overspray. In addition, the Nozzle Systems are capable of spraying material 3 in minute amounts on the order of one-millionth of a liter of liquid per second, and are capable of delivering material without introducing gas into an industrial process as do compressed gas nozzles. Ultrasonic nozzles typically have larger passageways than Conventional Nozzles spraying material at similar flow rates, which the Company believes makes ultrasonic nozzles more resistant to clogging than Conventional Nozzles. Marketing - --------- Overview -------- The Company markets two basic product lines, both based on its proprietary ultrasonic nozzle technology. The SonoFlux System accounted for approximately 63% of the Company's sales during Fiscal 1996, 76% during Fiscal 1995, and 70% during Fiscal 1994. Nozzle Systems accounted for the remaining 37%, 24%, and 30% respectively. The marketing and sales function of the Company is currently performed by five people located in the Company's facilities in Milton, New York. This organization consists of a National Sales Manager, three Sales Engineers, and an Administrative Assistant. The primary marketing and sales of the Company's Nozzle Systems is through its own direct sales force. A majority of sales leads are generated via direct mail advertising, advertisements and technical articles in trade journals, new product releases, and participation in trade shows and seminars. The Company markets Nozzle Systems to customers requiring specialized applications of liquids to their products. To date, the Company's sales have been made to end users who use Nozzle Systems in the manufacture of their own products, to original equipment manufacturers ("OEMs") who incorporate Nozzle Systems into their own products for resale, and to government, university, and private research facilities who use Nozzle Systems for research projects. The market for the SonoFlux product line is the Printed Circuit Board (PCB) assembly industry. A majority of sales leads are generated via advertisements and technical articles in trade journals, new product releases, and participation in trade shows and seminars. For this product line, the Company utilizes the services of independent Manufacturer's Representatives ("Reps") in North America to augment its direct sales force. These Rep organizations are paid a commission on sales after the Company receives payment from the customer. The Company currently has thirteen such Rep organizations under contract with a total of approximately forty individuals performing direct sales. To increase the Company's presence in foreign markets, the Company uses Distributors in Europe and the Far East. The Company currently has fifteen such Distributor companies under contract. 4 Markets for the Company's Products - ---------------------------------- Nozzle Systems -------------- The Company markets Nozzle Systems to customers requiring specialized applications of liquids to their products. Manufacturers of medical devices use the Nozzle Systems to uniformly coat portions of their products with specific quantities of biochemical compounds. Semiconductor manufacturers use Nozzle Systems to apply chemicals on silicon wafers in the production of integrated circuits. Nozzle Systems are sold for a variety of other applications including spray drying of ceramics, lubrication, moisturization, and application of protective coatings to float glass. The Company works with potential customers in industries which it believes can benefit from Nozzle Systems to meet specialized application requirements. The Company has been concentrating its efforts on establishing its presence in a number of different markets. (See "Product Development"). Currently, the Company's principal markets for its products are in the medical products, semiconductor manufacturing and electronics fabrication industries. The more significant applications of the Company's Nozzle System products are as follows: Medical Devices --------------- Manufacturers of medical devices use Nozzle Systems in the processing of tubes, trays, ampules, syringes and catheters for medical use. Blood collection tubes used in AIDS testing and other blood work, diagnostic test kits and artificial arteries are examples of devices that are coated using Nozzle Systems. In Management's opinion, an advantage of Nozzle Systems over Conventional Nozzles (which are not typically used in the foregoing medical device applications) is that Nozzle Systems provide a low velocity spray which deposits a minute, specific quantity of material on the medical device. In addition, in management's opinion, an advantage of Nozzle Systems over other methods, such as the fill and aspiration method, is that Nozzle Systems permit a controlled and uniform application of less material than that used in other methods of coating medical devices, resulting in less waste of material. One customer in the medical device industry, Becton Dickinson & Co., accounted for approximately 9% of the Company's sales during Fiscal 1996, approximately 5% of the Company's sales in Fiscal 1995 and approximately 10% of the Company's sales in Fiscal 1994. This customer utilizes the Company's Nozzle Systems for coating blood collection devices with small, controlled amounts of various coagulating and anti-coagulating agents. The use of the Nozzle Systems in this application is attributable to their ability to precisely meter a very low-flow rate spray, which is a characteristic inherent to the technology. Semiconductors -------------- Semiconductor manufacturers that use automated wafer handling equipment can use Nozzle Systems in the production of integrated circuits. Photosensitive silicon wafers are sprayed with often expensive chemical developers using Nozzle Systems. The Company believes that the primary advantage in using Nozzle Systems in this process is that it produces results comparable to other automated wafer handling methods with less waste of the chemical being sprayed. 5 The acceptance of the Company's technology in this industry is a result of the technology's capability of reducing the use of chemicals and providing dimension control of deposition on silicon wafers. Other Applications ------------------- The Company also sells Nozzle Systems to other manufacturers, including manufacturers of feminine personal hygiene products, computer disks, float glass, frozen confections, and sterile packages. The Company also sells its Nozzle Systems to customers who wish to evaluate the merits of the technology for their specific applications. (See "Product Development"). SonoFlux System --------------- The SonoFlux System is attractive to the electronics industry in applications which use water soluble, water-based, or rosin fluxes because the SonoFlux system significantly reduces the amount of flux consumed, the related emission of these materials to the environment, and the cost of disposing of waste flux. The SonoFlux System applies "no-clean" flux to electronic printed circuit boards during manufacture. The Company believes that the potential market for this product is large because the use of "no-clean" fluxes eliminates the conventional flux removal (cleaning) operation which uses chlorofluorocarbon chemicals. One of the Company's Far East distributors, WKK Electronics PTE Ltd., located in Singapore, accounted for approximately 2% of the Company's sales in Fiscal 1996 and approximately 11% of the Company's sales during Fiscal 1995. Product Development - ------------------- For the Fiscal years ending February 29, 1996, February 28, 1995 and February 28, 1994, the Company expended approximately $380,000, $328,000, and $264,000 respectively on research and development costs. These expenditures were incurred for refinement of existing Nozzle System technology, development of Nozzle Systems to meet new or unique customer requirements, development of a new generation of the SonoFlux System and related enhancements, and the initial development of a photoresist application system for the semiconductor industry. Funding totalling $32,700 and $14,176 from SEMATECH, a consortium of U.S. semiconductor manufacturers, was provided toward the development costs of the photoresist development system during Fiscal years 1996 and 1995, respectively. (See "Wafer Coating System"). Management believes that the Company's long-term growth and stability is linked to the continuous development and release of products that provide total solutions to customer needs across a wide spectrum of industries, and advance the utility of the Company's basic technology. Nozzle Products - --------------- Since 1988, the mainstay of the Company's nozzle business has utilized 6 a power supply designated as the Model PS-88. From 1988 through 1993, the Company obtained considerable experience related to the performance of these systems in the field. Suggestions made by several customers and an analysis of repair records indicated that by making certain improvements and incorporating additional features, the Company could further enhance performance, reduce manufacturing time and parts cost, and facilitate the repair process. The first iteration of a new power supply, designated the Model PS-93, was designed specifically for Becton Dickinson, although the basic design concept is ultimately planned to be incorporated across the entire product line. The PS-93 operates on the "phase-locked loop" principle which enables the power supply to provide a stable, frequency-locked electrical signal to the attached ultrasonic nozzle. It also permits the user to tune the power supply to many different types of the Company's nozzles or to any nozzle of a given type by simple screwdriver adjustment. The PS-93 not only facilitates the use of the Company's products, particularly in installations where multiple Nozzle Systems are in use, but also simplifies manufacturing and repair. For example, a PS-88 power supply and nozzle system can, with age or excessive use, become mistuned, requiring customers to return the entire system to the factory for repair. The PS-93 power supply eliminates this problem since the system can be retuned by the customer on-site in a matter of minutes. The PS-93 also features a modularized design that makes it convenient to operate several power supplies and nozzles in a compact space, and the capability to interface and be controlled by external computers. The first PS-93 power supplies were delivered to Becton Dickinson & Co., in May 1993 as part of a rack-mount system designed to drive 10 nozzles. During Fiscal 1995, this new power supply design was incorporated into the SonoFlux product line, and it will replace the PS-88 for Nozzle System products during Fiscal 1997. SonoFlux System - --------------- During Fiscal 1995, significant development resources were expended to completely redesign the SonoFlux product line. The Company conducted an industry survey of over 1,000 users or potential users of spray fluxing systems in an effort to determine the expectations of the market for parameters such as price, performance, quality, and service. This industry information, together with the experience gained by the Company in over five years of selling spray fluxing systems, was combined with specific cost and profit objectives, to define the overall development objectives of the SonoFlux 9500. The SonoFlux 9500 is based on the industry proven design utilizing Sono-Tek's patented spray assembly with a stationary ultrasonic nozzle and spray dispersion mechanism. This well-established technology has been combined with a flexible programmable logic controller (PLC) to provide additional features, making the SonoFlux 9500 system a production tool capable of full automation. The SonoFlux 9500 uses an expandable, programmable controller which monitors and controls all system functions. Any fluxing parameter is easily changed using an operator keypad and 7 LCD display. The controller also provides visual and audible warnings for system errors and alarms. The unit can be programmed by a user friendly windows program from a personal computer using an industry standard RS-232 serial interface. It has the capacity to store up to 250 customized programs, each containing all of the parameters selected for a specific circuit board to be processed. Several SonoFlux 9500 models are available including units for retrofit inside wave soldering machines, stand alone units for assembly around existing finger or pallet conveyors, stand alone units complete with integral chain/tab conveyors and configurations capable of operating in an inert environment. In addition to development of the 9500, several engineering projects were initiated and completed to satisfy specific customer needs or requests. Wafer Coating System - -------------------- During Fiscal 1995 and Fiscal 1996, Sono-Tek made significant progress on a development project to significantly reduce the amount of photoresist used in the fabrication of semiconductor wafers. Photoresist is an expensive material that is applied to the surface of a semiconductor wafer at several stages during processing to sensitize the surface of the wafer to ultraviolet light so that various features can be photo-imaged. This work was performed under a joint development agreement with SEMATECH which required Sono-Tek to develop the necessary tools and processes to enable existing semiconductor manufacturing equipment to be retrofitted with Sono-Tek's patented ultrasonic spray technology. The objective of the program is to spray a uniform coating of photoresist, using as small an amount of photoresist as possible. Initial laboratory results indicate the Company has achieved its goal to reduce by a factor of four the amount of photoresist used in the semiconductor manufacturing process. A prototype wafer coating system has been designed and the Company has plans to install it at a semiconductor manufacturing facility for further testing and qualification during the second quarter of Fiscal 1997. Manufacturing - ------------- The Company currently employs eleven persons for its manufacturing and quality control activities. During Fiscal 1992, the Company expanded its manufacturing capabilities in order to manufacture the SonoFlux System by leasing additional production space in Milton, New York. In Fiscal 1994, the Company consolidated all of its operations at its Milton facility to improve efficiencies and reduce operating costs. The Company expended approximately $46,000 in Fiscal 1994 to acquire manufacturing equipment and to outfit the Milton facility to accommodate all phases of manufacturing. In Fiscal 1996, Fiscal 1995 and Fiscal 1994, the Company expended approximately $1,000, $12,000 and $35,000 respectively to acquire manufacturing and quality control equipment, and to upgrade electrical services at the Milton facility. The Company's manufacturing area consists of (i) a machine shop, (ii) a 8 nozzle assembly/test area, (iii) an electronics assembly area, (iv) a SonoFlux assembly area, and (v) a receiving and shipping area. The machine shop produces machined parts for nozzle systems, components for development projects and custom parts to satisfy unique customer requirements. It is believed that all of these services could be obtained at numerous local machine shops if required. The nozzle assembly and test area assembles the machined components of the nozzle with purchased crystals and electrodes, and after a visual inspection and aging period, subjects the nozzle to test procedures to assess its performance characteristics. In the electronics assembly area, assembled electronic circuit boards, pumps, and power supplies are mounted in sheet metal enclosures and suitably wired to provide interconnections between the individual components and sub-assemblies. Certain electronic circuit boards are also purchased. The circuit boards and the components that populate them are available from a wide range of suppliers throughout the world, as are the sheet metal components. The SonoFlux assembly area combines the assembled modules from the electronics assembly area, the assembled and tested ultrasonic nozzle, and additional sheet metal and wiring to complete a finished SonoFlux system. Other parts, including pumps used in the Nozzle Systems or the SonoFlux System are purchased as finished units from various suppliers. All raw materials used in the Company's products are readily available from many different domestic suppliers. The Company provides a limited warranty of the Nozzle Systems and SonoFlux Systems for parts and labor for a period of one year from the date of sale, except for certain consumable parts or moving parts of the SonoFlux System (such as conveyors, motors, pumps, etc.) for which the warranty period is ninety days. The Company maintains comprehensive general liability insurance in an amount which it believes is adequate for the nature of its operations. Patents - ------- The Company's present and proposed business is based in part on the technology covered by ten United States patents held by the Company. Patent applications based on the United States applications covering fundamental aspects of the technology developed by the Company have been issued or are pending in several foreign jurisdictions. Such patents expire during the period of May 1996 through December 2007. The Company's earliest patent on its central-bolt nozzle design, used in current product offerings, is due to expire in October 1999. The aforementioned patent, due to expire in May 1996, is no longer part of the Company's product line. The Company has been granted a patent on the spray assembly portion of its SonoFlux System, which will expire in June, 2010. The Company has also filed an application for a patent covering the photoresist spray deposition process. (See product development - "wafer coating system"). However, there can be no assurance that the Company's existing patents will, if challenged, be upheld, or that any such patents will afford the necessary degree of patent protection with respect to the Nozzle Systems. Furthermore, due to the high cost of maintaining patents in several foreign jurisdictions, the Company determined not to maintain its patent protection in 9 certain countries in which the Company believes the protection is no longer required. During the Fiscal years ended February 29, 1996 and February 28, 1995 the Company abandoned certain patents it held in foreign countries. The book value of such patents was approximately $13,000 and $27,000 respectively. There can be no assurance that events will not occur which, as a result of the Company's failure to maintain its patent protection, would have a material adverse affect on the Company's sales in such foreign jurisdictions. In addition, the Company may be unable, for financial or other reasons, to enforce its rights under its patents. The Company also relies on unpatented know-how in the production of its Nozzle Systems. Management is aware of one other company that has developed a nozzle that operates in a manner similar to the nozzle that is part of the Company's Nozzle Systems. This company has access to significant financial resources. There can be no assurance, however, that this company will not develop additional nozzle designs and thus expand the applications of its nozzles. Moreover, technological advances have evolved in the nozzle industry and there can be no assurance that these companies or other entities with far greater resources and capabilities than the Company will not develop products competitive with the Company's Nozzle System. (See "Competition"). Competition - ----------- Nozzle Systems are sold primarily to customers that require specific performance characteristics which the Company believes are not attainable using competing methods, such as Conventional Nozzles or other coating methods. At present, management is aware of only one other company that manufactures nozzles that operate in a manner similar to the nozzle that is part of the Company's Nozzle Systems. This company possesses significant financial resources. (See "Patents"). There can be no assurance, however, that other manufacturers, including well-established companies that have substantially greater financial and other resources than the Company, will not seek to compete with the Company in producing specialized nozzles in the future. If such companies decide to enter into the specialized nozzle business, there can be no assurance that the Company will be able to successfully compete with them. In the electronic fabrication area, the Company's SonoFlux System competes with other companies, all of which use either Conventional Nozzles or the ultrasonic nozzles of the Company's main competitor in the production of specialized nozzles. Although management believes that it has competed against such companies successfully in the past, there can be no assurance that these results will continue. In addition, there can be no assurance that other companies, including well-established companies that have substantially greater financial and other resources than the Company, will not seek to compete with the Company in the electronic assembly industry or that the Company will be able to compete successfully with them if such companies decide to enter into that business. Employees - --------- As of May 17, 1996, the Company had 26 full-time employees. 10 (d) Financial Information about Foreign and Domestic Operations -------------------------------------------------------------- and Export Sales ---------------- Sales to foreign customers accounted for approximately $744,000 or 27% of total revenue in Fiscal 1996, $739,000 or 30% in Fiscal 1995 and $1,324,000 or 45% in Fiscal 1994. Approximately $117,000 and $155,000 of this amount represents sales to an affiliate of Becton Dickinson located in England in Fiscal 1996, and Fiscal 1994, respectively. There were no sales to this customer in Fiscal 1995. During Fiscal 1994, the Company consolidated its distributor and OEM network in Europe and the Far East eliminating unprofitable or nonproductive relationships. During Fiscal 1996 the Company reduced its selling efforts in the European and Far East markets and focused on the North American market. As a result, the Company received orders from distributor and OEM agents in the Far East of approximately $169,000 in Fiscal 1996, $451,000 in Fiscal 1995 and $674,000 in Fiscal 1994. In Europe, orders received totalled approximately $81,000, $189,000 and $421,000 during Fiscal 1996, 1995 and 1994 respectively. During Fiscal 1992 the Company began to utilize independent sales representatives or sales representative companies throughout North America (including parts of Canada and Mexico) to sell SonoFlux equipment on a commission basis and continued to do so through Fiscal 1996. (e) Backlog ------- The backlog for the Company's products was $150,321 as of February 29, 1996 and $145,187 as of February 28, 1995. The Company anticipates that it will ship all of its February 29, 1996 backlog during Fiscal 1997. ITEM 2 Properties - ------ The Company's office, product development, manufacturing and assembly facilities are located in one building consisting of 13,200 square feet of space at 2012 Route 9W, Building 3, Milton, New York. The Company leases these facilities pursuant to a lease which expires January 31, 1997. The Company has the option at the end of the lease term to renew the lease for an additional five year period at annual rental rates comparable to the Company's current payments. The Company believes that this facility is adequate for its needs for the foreseeable future. ITEM 3 Legal Proceedings - ------ None ITEM 4 Submission of Matters to a Vote of Security Holders - ------ None 11 PART II ITEM 5 Market for Registrant's Common Equity and Related Stockholder - ------ Matters. (a) The Company's Common Stock trades in the over-the-counter market on the OTC Bulletin Board. The following table sets forth the range of high and low closing bid quotations for the Company's Common Stock for the periods indicated as furnished by the National Quotations Bureau, Incorporated. FISCAL YEAR ENDED FEBRUARY 28, FEBRUARY 29, 1995 1996 HIGH LOW HIGH LOW First Quarter 3/4 1/8 5/8 10/32 Second Quarter 1 1/8 1/4 13/16 11/32 Third Quarter 3/4 1/16 9/16 1/4 Fourth Quarter 5/8 1/16 1 1/4 1/4 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 may not be an established public trading market for the Company's Common Stock. (b) As of May 17, 1996 there were 304 record holders of the Company's Common Stock. (c) The Company has not paid any cash dividends on its Common Stock since its inception and intends to retain earnings, if any, for use in its business or for other corporate purposes. ITEM 6 Selected Financial Data1 (1) - ------ Year Ended 02/29/96 02/28/95 02/28/94 02/28/93 02/29/92 - ---------- -------- -------- -------- -------- -------- Net Sales $2,747,891 $2,548,363 $2,943,553 $2,513,085 $2,324,049 Income (Loss) Before Extra- ordinary Item $ 155,078 $ (483,050) $ (41,543) $ (576,998) $ (393,292) Net Income (Loss) $ 155,078 $ (483,050) $ 89,009 $ (576,998) $ (393,292) - -------- (1) Should be read in conjunction with the Financial Statements and Notes thereto. 12 Year Ended 02/29/96 02/28/95 02/28/94 02/28/93 02/29/92 - ---------- -------- -------- -------- -------- -------- Income (Loss) Per Common Share: Before Extra ordinary Item $ 0.04 $ (0.12) $ (0.01) $ (0.15) $ (0.10) Extraordinary 0.03 Item Net Income (Loss) $ 0.04 $ (0.12) $ 0.02 $ (0.15) $ (0.10) Total Assets $1,199,717 $1,211,161 $1,635,715 $1,275,599 $1,305,314 Long-Term Liabilities $ 668,082 $ 775,816 $ 866,084 $ 42,662 $ 16,387 Cash Dividends None None None None None Weighted Average Number of Shares of Common Stock Outstanding 4,204,913 3,876,146 3,872,000 3,784,000 3,754,000 ITEM 7 Management's Discussion and Analysis of Financial Condition and - ------ Results of Operations Capital Resources and Liquidity ------------------------------- On February 29, 1996, the Company had working capital of $312,811 and a capital deficiency of $193,917. This compares to working capital of $194,039 and a capital deficiency of $348,995 on February 28, 1995. The increase in working capital and the reduction of the Company's capital deficiency is primarily a result of the Company' s profitable operations during Fiscal 1996. The improvement in working capital has allowed the Company to make steady progress in its efforts to reduce outstanding debt and, while the Company has improved its position with many of its trade vendors, payments remain in arrears with many others. During Fiscal 1996 the Company reduced obligations to its suppliers, bank and other creditors by approximately $160,000. This has improved the Company's ability to procure production materials and supplies, and to more efficiently market its product. Additionally, the Company, in November 1995, resumed interest payments to the holders of its convertible secured promissory notes issued in November 1993. Interest payments due to these noteholders in May and August 1995, were not made constituting an act of default in accordance with the terms of the note. In April 1996 the Company and each noteholder agreed to an amendment that, among other things, waived the right of default and 13 remedies based on the Company's failure to make the interest payments due on May 15, 1995, August 15, 1995, and thereafter through and including February 15, 1997. In May 1996, the Company renegotiated the terms of its loan with the bank. Under the original terms of the loan the Company would have been obligated to pay the balance of approximately $135,000 on November 1, 1997. Under the new terms of the loan, the Company will continue to make monthly payments until the balance is paid in full. The Company's Convertible Secured Subordinated Notes mature on August 15, 1997, and the Company may experience substantial difficulties meeting these obligations unless the level of profitability improves substantially prior to the maturity date of the notes or unless the noteholders agree to extend the repayment terms of the note. There can be no assurance that such extensions can be negotiated or that such extensions will be on terms as favorable to the Company as those presently in effect. During Fiscal 1996 the Company introduced to the market its new generation of the SonoFlux System that is used in the electronics industry for the application of flux to printed circuit boards during their manufacture. This new system has been well received by the electronics industry as is evidenced by an increase in the frequency of orders for multiple units. In addition, the Company has realized a tenfold reduction in warranty costs as compared to earlier generations of the SonoFlux System. If qualification testing proves successful, the Company anticipates the introduction in Fiscal 1997 of a Wafer Coating System to be used in the semiconductor industry for the application of photoresist to semiconductor wafers. Although there can be no assurances, management believes that these new products, will lead to broader markets and continued increases in sales and profits, which will in turn allow the Company to continue to meet its current obligations as they become due. Results of Operations - 1996 Compared to 1995 - --------------------------------------------- In Fiscal 1996 The Company had net earnings of $155,078 or $.04 per share as compared to a net loss of $483,050 or $.12 per share for Fiscal 1995. The increase in earnings was primarily a result of increased sales of the Company's Nozzle Systems as well as a decrease in cost of goods sold, marketing and selling expenses, and general and administrative costs. The Company's sales increased $199,528 or 8% from $2,548,363 for Fiscal 1995 to $2,747,891 for Fiscal 1996. The increase in sales resulted primarily from an increase in sales of the Company's Nozzle Systems. Sales of this product increased $400,985 or 66% from $607,447 during Fiscal 1995 to $1,008,432 during Fiscal 1996. A significant portion of the increase in sales of the Company's Nozzle Systems is attributed to a significant customer in the medical industry. This customer did not purchase any Nozzle Systems during Fiscal 1995. Sales to this customer, Becton Dickinson & Co.,whose purchases are normally large and sporadic, accounted for $237,750 or 9% of the Company's sales during Fiscal 1996 as compared to sales of $123,851 or 5% the Company's sales during Fiscal 1995. Fiscal 1995 sales to this customer were comprised entirely of repairs to existing Nozzle Systems. Although there can be no assurances, management believes that Becton Dickinson will continue to remain an active customer and may account for a significant portion of the revenues of the Company in the future. 14 Sales of the SonoFlux product line decreased $201,257 or 10% from $1,940,716 in Fiscal 1995 to $1,739,459 in Fiscal 1996. Sales of the Company's SonoFlux System had increased steadily since its introduction in Fiscal 1992 and continued to increase through Fiscal 1994. In Fiscal 1995, however, the Company's sales of SonoFlux Systems began to decline as a result of increased competitive pressures. Although there can be no assurances, the Company believes that its new generation of SonoFlux Systems, the "9500" will enable it to compete more effectively in the marketplace. The Company's gross profit increased $468,259 or 44% from $1,068,340 in Fiscal 1995 to $1,536,599 in Fiscal 1996. The increase in gross profit is a result of an increase in sales of the Company's products as well as a change in product mix. Sales of Nozzle Systems, which realize a higher gross margin than SonoFlux Systems, comprised 37% of sales in Fiscal 1996 as compared to 24% of sales during Fiscal 1995. Additionally, the Company realized a decrease of approximately $83,000 in warranty costs associated with its SonoFlux System. The decrease is a result of the improved performance and reliability of the Company's new generation of SonoFlux System, the "9500". Research and development costs increased $51,458 or 16% from $328,484 in Fiscal 1995 to $379,942 in Fiscal 1996. The increase was a result of increased prototype and consulting costs associated with the development of, and enhancements to the SonoFlux 9500, as well as the new Wafer Coating System to be used in the semiconductor industry for the application of photoresist to semiconductor wafers. Marketing and selling costs decreased $46,203 or 7% from $680,600 in Fiscal 1995 to $634,397 in Fiscal 1996. The decrease was primarily a result of decreased travel costs. Such costs decreased as a result of the Company's decision to redirect its sales efforts from Europe and the Far East to the North American market. General and administrative costs decreased $142,427 or 28% from $501,569 in Fiscal 1995 to $359,142 in Fiscal 1996. The decrease resulted primarily from a decrease in bad debt expense. During Fiscal 1996 the Company has substantially reduced its reserve for uncollectable accounts as a result of the decrease in receivables represented by higher risk Far East and European accounts. A decrease in compensation, amortization and professional fees all contributed to the reduction in general and administrative costs. Inflation and changing prices did not have a material effect on the Company's operation in the Fiscal 1996, 1995, or 1994 periods. Results of Operations - 1995 Compared to 1994 - --------------------------------------------- In Fiscal 1995 The Company incurred a net loss of $483,050 or $.12 per share as compared to net earnings of $89,009 or $.02 per share for Fiscal 1994. The decrease in earnings was primarily a result of decreased sales of the Company's products. 15 The Company's sales decreased $395,190 or 13% from $2,943,553 for Fiscal 1994 to $2,548,363 for Fiscal 1995. The decrease in sales resulted primarily from a decrease in sales of the Company's Nozzle Systems. Sales of this product decreased $270,998 or 31% from $878,445 in Fiscal 1994 to $607,447 during Fiscal 1995. A significant portion of the decrease in sales of the Company's Nozzle Systems is attributed to a significant customer in the medical industry for whom the Company filled a large order during the first quarter of Fiscal 1994. This customer, whose purchases are normally large and sporadic, did not purchase any Nozzle Systems during Fiscal 1995. Sales to this customer, Becton Dickinson & Co., accounted for $123,851 or 5% of the Company's sales during Fiscal 1995 as compared to sales of $300,175 or 10% of the Company's sales during Fiscal 1994. Fiscal 1995 sales to this customer were comprised entirely of repairs to existing Nozzle Systems. Sales of the SonoFlux product line decreased $123,192 or 6% from $2,063,908 in Fiscal 1994 to $1,940,716 in Fiscal 1995. Sales of the Company's SonoFlux System had increased steadily since its introduction in Fiscal 1992 and continued to increase through Fiscal 1994. In Fiscal 1995, however, the Company's sales of SonoFlux Systems began to decline as a result of increased competitive pressures. The Company's gross profit decreased $512,446 or 32% from $1,580,786 in Fiscal 1994 to $1,068,340 in Fiscal 1995. The decrease in gross profit was a result of a decrease in sales of the Company's products as well as a change in product mix. Sales of SonoFlux Systems, which realize a lower gross margin than sales of the Company's Nozzle Systems, comprised 76% of sales in Fiscal 1995 as compared to 70% of sales during Fiscal 1994. Research and development costs increased $64,730 or 25% from $263,754 in Fiscal 1994 to $328,484 in Fiscal 1995. The increase was a result of increased prototype and consulting costs associated with the development of the SonoFlux 9500 Ultra, as well as the new Wafer Coating System to be used in the semiconductor industry for the application of photoresist to semiconductor wafers. Marketing and selling costs increased $42,655 or 7% from $637,945 in Fiscal 1994 to $680,600 in Fiscal 1995. The increase was primarily a result of increased travel costs. Such costs increased as a result of the Company's efforts to establish new business in the Far East and the need to increase its efforts domestically to meet increased competition. General and administrative costs decreased $115,009 or 19% from $616,578 in Fiscal 1994 to $501,569 in Fiscal 1995. The decrease resulted primarily from a decrease in compensation and occupancy costs. Compensation costs decreased as a result of the absense of bonus expense in Fiscal 1995, a reduction in personnel, and the reclassification of the salary of the Company's President and principal engineer to research and development costs. Occupancy costs decreased as a result of the consolidation of the Company's operations in Milton, New York during the fourth quarter of Fiscal 1994. Prior to that time the Company was operating out of two locations which resulted in a greater share of these costs charged to administration. 16 ITEM 8 Financial Statements and Supplementary Data - ------ Financial information required by Item 8 is included elsewhere in this report. (See Part IV, Item 14.) ITEM 9 Changes in and Disagreements with Accountants on Accounting - ------ and Financial Disclosure None. PART III ITEM 10 Directors and Executive Officers of the Registrant - ------- (a) Identification of Directors --------------------------- Name Age Position with Company ---- --- --------------------- Dr. Harvey L. Berger 57 President and Director Stephen E. Globus 48 Director James L. Kehoe 49 Chief Executive Officer and a Director Samuel Schwartz 76 Chairman and a Director J. Duncan Urquhart 42 Controller, Treasurer, and a Director Dr. Berger has been a Director of the Company since June 1975. Mr. Kehoe has been a Director since June 1991. Mr. Schwartz has been a Director since August 1987. Mr. Urquhart has been a Director since September 1988 and Mr. Globus has been a Director since August 1995. The board of directors is divided into two classes, which were established by the Company's shareholders at their annual meeting held on October 19, 1989. The directors in each class serve for a term of two years, and until their respective successors are duly elected and qualified. The terms of the classes are staggered so that only one class of directors is elected at each annual meeting of the Company. The terms of Messrs. Kehoe, Schwartz, and Urquhart will be until the annual meeting to be held in 1996, and the terms of Dr. Berger and Mr. Globus will be until 1997, and in each case until their respective successors are elected and qualified. (b) Identification of Executive Officers ------------------------------------ Name Age Position with the Company ---- --- ------------------------- Dr. Harvey L. Berger 57 President and a Director James L. Kehoe 49 Chief Executive Officer and a Director 17 Samuel Schwartz 76 Chairman and a Director J. Duncan Urquhart 42 Controller, Treasurer, and a Director Dr. Berger was Vice Chairman of the board from March 1981 to September 1985. He was President from November 1981 to September 1984 and again became President in September 1985. From September 1986 to September 1988 he also served as Treasurer. Mr. Kehoe has served as Chief Executive Officer since August 1993. Mr. Schwartz has served as Chairman of the Board since February 1993. Mr. Urquhart has served as Treasurer since September 1988 and as Controller since January 1988. The foregoing officers are elected for terms of one year; or until their successors are duly elected and qualified or until terminated by the action of the board of directors. There are no arrangements or understandings between any executive officer and any other persons(s) pursuant to which he was or is to be selected as an officer. (c) Family Relationships -------------------- None. (d) Business Experience ------------------- DR. HARVEY L. BERGER has been a Director of the Company since June 1975. He was President of the Company from November 1981 to September 1984. He has again been President of the Company since September 1985. From September 1986 to September 1988 he also served as Treasurer. He was Vice Chairman of the Company from March 1981 to September 1985. He holds a Ph.D. in physics from Rensselaer Polytechnic Institute and is a member of the Marist College Advisory Board. JAMES L. KEHOE has been a Director of the Company since June, 1991 and Chief Executive Officer of the Company since August 1993. Prior to that, he was President and Chief Executive Officer of Plasmaco, Inc., which he founded in 1987 and remained as President and CEO until 1993. Plasmaco is involved in the development and manufacture of AC plasma flat panel displays. Prior to founding Plasmaco, Mr. Kehoe was employed for twenty two years by International Business Machines Corporation where he held a variety of engineering and management positions. SAMUEL SCHWARTZ has been a Director of the Company since August 1987 and Chairman of the Board since February, 1993. From 1959 to 1992 he was the Chairman and CEO of Krystinel Corporation, a manufacturer of ceramic magnetic components used in electronic circuitry. He received a B.CH.E. from Rensselaer Polytechnic Institute in 1941 and a M.CH.E. from New York University in 1948. J. DUNCAN URQUHART has been the Controller of the Company since January 1988 and the Treasurer of the Company since September 1988. From 1976 to 1987, Mr. Urquhart was employed by Standex International Corporation, a multi-national 18 Fortune 600 company. In 1978, Standex acquired James Burn International, a manufacturer of specialized products and machinery for the bookbinding industry where Mr. Urquhart served as Chief Accountant, Assistant Controller and, from 1985 through 1987, as Controller. Mr. Urquhart has been a Director of the Company since September 1988. ITEMS 11, 12, and 13 - -------------------- The information required by these items, to the extent not incorporated by reference from the Company's definitive proxy statement, will be contained in an amendment to this Form 10-K which will be filed not later than 120 days after the end of the fiscal year covered by this Form 10-K, as provided by General Instruction G(3). PART IV ITEM 14 Exhibits, Financial Statement Schedules, and Reports on Form - ------- 8-K (a)(1) The financial statements and schedules listed in the accompanying "Index to Financial Statements" are filed as a part of this annual report. (2) See (a)(1) above. (3) Exhibits Ex. No. Description - ------ ----------- 3(a)6 Certificate of Incorporation of the Company and all amendments thereto. 3(b)1 By-laws of the Company as amended. 4(a)6 Form of Convertible Note. 4(b)3 Form of Warrant. 4(c)3 Master Security Agreement. 4(d)3 Long term debt letter from The Bank of New York including Note for $300,000. 4(e) The Company agrees to furnish a copy of the Notes and obligations arising from the settlement of trade and lease payables and the capital leases referred to in the Company's financial statements to the Commission upon request. 4(f)8 Form of 1995 Amendment to Convertible Note. 4(g) Form of 1996 Amendment to Convertible Note *10(a)6 Employment Agreement dated October 14, 1993 between the Company and Dr. Harvey L. Berger. *10(b)2 1983 Incentive Stock Option Plan as amended. 10(c)5 Lease for the Company's facilities in Milton, NY dated July 19, 1991. 19 10(d)5 Amendment No. 1 to Milton, NY lease dated December 27, 1991. 10(e)6 Amendment No. 2 to Milton, NY lease dated January 22, 1992. 10(f)6 Letter of Agreement dated April 4, 1994 to cancel lease in Poughkeepsie, NY and Promissory Note dated March 28, 1994. *10(g)9 Letter of Agreement between the Company and J. Duncan Urquhart *10(h)7 1993 Stock Incentive Plan as amended. *10(i)6 Employment Agreement between the Company and James L. Kehoe dated August 16, 1993. *10(j)6 Consulting agreement between the Company and Samuel Schwartz dated March 1, 1993. 27.1 Financial Data Schedule. EDGAR filing only * Management Contract or Compensory Plan. 1 Incorporated herein by reference to the Company's Registration Statement on Form S-18, File No. 33-10138NY, effective March 6, 1987. 2 Incorporated herein by reference to the Company's Registration Statement on Form S-8, File No. 33-34062, effective April 16, 1990. 3 Incorporated herein by reference to the Company's Form 10-Q Quarterly Report of the quarter ended November 30, 1993. 4 Incorporated herein by reference to the Company's Form 10-K for the year ended February 28, 1991. 5 Incorporated herein by reference to the Company's Form 10-K for the year ended February 29, 1992. 6 Incorporated herein by reference to the Company's Form 10-K for the year ended February 28, 1994. 7 Incorporated herein by reference to the Company's Form 10-Q quarterly report for the quarter ended August 31, 1994. 8 Incorporated herein by reference to the Company's Form 10-K for the year ended February 28, 1995. 9 Incorporated herein by reference to the Company's Form 10-Q quarterly report for the quarter ended August 31, 1995. (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. 20 SONO-TEK CORPORATION FORM 10-K ITEMS 8 AND 14(d) INDEX TO FINANCIAL STATEMENTS AND SCHEDULES FOR THE YEAR ENDED FEBRUARY 29, 1996 INDEPENDENT AUDITORS' REPORTS - 1996, 1995 AND 1994 FINANCIAL STATEMENTS (ITEM 8): Balance Sheets at February 29, 1996 and February 28, 1995 Statements of Operations For the Years Ended February 29, 1996 and February 28, 1995 and 1994 Statements of Shareholders' Equity (Deficiency) For the Years Ended February 29, 1996 and February 28, 1995 and 1994 Statements of Cash Flows For the Years Ended February 29, 1996 and February 28, 1995 and 1994 Notes to the Financial Statements INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULES - 1996, 1995 AND 1994 FINANCIAL STATEMENTS SCHEDULES (ITEM 14(d) SCHEDULES INCLUDED): Schedule II - Valuation and Qualifying Accounts All other schedules have been omitted because the conditions requiring their filing do not exist or because the required information is given in the financial statements, including the notes. 21 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND DIRECTORS OF SONO-TEK CORPORATION: We have audited the accompanying balance sheets of Sono-Tek Corporation as of February 29, 1996 and February 28, 1995 and the related statements of operations, shareholders' equity (deficiency) and cash flows for each of the three years in the period ended February 29, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sono-Tek Corporation at February 29, 1996 and February 28, 1995, and the results of its operations and its cash flows for each of the three years in the period ended February 29, 1996 in conformity with generally accepted accounting principles. As discussed in Note 2 to the financial statements, the Company changed its method of accounting for income taxes during the year ended February 28, 1994. ANCHIN, BLOCK & ANCHIN LLP CERTIFIED PUBLIC ACCOUNTANTS New York, New York April 30, 1996 except for Note 5 as to which the date is May 28, 1996 22 SONO-TEK CORPORATION BALANCE SHEETS
A S S E T S - NOTE 5 February 29, February 28, 1996 1995 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents - Note 2 $ 69,033 $ 67,804 Accounts receivable (net of allowance for doubtful accounts of $25,000 in 1996 and $63,000 in 1995) 462,115 350,185 Inventories - Notes 2 and 3 477,381 490,571 Receivable for common stock issued - Note 9 -- 25,000 Prepaid expenses and other current assets 29,834 44,819 ----------- ----------- Total Current Assets 1,038,363 978,379 Equipment, furnishings and leasehold improvements (less accumulated deprecation and amortization of $368,087 in 1996 and $301,113 in 1995) - Notes 2 and 4 95,861 151,873 Patents, patents pending and copyrights (less accumulated amortization of $114,372 in 1996 and $120,951 in 1995) - Note 2 59,176 74,992 Other assets 6,317 5,917 ----------- ----------- TOTAL ASSETS $ 1,199,717 $ 1,211,161 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Current maturities of long term debt - Note 5 $ 128,779 $ 127,145 Accounts payable 233,810 335,242 Accrued expenses - Note 6 362,963 321,953 ----------- ----------- Total Current Liabilities 725,552 784,340 Long-term debt, less current maturities - Note 5 657,865 754,449 Noncurrent rent payable 10,217 21,367 ----------- ----------- Total Liabilities 1,393,634 1,560,156 ----------- ----------- COMMITMENTS - NOTE 7 SHAREHOLDERS' EQUITY (DEFICIENCY) - NOTES 7, 9, 10 AND 11: Common stock - $.01 par value: Authorized - 12,000,000 shares - 4,204,913 shares in 1996 and 1995 42,049 42,049 Additional paid-in capital 3,758,128 3,758,128 Deficit (3,994,094) (4,149,172) ----------- ----------- Total Shareholders' Deficiency (193,917) (348,995) ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) $ 1,199,717 $ 1,211,161 =========== =========== See the accompanying Notes to the Financial Statements.
23 SONO-TEK CORPORATION STATEMENTS OF OPERATIONS
Y e a r s E n d e d ----------------------------------------- February 29, February 28, February 28, 1996 1995 1994 NET SALES $ 2,747,891 $ 2,548,363 $ 2,943,553 COST OF GOODS SOLD 1,211,292 1,480,023 1,362,767 ----------- ----------- ----------- GROSS PROFIT 1,536,599 1,068,340 1,580,786 ----------- ----------- ----------- OPERATING EXPENSES: Research and product development costs - Note 2 379,942 328,484 263,754 Marketing and selling expenses 634,397 680,600 637,945 General and administrative costs 359,142 501,569 616,578 Lease termination costs - Note 7 -- -- 92,668 ----------- ----------- ----------- Total Operating Expenses 1,373,481 1,510,653 1,610,945 ----------- ----------- ----------- OPERATING PROFIT (LOSS) 163,118 (442,313) (30,159) INTEREST EXPENSE 68,400 63,935 37,282 INTEREST AND OTHER INCOME 60,360 23,198 4,498 ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 155,078 (483,050) (62,943) BENEFIT FROM INCOME TAXES - NOTE 8 -- -- 21,400 ----------- ----------- ----------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 155,078 (483,050) (41,543) EXTRAORDINARY ITEM: Gain on settlement of accounts and compensation payable (less applicable income taxes of $25,100) - Notes 7 and 13 -- -- 130,552 ----------- ----------- ----------- NET INCOME (LOSS) $ 155,078 $ (483,050) $ 89,009 =========== =========== =========== INCOME (LOSS) PER COMMON SHARE: Before extraordinary item $ 0.04 $ (0.12) $ (0.01) =========== =========== =========== Extraordinary item $ -- $ -- $ 0.03 =========== =========== =========== Net income (loss) $ 0.04 $ (0.12) $ 0.02 =========== =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING USED TO COMPUTE EARNINGS (LOSS) PER SHARE - NOTE 2 4,204,913 3,876,146 3,872,000 =========== =========== ========== See the accompanying Notes to the Financial Statements.
24 SONO-TEK CORPORATION STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995 AND 1994
Common Stock Par Value $.01 Total ------------------------ Additional Shareholders' Paid-In Equity Shares Amount Capital (Deficit) (Deficiency) ----------- ----------- ----------- ----------- ------------ Balance - February 28, 1993 3,871,580 $ 38,716 $ 3,661,461 $(3,755,131) $ (54,954) Net Income -- -- -- 89,009 89,009 ----------- ----------- ----------- ----------- ----------- Balance - February 28, 1994 3,871,580 38,716 3,661,461 (3,666,122) 34,055 Net loss -- -- -- (483,050) (483,050) Shares issued 333,333 3,333 96,667 -- 100,000 ----------- ----------- ----------- ----------- ----------- Balance - February 28, 1995 4,204,913 42,049 3,758,128 (4,149,172) (348,995) Net Income -- -- -- 155,078 155,078 ----------- ----------- ----------- ----------- ----------- Balance - February 29, 1996 4,204,913 $ 42,049 $ 3,758,128 $(3,994,094) $ (193,917) =========== =========== =========== =========== =========== See the accompanying Notes to the Financial Statements.
25 SONO-TEK CORPORATION STATEMENTS OF CASH FLOWS
Y e a r s E n d e d ----------------------------------- February 29, February 28, February 28, 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 155,078 $(483,050) $ 89,009 --------- --------- --------- Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 75,197 90,087 85,843 Allowance for doubtful accounts (38,000) 18,980 24,000 Loss on disposition of fixed assets and intangibles 13,200 27,400 21,132 Gain on settlement of accounts and compensation payable -- -- 155,652 (Increase) decrease in: Accounts receivable (73,930) 300,435 (323,936) Inventories 13,190 31,298 (18,975) Prepaid expenses and other current assets 14,985 9,064 30,657 Other assets (400) (600) 1,849 Increase (decrease) in: Accounts payable and accrued expenses (60,422) 99,415 (509,513) Noncurrent rent payable (11,150) (3,573) (2,205) Notes and obligations payable - professional fees (10,000) (48,000) 90,625 Notes and obligations payable - lease termination (21,407) (45,034) 89,354 --------- --------- --------- Total adjustments (98,737) 479,472 (355,517) --------- --------- --------- Net Cash (Used in) Provided by Operating Activities 56,341 (3,578) (266,508) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Fixed asset, patent and copyright acquisition costs (16,569) (30,177) (123,014) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of short-term bank loans -- -- (70,000) Payments of capitalized leases (8,827) (7,305) (3,882) Repayments of note payable, bank (54,716) (37,007) (8,924) Proceeds from sale of convertible notes -- -- 530,000 Proceeds from sale of common stock 25,000 75,000 -- --------- --------- --------- Net Cash (Used in) Provided by Financing Activities (38,543) 30,688 447,194 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,229 (3,067) 57,672 CASH AND CASH EQUIVALENTS: Beginning of year 67,804 70,871 13,199 --------- --------- --------- End of year $ 69,033 $ 67,804 $ 70,871 ========= ========= ========= SUPPLEMENTAL DISCLOSURE: Interest paid $ 43,742 $ 38,123 $ 35,471 Income taxes paid $ -- $ 7,505 $ 118 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Receivable for common stock issued $ -- $ 25,000 $ -- Conversion of short-term bank loan to term debt $ -- $ -- $ 300,000 See the accompanying Notes to the Financial Statements.
26 SONO-TEK CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - NATURE OF BUSINESS: The Company is engaged in the development, manufacture, assembly and sale of ultrasonic liquid atomizing nozzle systems that atomize low to medium viscosity liquids used in industrial spraying. Sales are made in North America, Western Europe and the Far East primarily to fabricators of medical supplies and electronic components (See Note 12). NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Inventories: ------------ Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for raw materials, subassemblies and work-in-progress and the specific identification method for finished goods. Equipment, Furnishings and Leasehold Improvements: -------------------------------------------------- Equipment, furnishings and leasehold improvements are stated at cost. Depreciation of equipment and furnishings is computed on the straight-line method over their estimated useful lives of five to ten years. Leasehold improvements are being amortized on the straight-line method over the lesser of the life of the underlying lease or their estimated useful lives of two to five years. Product Warranty: ----------------- Expected future product warranty expense is recorded when the product is sold. Patent Costs and Copyrights: ---------------------------- Costs of patent applications are deferred and charged to operations over seventeen years for domestic patents and twelve years for foreign patents. However, if it appears that such costs are related to products which are not expected to be developed for commercial application within the reasonably foreseeable future, or are applicable to geographic areas where the Company no longer requires patent protection, they are written-off to operations. Copyright costs are deferred and amortized over their expected useful life of five years. Research and Product Development Costs: --------------------------------------- Research and product development costs represent engineering and other expenditures incurred for developing new products, for refining the Company's existing products and for developing systems to meet unique customer specifications for potential orders or for new industry applications. Engineering costs directly applicable to the manufacture of existing products are included in cost of goods sold. 27 SONO-TEK CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Income Taxes: ------------- Effective March 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The statement requires the use of the asset and liability approach in the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. 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. Income (Loss) Per Common Share: ------------------------------- Income (loss) per common share is based on the weighted average number of shares outstanding during each of the periods presented. The computation does not include the effect of outstanding stock options or conversion of the subordinated promissory notes since their inclusion would be either not material or anti-dilutive. Cash and Cash Equivalents: -------------------------- Cash equivalents consist of money market mutual funds and short-term certificates of deposit with maturities of 90 days or less. Use of Estimates: ----------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Advertising Expense: -------------------- The Company expenses the cost of advertising in the period in which the advertising takes place. Advertising expense for the years ended February 29, 1996 and February 28, 1995 and 1994 was $94,902, $92,804 and $106,361, respectively. Long-Lived Assets: ------------------ In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses for assets held and used to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt the Statement in the first quarter of 1997 and, based on current circumstances, does not believe the effect of adoption will be material. 28 SONO-TEK CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Stock-Based Employee Compensation: ---------------------------------- The Company accounts for stock-based compensation plans utilizing the provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees". In October of 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation". The Company is not required to adopt the provisions of SFAS 123 until the year beginning in 1996. Under SFAS 123, companies are allowed to continue to apply the provisions of APB 25 to their stock-based employee compensation arrangements. As such, the Company will only be required to supplement its financial statements with additional disclosures in the year beginning 1996. NOTE 3 - INVENTORIES: Inventories consist of the following: February 29/28, --------------------- 1996 1995 Finished goods $102,688 $136,875 Work-in-process 137,800 119,432 Raw materials and subassemblies 236,893 234,264 ---------- --------- $477,381 $490,571 ========== ========= NOTE 4 - EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS: Equipment, furnishings and leasehold improvements consist of the following: February 29/28, --------------------- 1996 1995 Laboratory equipment $ 77,571 $ 70,179 Machinery and equipment 186,284 182,714 Furniture and fixtures 121,398 121,398 Leasehold improvements 78,695 78,695 ---------- --------- Totals 463,948 452,986 Less: Accumulated depreciation and amortization 368,087 301,113 ---------- --------- $ 95,861 $151,873 ========== ========= 29 SONO-TEK CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 5 - LONG-TERM DEBT: Long-term debt consists of the following:
February 29/28, ---------------------------------- 1996 1995 Note payable, bank, collateralized by accounts receivable, inventory and all inventory and all other personal property of the Company. As modified in May 1996 the note is payable in monthly installments, including interest at 2% over the bank's prime rate, of $6,500 through December 1, 1995, thereafter $7,500. The weighted average interest rate during fiscal 1996 was 10.2%. The loan has been personally guaranteed by the Company's President and a former Chairman and Chief Executive Officer of the Company. $199,353 $254,070 Convertible secured subordinated promissory notes with individuals, collateralized by all of the personal property 530,000 of the Company, and subordinate to the note payable to the bank or any successor credit facility up to $1,500,000. Payable in quarterly installments of interest at 1/2% under the prime rate in effect on August 15 each year until maturity on August 15, 1997. The interest rate currently in effect is 8.25%. Each $1,000 portion of these notes are convertible into 1,428 common shares of the Company and a warrant, which expires in August 2000, to purchase an additional 1,428 shares of common stock at $1.50 a share. These notes include $50,000 issued to the Company's Chairman of the Board. During the fiscal years 1995 and 1996 the noteholders have waived the default as to nonpayment of interest and have agreed to defer the quarterly payments of interest due November 15, 1994 to February 15, 1997 until March 1, 1997. 530,000 530,000 Notes and obligations arising from the settlement of trade and lease payables, due in varying monthly installments. The obligations include $22,913 at February 29, 1996 due to a partnership partially owned by an individual who was formerly the Company's Chairman of the Board and is believed to be a major shareholder. 55,538 86,945 Capital leases, payable in monthly installments, currently $538, with interest at various rates and maturing June 30, 1996. 1,753 10,579 --------- --------- 786,644 881,594 Due within one year 128,779 127,145 --------- --------- Due after one year $657,865 $754,449 ========= =========
30 SONO-TEK CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 5 - LONG-TERM DEBT (CONTINUED): Long-term debt is payable as follows: Fiscal Years Ending, -------------------- February 28, 1997 $128,779 February 28, 1998 605,157 February 28, 1999 52,708 --- ---- -------- $786,644 ======== Management has not determined the fair value of the debt due to the additional cost involved in obtaining an appraisal. NOTE 6 - ACCRUED EXPENSES: Accrued expenses consist of the following: February 29/28, ---------------------------- 1996 1995 Professional fees $ 85,198 $ 69,880 Estimated warranty costs 35,000 84,000 Accrued compensation 99,888 90,374 Accrued commissions 48,939 34,200 Accrued interest 53,427 28,769 Other accrued expenses 40,511 14,730 ------ ------ $362,963 $321,953 ======== ======== NOTE 7 - COMMITMENTS: Leases: ------- The Company leases an office and manufacturing facility under a lease that expires in January 1997. An amendment to the lease reduced the required payments from February 1993 through August 1994 in exchange for 50,000 shares of restricted Sono-Tek common stock which the company valued at $40,000. This amount was charged to operations over the period of reduced rents. The lease provides for a cancellation option with a cancellation payment of $5,000, and for a five year renewal option at annual rentals varying from $65,000 to $78,000. Future annual minimum payments through the end of the lease term are as follows: Fiscal Year Ending, ------------------- February 28, 1997 $ 65,000 31 SONO-TEK CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 7 - COMMITMENTS (CONTINUED): Leases (Continued): ------------------- Rent expense was approximately $60,000, $61,000 and $86,000 for the years ended February 29, 1996, February 28, 1995 and February 28, 1994, respectively. In August of 1993, the Company terminated a lease for a premise located in Poughkeepsie, New York with a partnership partially owned by a major shareholder and the Company's former Chairman of the Board. The original lease, which was to expire in October 1994, provided for annual rent payments of $64,700, plus real estate tax escalations. In October 1992, the required payments were reduced to $48,000 annually in exchange for 36,000 shares of restricted Sono-Tek common stock, which the Company valued at $28,800. The unamortized value of the common stock was charged to operations during the year ended February 28, 1994. Upon termination of the lease, the Company agreed to a payment of $89,780 (including past due rents) with $60,000 to be paid in installments, including interest, over 36 months beginning in May of 1994 (Note 5). Rent expense under this lease was approximately $27,000 for the year ended February 28, 1994. Employment Contracts: --------------------- The Company previously had employment contracts with its former Chairman of the Board and its President providing for annual minimum compensation of $100,000 each and additional incentive compensation based upon net profits, as defined, to December 1995. During the years ended February 28, 1993 and February 29, 1992, the executives agreed to defer salary payments of approximately $8,000 and $27,000, respectively. In July 1992, the executives agreed to reduce their salaries to an annual rate of $50,000 each until February 28, 1993. From March 1, 1993 to May 31, 1993, the Company's President received salary payments at an annual rate of $50,000; these payments were increased to an annual rate of $75,000 after May 31, 1993. Effective March 1, 1993, the Company discontinued all payments to its former Chairman of the Board. During the year ended February 28, 1994, these employment contracts were canceled and the deferred salary obligations were credited to the gain on settlement of accounts and compensation payable (Note 13). 32 SONO-TEK CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 8 - INCOME TAXES: The annual provision for income taxes differs from amounts computed by applying the maximum U.S. Federal income tax rate to the pre-tax income as follows: February 29, February 28, February 28, 1996 % 1995 % 1994 % ---- ---- ---- Computed tax at maximum rate $ 52,700 34.0 $(164,200) (34.0) $(21,400) (34.0) Operating loss cur- rently not deductible -- -- 164,200 34.0 -- -- State income taxes, net of Federal income tax effect -- -- -- -- 2,400 3.8 Change in valuation allowance for the effect of operating loss carry forwards (52,700) (34.0) -- -- (27,500) (43.7) Amount allocated to extraordinary item -- -- -- -- 25,100 39.9 -------- ------ --------- ------ -------- ------ Benefit for income $ -- -- $ -- -- $(21,400) (34.0) taxes ======== ====== ========= ====== ========= ====== The net deferred tax asset is comprised of the following: February 29/28, ----------------------------- 1996 1995 Allowance for doubtful accounts $ 10,000 $ 25,000 Accumulated depreciation 9,000 - Noncurrent rent payable 4,000 9,000 Accrued vacation 12,000 17,000 Accrued expenses 63,000 48,000 Operating loss carryforwards 1,430,000 1,547,000 --------- --------- Net deferred tax assets before valuation allowance 1,528,000 1,646,000 Deferred tax asset valuation allowance (1,528,000) (1,646,000) ---------- ---------- Net Deferred Tax Asset $ - $ - =========== =========== The change in the valuation allowance was ($118,000), $232,000 and $1,414,000 for the years ended February 29, 1996, February 28, 1995 and February 1994, respectively. 33 SONO-TEK CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 8 - INCOME TAXES (CONTINUED): At February 29, 1996, the Company has available operating loss carryforwards of approximately $3,574,000 for income tax purposes which expire as follows: 2000 $ 339,000 2001 156,000 2002 231,000 2003 301,000 2004 600,000 2005 to 2010 1,947,000 ---------- Total $3,574,000 ========== NOTE 9 - CAPITAL STOCK: During the year ended February 28, 1995, the Company sold a total of 333,333 shares of common stock to its Chairman of the Board (166,666 shares) and to a noteholder for the fair market value of $100,000. In connection with the sale of convertible secured subordinated promissory notes (Note 5), the authorized number of shares of common stock was increased to 12,000,000 during the year ended February 28, 1994. NOTE 10 - STOCK OPTIONS: Under the Company's 1983 Incentive Stock Option Plan, which expired in May 1993, options could be granted to officers and key employees to purchase up to 1,000,000 of the Company's common shares at not less than their fair market value at the date of grant. In March 1990, the Company filed a registration statement with the Securities and Exchange Commission to allow for the public resale of exercised options. Options to purchase 167,510 shares at $2 to $3.63 per share are outstanding at February 28, 1995 including options as to 151,000 shares which are exercisable, with the balance generally becoming exercisable in cumulative installments over the remainder of their ten year terms. During fiscal 1996 the outstanding options were cancelled. During the year ended February 28, 1995, the stockholders approved the 1993 Stock Incentive Plan. Under the plan options could be granted to officers, directors, consultants and employees to purchase up to 750,000 of the Company's common shares at not less than the fair market value at the date of the grant. Options to purchase 283,500 shares at $.38 per share are outstanding at February 29, 1996, including options as to 131,450 shares which are exercisable, with the balance becoming exercisable in cumulative installments over a three year period during their ten year terms. 34 SONO-TEK CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 10 - STOCK OPTIONS (CONTINUED): The options under the two plans are outstanding as follows: 1993 Plan 1983 Plan Outstanding Excercisable Outstanding Excercisable ----------- ------------ ----------- ------------ Balance March 1, 1993 557,500 454,000 Cancelled - Fiscal 1994 (190,000) - -------- -------- Balance February 28, 1994 367,500 306,500 Cancelled - Fiscal 1995 (199,990) - Granted - Fiscal 1995 291,000 - - - -------- -------- -------- -------- Balance February 28, 1995 291,000 50,000 167,510 151,000 Cancelled - Fiscal 1996 (60,000) - (167,510) - Granted - Fiscal 1996 52,500 - - - -------- -------- -------- -------- Balance February 29, 1996 283,500 131,450 - -
NOTE 11 - OTHER RELATED PARTY TRANSACTIONS: Consulting Fees: ---------------- During fiscal 1996, 1995, and 1994 the Company incurred $78,000 ($26,000) each year in consulting fees to its Chairman of the Board under an informal arrangement commencing March 1993. At February 29, 1996 and February 28, 1995, accounts payable includes a liability for these fees of $69,076 and $44,056, respectively. NOTE 12 - SIGNIFICANT CUSTOMERS AND FOREIGN SALES: Sales to a single customer accounted for approximately 11% and 10% of the Company's sales for the years ended February 28, 1995 and 1994. No single customer accounted for more than 10% of sales for the year ended February 29, 1996. Export sales to customers located outside the United States were as follows: Sales (Thousands) -------------------------------------------- February 29, February 28, February 28, 1996 1995 1994 Location -------- Western Europe $ 269 $ 178 $ 412 Far East 146 510 618 Other 329 51 294 --- --- --- $ 744 $ 739 $1,324 ===== ===== ====== NOTE 13 - EXTRAORDINARY ITEM: During the year ended February 28, 1994, the Company came to an agreement with a legal firm and certain employees whereby they forgave a portion of previously recorded liabilities due them for fees or compensation. The settlement gain on liabilities due to Company officers and a former officer totaled $40,238. 35 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULES TO THE SHAREHOLDERS AND DIRECTORS OF SONO-TEK CORPORATION: In connection with our audits of the financial statements of Sono-Tek Corporation as at February 29, 1996 and February 28, 1995 and for each of the three years in the period ended February 29, 1996, we also audited Schedule II for each of the three years in the period ended February 29, 1996, included in the annual report of Sono-Tek Corporation of Form 10-K for the year ended February 29, 1996. In our opinion, the schedule presents fairly the information required to be set forth therein. ANCHIN, BLOCK & ANCHIN LLP CERTIFIED PUBLIC ACCOUNTANTS New York, New York April 30, 1996 36 SCHEDULE II SONO-TEK CORPORATION VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E -------- -------- ---------------------- -------- -------- Additions ---------------------- Balance Charged to Charged Balance at Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions * of Period ----------- --------- -------- -------- ------------ --------- Allowance for doubtful accounts: Year Ended February 29, 1996 $ 63,000 $ (37,596) $ 404 $ 25,000 Year Ended February 28, 1995 54,070 18,980 10,050 63,000 Year Ended February 28, 1994 72,234 30,466 48,630 54,070 * Represents write-off net of recovery, of uncollectible accounts
37 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 28, 1996 Sono-Tek Corporation (Registrant) By: /S/ James L. Kehoe ------------------ James L.Kehoe Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /S/ Samuel Schwartz May 28, 1996 - --------------------- Samuel Schwartz Chairman of the Board /S/ James L. Kehoe May 28, 1996 - --------------------- James L. Kehoe Chief Executive Officer and Director /S/ Harvey L. Berger May 28, 1996 - --------------------- Harvey L. Berger President and Director /S/ J. Duncan Urquhart May 28, 1996 - ---------------------- J. Duncan Urquhart Treasurer (principal financial and accounting officer) and Director May 28, 1996 - --------------------- Stephen E. Globus Director 38 EXHIBIT INDEX Ex. No. Description Page - ------- ----------- ---- 4(g) Form of 1996 Amendment to Convertible Note. 40 27.1 Financial Data Schedule - Edgar filing only 39 EX-4 2 FORM OF 1996 AMENDMENT TO CONVERTIBLE NOTE SECOND NOTE AMENDMENT AGREEMENT Reference is made to that certain Convertible Secured Subordinated Note (the "Note") by and between Sono-Tek Corporation ("Sono-Tek" or the "Company") and (the "Holder") in the principal amount of $ made as of November 16, 1993 and to the NOTE AMENDMENT AGREEMENT made as of March 23, 1995. Whereas the Company has not paid four interest payments to Holder which were due on November 15, 1994, February 15, 1995, May 15, 1995, and August 15, 1995 in the amounts shown in Attachment I hereto, and Whereas the Company made the payments due on November 15, 1995 and February 15, 1996, and the Company anticipates it will continue to be able to make the interest payments as they become due Whereas the failure of the Company to make said interest payments on the dates due constitutes an act of default in accordance with the terms of the Note. The Company and the Holder hereby agree as follows: 1. From the date hereof until March 1, 1997, the Holder agrees to waive the right of default and will not seek any remedies against the Company provided in the Note based on the failure of the Company to pay, in a timely fashion, the interest payments due commencing on August 15, 1994, and continuing through and including February 15, 1997. 2. The Company will use its best efforts to make all future interest payments as they become due, and continue to make payments against past due amounts and interest thereon. 3. The Company will accrue and pay to Holder no later than August 15, 1997 additional interest on all past due interest amounts at the same rate as earned by the principal value of the Note. April 30, 1996 Sono-Tek Corporation James L. Kehoe Chief Executive Officer 40 EX-27 3 ART. 5 FDS FOR ANNUAL REPORT ON 10K
5 YEAR FEB-29-1996 FEB-29-1996 69,033 0 462,115 25,000 477,381 1,038,363 95,861 368,087 1,199,717 725,552 0 0 0 42,049 235,966 1,199,717 2,747,891 2,747,891 1,211,292 1,211,292 0 0 68,400 155,078 0 155,078 0 0 0 155,078 .04 .04
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