-----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, K/Wtzmq+mf5jPHoJRhhbkazwzIC1hCCl/uX6jW9MKGpCIT7XEwnI6uY3+Jo/HdhV ZkbH2DZxNlz8pyPrUJXDrw== 0000806172-99-000002.txt : 19990118 0000806172-99-000002.hdr.sgml : 19990118 ACCESSION NUMBER: 0000806172-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990115 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-Q SEC ACT: SEC FILE NUMBER: 000-16035 FILM NUMBER: 99506767 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-Q 1 QUARTERLY REPORT FOR QUARTER ENDING 11/30/98 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: November 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 0-16035 SONO-TEK CORPORATION (Exact name of registrant as specified in its charter) New York 14-1568099 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2012 Rt. 9W, Bldg. 3, Milton, NY 12547 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone no., including area code: (914) 795-2020 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Outstanding as of Class January 15, 1999 ----- ----------------- Common Stock, par value $.01 per share 4,378,387 SONO-TEK CORPORATION INDEX Part I - Financial Information Page Item 1 - Financial Statements: 1 - 3 Balance Sheets - November 30, 1998 (Unaudited) and February 28, 1998 1 Statements of Operations - Nine Months and Three Months Ended November 30, 1998 and 1997 (Unaudited) 2 Statements of Cash Flows - Nine Months Ended November 30, 1998 and 1997 (Unaudited) 3 Notes to Financial Statements 4 - 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 9 Item 3 - Quantitative and Qualitative Disclosure About Market Risk - Not applicable Part II - Other Information 10 Signatures 11 SONO-TEK CORPORATION BALANCE SHEETS ASSETS
November 30, February 28, 1998 1998 Unaudited ------------ ------------ Current Assets Cash and cash equivalents $ 16,276 $ 113,759 Accounts receivable (less allowance of $10,000 and $1,000 at November 30 and February 28, respectively) 359,493 810,560 Inventories (Note C) 836,105 615,459 Prepaid expenses and other current assets 25,749 15,780 ---------- ---------- Total current assets 1,237,623 1,555,558 Equipment and furnishings (less accumulated depreciation of $397,417 and $369,398 at November 30 and February 28, respectively) 113,754 122,016 Patents, patents pending and copyrights (less accumulated amortization of $76,986 and $123,930 at November 30 and February 28, respectively) 40,044 45,187 Other assets 5,917 5,917 ---------- ---------- TOTAL ASSETS $1,397,338 $1,728,678 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long term debt $ 10,098 $55,438 Revolving line of credit 149,948 50,000 Accounts payable 301,806 405,009 Accrued expenses 277,692 353,776 ---------- ---------- Total current liabilities 739,544 864,223 ---------- ---------- Long term debt, less current maturities 570,142 577,815 Noncurrent rent payable 8,828 8,083 ---------- ---------- Total liabilities 1,318,514 1,450,121 ---------- ---------- Stockholders' Equity Common stock, $.01 par value; 12,000,000 shares authorized, 4,378,387 issued and outstanding at November 30 and 4,374,387 issued and outstanding at February 28 43,784 43,744 Additional paid-in capital 3,825,501 3,824,221 Accumulated deficit (3,790,461) (3,589,408) ---------- ---------- Total stockholders' equity 78,824 278,557 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,397,338 $1,728,678 ========== ==========
See notes to financial statements. SONO-TEK CORPORATION STATEMENTS OF OPERATIONS
Nine Months Ended November 30, Three Months Ended November 30, Unaudited Unaudited 1998 1997 1998 1997 ---------------------------- ---------------------------- Net Sales $2,395,727 $2,588,626 $679,428 $1,013,198 Cost of Goods Sold 1,291,940 1,270,194 382,953 493,803 ---------- --------- --------- ---------- Gross Profit 1,103,787 1,318,432 296,475 519,395 ---------- --------- --------- ---------- Operating Expenses Research and product development costs 370,572 272,521 107,906 100,928 Marketing and selling expenses 548,563 559,207 177,946 219,759 General and administrative costs 353,682 292,104 114,808 101,193 ---------- ---------- --------- ---------- Total Operating Expenses 1,272,817 1,123,832 400,660 421,880 ---------- ---------- --------- ---------- Operating (Loss) Income (169,030) 194,600 (104,185) 97,516 Interest Expense (42,775) (37,164) (14,925) (11,900) Miscellaneous Income 8,137 0 8,137 0 Interest and Other Income 2,615 0 1,083 0 ---------- ---------- --------- ---------- (Loss) Income Before Income Taxes (201,053) 157,436 (109,890) 85,616 Income Tax Expense (Note D) 0 0 0 0 ---------- ---------- --------- ---------- Net (Loss) Income $(201,053) $157,436 $(109,890) $85,616 ========== ========== ========= ========== Basic Earnings Per Share $(0.05) $0.04 $(0.03) $0.02 ====== ===== ====== ===== Diluted Earnings Per Share $(0.05) $0.03 $(0.03) $0.02 ====== ===== ====== ===== Weighted Average Shares - Basic 4,375,720 4,336,795 4,378,387 4,374,387 ========= ========= ========= ========= Weighted Average Shares - Diluted 4,375,720 4,686,878 4,378,387 4,724,470 ========= ========= ========= =========
See notes to financial statements. SONO-TEK CORPORATION STATEMENTS OF CASH FLOWS Nine Months Ended November 30, Unaudited 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss) Income $(201,053) $157,436 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 33,162 25,167 Provision for doubtful accounts 9,000 9,000 (Increase) decrease in: Accounts receivable 441,134 (161,130) Inventories (220,646) (46,378) Prepaid expenses and other current assets (9,035) 15,017 Increase (decrease) in: Accounts payable and accrued expenses (179,287) (21,791) Non-current rent payable 744 5,994 --------- -------- Net Cash Used in Operating Activities (125,981) (16,685) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment and furnishings (19,757) (10,328) --------- -------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from revolving line of credit 99,948 0 Proceeds from sale of common stock 1,320 0 Repayments of equipment loan (6,760) 0 Repayments of note payable, bank (46,253) (59,729) --------- -------- Net Cash Provided by (Used in) Financing Activities 48,255 (59,729) --------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (97,483) (86,742) CASH AND CASH EQUIVALENTS Beginning of period 113,759 107,746 --------- -------- End of period $16,276 $ 21,004 ========= ======== SUPPLEMENTAL DISCLOSURE: Interest paid $ 13,424 $ 27,007 ========= ======== Non-cash exchange of accrued interest for common stock 0 $ 67,787 = ========
See notes to financial statements. SONO-TEK CORPORATION Notes to Financial Statements November 30, 1998 and 1997 NOTE A: The attached summarized financial information does not include all disclosures required to be included in a complete set of financial statements prepared in conformity with generally accepted accounting principles. Such disclosures were included with the financial statements of the Company at February 28, 1998, included in its report on Form 10-K. Such statements should be read in conjunction with the data herein. NOTE B: The financial information reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the year. NOTE C: Inventories at November 30, 1998 are comprised of: Finished goods $138,359 Consignment 7,257 Work in process 185,900 Raw materials and subassemblies 513,589 Inventory obsolescence reserve (9,000) -------- Net total inventories $836,105 ========
NOTE D: The Company has a net operating loss carryforward, therefore no income tax expense is recorded for the nine months ended November 30, 1997. The Company has not recognized an income tax benefit from net operating loss carryforwards generated by the loss for the nine months ended November 30, 1998 based on the absence of available evidence that such benefits will be recoverable. At February 28, 1998, the Company had available operating loss carryforwards of approximately $3,208,000 for income tax purposes. NOTE E: On March 3, 1997, the FASB issued SFAS No. 128 "Earnings per Share". SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. Earlier application was not permitted. Restatement of all prior-period earnings per share ("EPS") data presented is required when SFAS 128 is implemented. The Company adopted SFAS No. 128 for the year ended February 28, 1998 and EPS data is provided in the financial statements for all periods presented based on the requirements of this statement. Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Stock options granted but not yet exercised under the Company's stock option plans are included for Diluted EPS calculations under the treasury stock method. The convertible secured subordinated promissory Note E (continued): notes and related warrants are antidilutive and therefore are not considered in the Diluted EPS calculations. Stock options for employees and outside consultants are antidilutive during 1999 as a result of the net loss and therefore are not considered in the diluted EPS calculation. The computation of basic and diluted earnings per share are set forth on the following table: Nine Months Ended Three Months Ended November 30, November 30, 1998 1997 1998 1997 ---- ---- ---- ---- Numerator- Numerator for basic and diluted earnings per share - net (loss) income $(201,053) $ 157,436 $(109,890) $ 85,616 ========= ========= ========= ========= Denominator: Denominator for basic (loss) earnings per share - weighted average shares 4,375,720 4,336,795 4,378,387 4,374,387 Effects of dilutive securities: Stock options for employees and outside consultants 0* 350,083 0* 350,083 --------- --------- --------- --------- Denominator for diluted (loss) earnings per share 4,375,720** 4,686,878** 4,378,387** 4,724,470** ========= ========= ========= =========
*Stock options for employees and outside consultants are antidilutive during 1999 as a result of the net loss and therefore are not considered in the Diluted EPS calculation. **The effect of considering the convertible secured subordinated promissory notes and related warrants are antidilutive and therefore not considered in the diluted (loss) earnings per share calculations. SONO-TEK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements - -------------------------- Certain statements made in this report may constitute "forward-looking statements" within the meaning of the Federal Securities Laws. Such forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business conditions; political, regulatory, competitive and technological developments affecting the Company's operations or the demand for its products; timely development and market acceptance of new products; adequacy of financing; capacity additions; and ability to enforce patents. Results of Operations - --------------------- The Company's sales decreased $192,899 from $2,588,626 for the nine months ended November 30, 1997 to $2,395,727 for the nine months ended November 30, 1998. Sales of the SonoFlux System sales decreased approximately $114,000, while sales of new products, particularly the MCS Infinity System and Liquid Delivery Systems increased $140,000. Sales of the Company's Nozzle Systems decreased approximately $216,000. For the three months ended November 30, 1998 the Company's sales decreased $333,770 to $679,428 from $1,013,198 for the three months ended November 30, 1997. During this three month period sales of the Company's SonoFlux Systems decreased approximately $365,000 and sales of new products increased by $21,000, while sales of the Company's Nozzle Systems increased approximately $8,000. The Company believes the decrease in sales of the SonoFlux System for both the three-month and nine-month periods is a result of a general slowdown in certain segments of the electronics industry. The SonoFlux System continues to have a reputation for reliable and cost-effective performance, and the Company expects sales of this system will recover when the electronics assembly industry returns to a period of growth. Over the last two years, the Company has made significant efforts to diversify its product line by developing new products. The increased sales during the first three quarters of Fiscal 1999 of the MCS Infinity System and Liquid Delivery Systems, which now account for slightly over 8% of total sales, is a direct result of these efforts. Management believes the reduction in the sales of Nozzle Systems is due to several factors including (i) certain customers opting to purchase a more complete spraying solution such as the Company's MCS Infinity System, (ii) the rapid decline in acceptance of historic marketing techniques for Nozzle Systems such as post-card decks, and (iii) the nature of the market where it is not uncommon for the Company to experience significant fluctuations in sales from year to year. The Company is attempting to increase sales of Nozzle Systems by (i) a significantly enhanced presence on the internet, and (ii) its Distribution Agreement with PNR Italia whereby PNR will sell Sono-Tek's Nozzle Systems through its established worldwide sales organizations. Gross profit decreased $214,645 from $1,318,432 for the nine-month period ended November 30, 1997 to $1,103,787 for the nine-month period ended November 30, 1998. The Company's gross profit decreased $222,920 from $519,395 for the three months ended November 30, 1997 to $296,475 for the three months ended November 30, 1998. For both the three and nine month periods the decrease in gross profit is attributed to a decrease in sales. The percentage of gross profit to sales decreased as a result of an increase in personnel costs and depreciation costs. Research and product development costs increased $98,051 from $272,521 for the nine months ended November 30, 1997 to $370,572 for the nine months ended November 30, 1998, primarily due to $93,000 in compensation for a larger engineering staff. The Company believes this increase is necessary to develop new products such as the MCS Infinity System and Liquid Delivery products to reduce its dependence on the electronics industry and provide for future stability and growth. Research and product development costs increased $6,978 from $100,928 for the three months ended November 30, 1997 to $107,906 for the three months ended November 30, 1998. This increase is also attributed to increased personnel costs. Marketing and selling costs decreased $10,644 from $559,207 for the nine months ended November 30, 1997 to $548,563 for the nine months ended November 30, 1998. The cost decrease reflects a reduction in personnel costs of $34,000 because of one less sales engineer, and a decrease in commissions of $9,000 because of lower sales. However, these reductions were offset by an increase of $39,000 for the start-up costs associated with developing a market for pressure nozzles. Marketing and selling costs decreased $41,813 from $219,759 for the three months ended November 30, 1997 to $177,946 for the three months ended November 30, 1998. During this period, there was a decrease in personnel costs of $9,000 and a decrease in commissions of $49,000, offset by an increase of $23,000 of start-up costs in the pressure nozzle business. Management believes the start-up costs associated with developing the pressure business in necessary to transfer the Company into a full service spray company which will result in long-term growth opportunities. General and administrative costs increased $61,578 from $292,104 for the nine month period ended November 30, 1997 to $353,682 for the nine month period ended November 30, 1998, primarily as a result of higher compensation costs of approximately $37,000 and an increase in professional and consulting fees of approximately $27,000. General and administrative costs increased $13,615 from $101,193 for the three month period ended November 30, 1997 to $114,808 for the three month period ended November 30, 1998. The increased costs were due primarily to an increase in compensation costs of approximately $5,000 and an increase in professional fees of $13,000. The increase in professional fees for both periods was in connection with the Company's ISO 9001 Certification, registering its 1993 Employee Stock Incentive Plan on Form S-8 with the Securities and Exchange Commission on August 3, 1998, the hiring of a new Sales Manager for Hydraulic Nozzles, and retaining a business development consultant. Interest expense increased $5,611 from $37,164 for the nine month period ended November 30, 1997 to $42,775 for the nine months ended November 30, 1998. Interest expense increased $3,025 from $11,900 for the three month period ended November 30, 1997 to $14,925 for the three months ended November 30, 1998. The increase in interest expense is a result of a bank loan for the purchase of production equipment and increased borrowings under the line of credit. For the nine months ended November 30, 1998 the Company had a net loss of $201,053 or $(0.05) per share as compared to earnings of $157,436 or $0.04 per share for the nine months ended November 30, 1997. For the three months ended November 30, 1998, the Company had a net loss of $109,890 or $(0.03) per share as compared to earnings of $85,616 or $.02 per share for the three months ended November 30, 1997. The decrease in earnings for both the nine month and three month periods were a result of the decrease in sales, and higher costs in the areas of research and product development and general and administrative costs. Liquidity and Capital Resources - ------------------------------- The Company's working capital decreased $193,256 from $691,335 at February 28, 1998 to $498,079 at November 30, 1998. The Company's stockholders' equity decreased $199,733 from $278,557 on February 28, 1998 to $78,824 on November 30, 1998. The decrease in working capital and stockholders' equity was primarily a result of the net loss for the first and third quarters of fiscal year 1999. The Company currently has a $150,000 revolving line of credit with a bank. The loan is collateralized by accounts receivable, inventory and all other personal property of the Company. The Company has applied to increase the line of credit, and in the past has received short term loans from officers of the Company to cover short term cash deficiencies. Although there can be no assurances, management believes that working capital generated by continuing operations and available line of credit will be sufficient to support the Company's working capital needs for the next twelve months based on anticipated sales levels. Impact of Year 2000 - ------------------- The Company has performed a thorough assessment to determine its readiness for the Year 2000 (Y2K). The results of this assessment have identified that the Company's accounting software and certain components of the internal computer network are not Y2K compliant. Accordingly, the Company has ordered and received new software that is Y2K compliant, and the Company has placed on order the necessary hardware upgrades for its internal computer network The Company has a detailed plan to evaluate these new systems and have them on-line by February 28, 1999. Both the software and hardware upgrades are "off-the-shelf" items, therefore there is minimal risk in these systems not performing. Expenditures to date have been $15,000, with an estimated additional expenditures of $10,000 expected. As part of its assessment, the Company evaluated its phone, security, and manufacturing machinery and determined that all of these systems are Y2K compliant. The Company has also evaluated the software and hardware used in its products and determined that they are all Y2K compliant. The Company is in the process of surveying its major suppliers for their Y2K readiness. Because all major components and materials used by the Company in the manufacture of its products are readily available from several suppliers, management considers this area to be of minimal risk. The Company plans to complete all necessary purchases, installations, and evaluations by February 28, 1999. At the present time, a contingency plan has not been developed. The Company will continue to monitor the need for a contingency plan based on the results of its findings at February 28, 1999. This is a Year 2000 readiness disclosure entitled to protection as provided in the Year 2000 Information and Readiness Disclosure Act. PART II - OTHER INFORMATION Item 5. Other Information The Securities and Exchange Commission has recently amended Rules 14a-4 and 14a-5 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in respect of the Company's exercise of discretionary voting authority in connection with annual shareholder meetings, and in particular with respect to matters not submitted under the Shareholder Proposal rule set forth in Rule 14a-8 under the 1934 Act. Under the amended Rules, a company is permitted discretionary voting authority in those instances in which the company did not have notice of the matter by a date more that 45 days before the month and day in the current year corresponding to the date on which the company first mailed its proxy materials for the prior year's annual meeting of shareholders, or by a date established by an overriding advance notice provision in a company's articles of incorporation or bylaws. The Company has not implemented such an advance notice provision. Accordingly, in connection with the 1999 Annual Meeting of Stockholders of the Company, the date after which notice of a stockholder proposal submitted outside the processes of Rule 14a-8 under the 1934 Act is considered untimely is June 4, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 27. Financial Data Schedule - EDGAR filing only (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: January 15, 1999 SONO-TEK CORPORATION (Registrant) By: /s/ James L. Kehoe ------------------- James L. Kehoe Chief Executive Officer By: /s/ Kathleen N. Martin ---------------------- Kathleen N. Martin Treasurer & Chief Financial Officer EX-27 2 FDS FOR QUARTERLY REPORT ON 10Q
5 1 US Dollars 9-MOS FEB-28-1999 SEP-01-1998 NOV-30-1998 1 16,276 0 359,493 10,000 836,105 1,237,623 113,754 397,417 1,397,338 739,544 0 0 0 43,784 35,040 1,397,338 2,395,727 2,395,727 1,291,940 1,291,940 0 0 42,775 (201,053) 0 0 0 0 0 (201,053) (0.05) (0.05)
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