10QSB 1 fm10q803.txt FORM 10QSB AUGUST 31, 2003 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: August 31, 2003 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 small business issuer as specified in its charter) New York 14-1568099 State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2012 Rt. 9W, Milton, NY 12547 (Address of Principal Executive Offices) (Zip Code) Issuer's telephone no., including area code: (845) 795-2020 Indicate by check mark whether the small business issuer (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 small business issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Outstanding as of Class October 7, 2003 Common Stock, par value $.01 per share 9,200,161 SONO-TEK CORPORATION INDEX Part I - Financial Information Page Item 1 - Consolidated Financial Statements: 1 - 3 Consolidated Balance Sheets - August 31, 2003 (Unaudited) and February 28, 2003 1 Consolidated Statements of Operations - Six Months and Three Months Ended August 31, 2003 and 2002 (Unaudited) 2 Consolidated Statements of Cash Flows - Six Months and Three Months Ended August 31, 2003 and 2002 (Unaudited) 3 Notes to Consolidated Financial Statements 4 - 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 13 Item 3 - Controls and Procedures 14 Part II - Other Information 14 - 15 Signatures and Certifications 16 - 19 SONO-TEK CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS August 31, February 28, 2003 2003 Current Assets Unaudited Audited Cash and cash equivalents $ 175,809 $ 265,658 Accounts receivable (less allowance of $9,046 and $13,675 at August 31 and February 28, respectively) 433,682 375,040 Inventories 861,412 794,666 Prepaid expenses and other current assets 21,177 56,023 --------- -------- Total current assets 1,492,080 1,491,387 --------- --------- Equipment, furnishings and leasehold improvements (less accumulated depreciation of $657,972 and $638,341 at August 31 and February 28, respectively) 69,521 84,878 Intangible assets, net: Patents and patents pending 27,063 29,520 Deferred financing fees 7,699 11,251 --------- --------- Total intangible assets 34,762 40,771 Other assets 6,541 6,541 --------- --------- TOTAL ASSETS $1,602,904 $1,623,577 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Accounts payable $165,065 $149,920 Accrued expenses 202,744 244,286 Line of Credit 312,000 312,000 Current maturities of long term loans-related parties 73,774 63,924 Current maturities of long term debt 9,072 9,072 Current maturities of subordinated mezzanine debt 141,672 141,672 Current maturities of subordinated loans 18,000 43,428 --------- --------- Total current liabilities 922,327 964,302 Subordinated mezzanine debt 708,328 690,722 Long term debt, less current maturities 223,434 250,033 Subordinated loans 114,174 100,674 Other long-term liabilities 69,076 69,076 --------- --------- Total liabilities 2,037,339 2,074,807 --------- --------- Commitments and Contingencies - - Put Warrants 188,223 188,223 Stockholders' Equity Common stock, $.01 par value; 25,000,000 shares authorized, 9,200,161 shares issued and outstanding at August 31 and February 28, respectively 92,002 92,002 Additional paid-in capital 6,037,305 6,037,305 Accumulated deficit (6,751,965) (6,768,760) ---------- ---------- Total stockholders' deficiency (622,658) (639,453) ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $1,602,904 $1,623,577 ========== ========== See notes to consolidated financial statements. SONO-TEK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Ended Three Months Ended August 31, August 31, Unaudited Unaudited 2003 2002 2003 2002 ---------------------- -------------------- Net Sales $1,449,257 $1,485,991 $690,735 $705,133 Cost of Goods Sold 601,074 686,758 281,556 311,913 --------- --------- -------- -------- Gross Profit 848,183 799,233 409,178 393,220 --------- --------- -------- -------- Operating Expenses Research and product development costs 182,829 163,171 89,572 108,930 Marketing and selling expenses 287,970 283,042 138,712 133,559 General and administrative costs 275,129 288,118 139,422 152,642 -------- ------- ------- -------- Total Operating Expenses 745,928 734,331 367,706 395,131 ------- ------- ------- ------- Operating Income (Loss) 102,255 64,902 41,472 (1,911) Interest Expense (92,205) (115,328) (41,495) (57,361) Interest and Other Income 7,855 86,827 6,882 62,247 ------- ------- ------- -------- Income from Operations Before Income Taxes 17,905 36,401 6,859 2,975 Income Tax Expense 1,110 0 1,110 0 ------- ------- -------- -------- Net Income $ 16,795 $ 36,401 $5,749 $2,975 ======== ======== ====== ====== Basic Earnings Per Share $0.00 $0.00 $0.00 $0.00 ===== ===== ===== ===== Diluted Earnings Per Share $0.00 $0.00 $0.00 $0.00 ===== ===== ===== ===== Weighted Average Shares - Basic 9,200,161 9,105,422 9,200,161 9,105,422 ========= ========= ========= ========= Weighted Average Shares - Diluted 10,242,454 10,454,318 10,302,258 10,291,966 ========== ========== ========== ========== See notes to consolidated financial statements. SONO-TEK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended August 31, Unaudited 2003 2002 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 16,795 $ 36,401 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Deprec1iation and amortization 25,638 38,238 Imputed interest expense 17,608 37,467 Provision for doubtful accounts (4,629) 8,825 Decrease (Increase) in: Accounts receivable (54,013) (53,190) Inventories (66,746) 24,951 Prepaid expenses and other current assets 34,846 37,077 Decrease in: Accounts payable and accrued expenses (26,397) (112,409) -------- -------- Net Cash Provided by (Used In) Continuing Operations (56,898) 17,360 Net Cash (Used In) Discontinued Operations 0 (167,403) --------- --------- Net Cash (Used In) Operating Activities (56,898) (150,043) -------- ---------- CASH FLOW FROM INVESTING ACTIVITIES: Patent Application Costs 0 (10,701) Purchase of equipment and furnishings (4,274) (8,159) Deposits 0 (375) -------- -------- Net Cash Used In Investing Activities (4,274) (19,235) -------- -------- CASH FLOW FROM FINANCING ACTIVITIES: Repayments of loans - related parties (12,213) (43,602) Repayments of note payable and equipment loans (4,536) (36,257) Repayments of subordinated loans (11,928) 0 Other Long-term liabilities paid 0 (3,695) ------- ------- Net Cash Used In Financing Activities (28,677) (83,554) ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (89,849) (252,732) CASH AND CASH EQUIVALENTS Beginning of period 265,658 453,215 ------- -------- End of period $175,809 $200,383 ======== ======== SUPPLEMENTAL DISCLOSURE: Interest paid $68,675 $88,973 ======= ======= See notes to consolidated financial statements. SONO-TEK CORPORATION Notes to Consolidated Financial Statements Six Months Ended August 31, 2003 and 2002 NOTE 1: SIGNIFICANT ACCOUNTING POLICIES Consolidation - The accompanying consolidated financial statements of Sono-Tek Corporation, a New York Corporation (the "Company"), include the accounts of the Company and its wholly owned subsidiary, Sono-Tek Cleaning Systems, Inc., a New Jersey Corporation ("SCS"), that the Company acquired on August 3, 1999. SCS is a non-operating entity. All significant intercompany accounts and transactions are eliminated in consolidation. Interim Reporting - The attached summary consolidated financial information does not include all disclosures required to be included in a complete set of financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Such disclosures were included with the financial statements of the Company at February 28, 2003, and included in its report on Form 10-KSB. Such statements should be read in conjunction with the data herein. The financial information reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results for such interim periods are not necessarily indicative of the results to be expected for the year. Stock-Based Employee Compensation - The Company accounts for stock-based compensation plans utilizing the provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and the Financial Accounting Statement of Financial Accounting Standards No. 123 and No. 148 (SFAS 123 and SFAS 148), "Accounting for Stock-Based Compensation". Under SFAS 123, the Company will continue to apply the provisions of APB 25 to its stock-based employee compensation arrangements, and is only required to supplement its financial statements with additional pro-forma disclosures. The Company has elected to provide the related pro-forma disclosures utilizing an intrinsic value method of accounting for such stock based compensation. The estimated fair value of options granted during Fiscal Year 2003 was $.22 per share and the estimated fair value of options granted during the six months ended August 31, 2003 was $.20 per share. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for the 1993 Plan. Had compensation cost for the Company's stock option plan been determined based on the intrinsic value at the option grant dates for awards in accordance with the accounting provisions of SFAS 123, the Company's net income and basic and diluted earnings per share for the three and six month periods ended August 31, 2003 and 2002 would have been changed to the pro forma amounts indicated below: Six Months Ended Three Months Ended August 31, August 31, 2003 2002 2003 2002 ---- ---- ---- ---- Net Profit: As reported $16,795 $36,401 $5,749 $2,975 Deduct: Total stock based employee compensation under intrinsic value based method for all awards, net of tax effects 3,955 19,916 1,998 10,138 ------- ------ ----- ------ Pro forma $12,840 $16,485 $3,412 $(7,163) ======= ======= ====== ======== Basic and diluted earnings per share: As reported $0.00 $0.00 $0.00 $0.00 Pro forma $0.00 $0.00 $0.00 $0.00 At the August 21, 2003 Annual Meeting of Shareholders, the Company adopted a new Stock Incentive Plan (the"2003 Plan"). Under this plan, up to 1,500,000 stock options can be granted until 2013. To date, no options have been granted or issued under this plan. Patent and Patent Pending Costs - Cost 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 that are not expected to be developed for commercial application within the reasonably foreseeable future, or are applicable to geographic areas where the Company no longer requires patent protection, they are written off to operations. The accumulated amortization is $68,226 and $65,770 at August 31, 2003 and February 28, 2003, respectively. Accounting for Financial Instruments - In May 2003, the FASB issued Statements of Financial Accounting Standards No. 150 ("SFAS No. 150") "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 established standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This SFAS is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 has required the Company to have additional disclosures regarding the Put Warrants and did not have a material effect on the financial statements. The Company adopted SFAS No. 150 in the three months ended May 31, 2003. NOTE 2: INVENTORIES Inventories at August 31, 2003 are comprised of: Finished goods $396,059 Work in process 336,671 Consignment 3,342 Raw materials and subassemblies 351,041 --------- Total 1,087,113 Less: Allowance (225,794) -------- Net inventories $861,319 ======== NOTE 3: RELATED PARTY TRANSACTIONS Short-term loans - related parties - At Fiscal Year End 2002, loans from directors and former officers in the amount of $286,084 plus accrued interest of $62,728 were formalized into four-year notes bearing interest at 5% on the unpaid balance. Repayments of these notes commenced on March 31, 2002. Payments of $80,179 of principal and interest due in the period from August 31, 2002 to August 31, 2003 have been deferred in order to maintain the Company's liquidity. Certain of the Company's directors, an officer and an affiliate are participants with Norwood Venture Corporation ("Norwood") in its subordinated mezzanine financing. NOTE 4: SUBORDINATED MEZZANINE DEBT On September 30, 1999, the Company entered into a 12%, $450,000 Note and Warrant Purchase Agreement (the "Agreement") with Norwood less a proportionate equity share of the greatest of three different valuations of the Company upon exercise of the Put Warrants. On December 22, 2000, Norwood amended the Agreement to increase the note to $550,000. On April 30, 2001, Norwood amended the Agreement to increase the note by $300,000 to $850,000 and the warrant shares to 2,077,777. The Norwood Note (the "Note"), as amended, requires interest payments through September 2002, followed by monthly principal payments of $23,612 and interest through September 2005. Certain assets of the Company collateralize the Note. The Note, among other things, restricts the payment of dividends. The monthly principal payments to commence in October 2001 were $23,612 per month and have been deferred until March 2004. In addition, the original Note was issued with a detachable stock purchase warrant (the "Put Warrants") to purchase 1,100,000 shares of the Company's common stock at an exercise price of $.30 per share, the fair market value of the Company's common stock on September 30, 1999. The fair market value, as determined by an independent appraisal, of the Put Warrants was determined to be $0.07 per share, and is accounted for as a discount to the Norwood and will be amortized over the life of the principal repayment term of the Agreement. In connection with the amendments, dated December 22, 2000 and April 30, 2001,an additional 244,444 and 733,333 warrant shares were granted at an exercise price of $0.30 and $.10 per share, respectively. In connection with an amendment to the Agreement in October 2001, the exercise price of certain of the warrants was reduced from $.30 to $.15 per share. This resulted in an increase in the value of the warrants of $13,445, which is accounted as a discount to the loan and is being imputed as additional interest over the term of the loan. The aggregate exercise price of the Put Warrants is $275,000 for the purchase of 2,077,777 shares of common stock The Put Warrant holders may, commencing after the delivery of the February 28, 2006 audited financial statements and terminating one year thereafter, require the Company to purchase such warrants at a price equal to the result calculated by subtracting the aggregate exercise of the warrants to the extent remaining from the product of the greatest of; a) the fair market value of the Company as determined by an independent appraiser as at the end of the Company's fiscal year end February 28, 2006 (the "Company's 2006 Fiscal Year"), b) five times EBITDA for the Company's 2006 Fiscal Year or, if higher, average EBITDA for such year and the fiscal year of the Company immediately prior to such year, or c) the book value of the Company as at the end of the Company's 2006 Fiscal Year, multiplied by the fraction of (the "Put Fraction") the numerator of which is the total number of shares of common stock, the Put Warrant holders would own upon such exercise of the warrants and the denominator would be the total number of common shares outstanding upon the exercise of all equity rights to acquire common stock. If the value of the Company, based upon its fair value computed using its Fiscal Year 2006 results, is required to pay the Put under the warrants, warrant holders will have to pay up to $275,000 for the warrants. These warrants are exercisable for the purchase of up to 2,077,777 shares of common stock. NOTE 5: DEFERRAL OF PAYMENTS The Company, in order to conserve its cash assets, has agreements to defer payment of certain of its obligations at August 31, 2003. Such deferrals were: Current maturities of subordinated mezzanine debt $259,732 Current maturities of long-term loans - related parties 68,877 Current maturities of subordinated loans 54,921 Incentive compensation 21,680 Interest 11,303 ---------- Total $416,513 NOTE 6: STOCK OPTIONS AND WARRANTS Stock Options - Under the 1993 Stock Incentive Plan, as amended ("1993 Plan"), options can be granted to officers, directors, consultants and employees of the Company and its subsidiaries to purchase up to 1,500,000 of the Company's common shares. Options granted under the 1993 Plan expire on various dates through 2013. The shareholders approved the 2003 Stock Incentive Plan ("2003 Plan") ant the August 21, 2003 meeting of shareholders. Under this plan, options can be granted to officers, directors, consultants and employees of the Company and its subsidiaries to purchase up to 1,500,000 of the Company's common shares. To date, there have been no options granted under this plan. Under both the 1993 and 2003 Stock Incentive Plans, option prices must be at least 100% of the fair market value of the common stock at time of grant. For qualified employees, except under certain circumstances specified in the plans or unless otherwise specified at the discretion of the Board of Directors, no option may be exercised prior to one year after date of grant, with the balance becoming exercisable in cumulative installments over a three year period during the term of the option, and terminate at a stipulated period of time after an employee's termination of employment. Under the 1993 Plan, during Fiscal Year 2003, the Company granted options for 405,000 shares exercisable at between $0.15 per share and $0.30 per share to qualified employees and 40,000 shares exercisable at $0.37 to directors of the Company. The Company granted options for 20,000 shares in the six month period ended August 31, 2003. Warrants - There were no warrants issued during Fiscal 2004 and 2003. 370,175 warrants issued in 1999 in conjunction with the retirement of subordinated debt expired in Fiscal 2003. NOTE 7: EARNINGS PER SHARE The denominator for the calculation of diluted earnings per share at August 31, 2003 and 2002 are calculated as follows: August 31, 2003 August 31, 2002 Denominator for basic earnings per share 9,200,161 9,105,422 Dilutive effect of warrants 931,944 1,313,888 Dilutive effect of stock options 110,349 35,008 ---------- --------- Denominator for dilutive earnings per share 10,242,454 10,454,318 ========== ========== 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: - The Company's ability to respond to competition in its markets; - General economic conditions in the Company's markets; and - Ability to continue to obtain deferral of principal payments from its note holders. The Company undertakes no obligation to update publicly any forward-looking statement. Liquidity and Capital Resources The Company's working capital increased $42,668 from a working capital of $527,085 at February 28, 2003 to $569,753 at August 31, 2003. The increase in working capital was a result of an increase in accounts receivable of $59,000, an increase in inventory of $67,000 a decrease in accounts payable of $42,000 and a decrease in the current maturities of debt of $25,000 that was offset by decreases in cash of $90,000, prepaid expenses of $35,000 and increases in accounts payable of $15,000 and the current portion of short term loans to related parties of $10,000. The stockholders' deficiency decreased $16,795 from $639,453 at February 28, 2003 to $622,657 at August 31, 2003. The decrease in stockholders' deficiency was the result of the net profit of $16,795 for the six months ended August 31, 2003. Accounts receivable at August 31, 2003 increased $58,642 or 16% from February 28, 2003 due to higher sales levels in the last month of this quarter as compared to the last month of the fourth quarter of the prior fiscal year. Inventory increased $66,746 or 8% as the result of lower than anticipated sales in the current quarter. The increase was principally due to an increase in raw materials inventory as the result of newly introduced products. Accounts payable and accrued expenses decreased $26,398 or 7% as compared to February 28, 2003 due to payments made to vendors during the three months ended August 31, 2003. The Company currently has a $350,000 line of credit with a bank, in the form of a demand note. The loan is collateralized by accounts receivable, inventory and all other personal property of the Company and is guaranteed by the former Chief Executive Officer of the Company. As of August 31, 2003 and February 28, 2003 the outstanding balance was $312,000. New borrowings are presently precluded under this note. Results of Operations For the six months ended August 31, 2003, the Company's sales decreased $36,734 to $1,449,257 as compared to $1,485,991 for the six months ended August 31, 2002. The decrease was a result of a decrease in sales of specialty spraying systems of $97,000, a decrease in cleaning system spare part sales of $21,000, partially offset by an increase in fluxer sales of $68,000 and nozzle sales of $13,000. For the three months ended August 31, 2003, the Company's sales decreased $14,399 to $690,735 as compared to $705,134 for the three months ended August 31, 2002. The decrease was a result of a decrease in sales of specialty spraying systems of $91,000, a decrease in cleaning system spare part sales of $18,000, partially offset by an increase in fluxer sales of $59,000 and nozzle sales of $34,000. The Company's gross profit increased $48,950 to $848,183 for the six months ended August 31, 2003 from $799,233 for the six months ended August 31, 2002. The gross profit margin was 58.5% of sales for the six months ended August 31, 2003 as compared to 53.8% of sales for the six months ended August 31, 2002. The change in margin occurred as the result of the changing mix of products in each period. The Company's gross profit increased $15,959 to $409,179 for the three months ended August 31, 2003 from $393,220 for the three months ended August 31, 2002. The gross profit margin was 59.2% of sales for the three months ended August 31, 2003 as compared to 55.8% of sales for the three months ended August 31, 2002. The change in margin occurred as the result of the changing mix of products in each period. Research and product development costs increased $19,659 to $182,829 for the six months ended August 31, 2003 from $163,170 for the six months ended August 31, 2002. Research and product development costs of $39,000 incurred in the six months ended August 31, 2002 were used to manufacture saleable inventory items, and accordingly, were recorded in inventory. During the six months ended August 31, 2003 research and development personnel were not utilized for manufacturing. Research and product development costs decreased $19,356 to $89,572 for the three months ended August 31, 2003 from $108,928 for the three months ended August 31, 2002. The decrease was due to less engineering materials purchased this year. Marketing and selling costs increased $7,930 and $5,163 for the respective six and three month periods ended August 31, 2003 as compared to the same periods ended August 31, 2002. The increases were due principally to increased commissions and advertising costs partially offset by reduced labor and fringe benefit costs. General and administrative costs decreased $12,989 and $13,209 for the respective six and three month periods ended August 31, 2003 as compared to the same periods ended August 31, 2002. The decrease was due principally to reduced legal, consulting and payroll costs. Interest expense decreased $24,123 to $92,205 for the six months ended August 31, 2003 from $115,328 for the six months ended August 31, 2002. Interest expense decreased $15,866 to $41,495 for the three months ended August 31, 2003 from $57,361 for the three months ended August 31, 2002. The decrease is primarily due to reduced interest and amortization on the Norwood loans and reduced interest on related party and bank loans. Interest and other income decreased $78,972 for the six months ended August 31, 2003 as compared to the six months ended August 31, 2002 and $55,365 for the three months period ended August 31, 2003 as compared to the three month period ended August 31, 2002. The decreases are primarily due to settlements with former vendors and sales representatives, and a reduction of the accrual for future rent expense recorded in the prior year's periods. The Company's net income was $16,795 and $5,749 for the six and three month periods ended August 31, 2003 as compared to $36,401 and $2,975 for the six and three month periods ended August 31, 2002. Critical Accounting Policies The discussion and analysis of the Company's financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions and conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. The Company believes that critical accounting policies are limited to the one described below. For a detailed discussion on the application of this and other accounting policies see note 3 to the Company's consolidated financial statements included in Form 10-KSB for the year ended February 28, 2003. Accounting for Income Taxes As part of the process of preparing the Company's consolidated financial statements, the Company is required to estimate its income taxes. Management judgment is required in determining the provision on its deferred tax asset. The Company recorded a valuation reserve for the full deferred tax asset from the net operating losses carried forward due to the Company not demonstrating consistent profitable operations. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to adjust such valuation reserve recorded. Impact of New Accounting Pronouncements In May 2003, the FASB issued Statements of Financial Accounting Standards No. 150 ("SFAS No. 150"), "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 established standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This SFAS is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 has required the Company to have additional disclosures regarding the Put Warrants and did not have a material effect on the financial statements. The Company adopted SFAS No. 150 in the three months ended May 31, 2003. SONO-TEK CORPORATION CONTROLS AND PROCEDURES The Company has established and maintains "disclosure controls and procedures" (as those terms are defined in Rules 13a -14(c) and 15d- 14(c) under the Securities and Exchange Act of 1934 (the "Exchange Act'). Christopher L. Coccio, Chief Executive Officer and President (principal executive and accounting officer) of the Company, has evaluated the Company's disclosure controls and procedures as of August 31, 2003. Based on his evaluation, Dr. Coccio has concluded that the Company's disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls after August 31, 2003. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken. PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds. None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The following matters were voted upon at the Company's annual meeting of shareholders held on August 21, 2003. 1. The election of two (2) directors of the Company to serve until the Company's 2005 annual meeting of shareholders. For Against Harvey L. Berger 6,930,335 74,141 Christopher L. Coccio 6,787,745 216,731 There were no broker non-votes. 2. The election of one (1) director of the Company to serve until the Company's 2004 annual meeting of shareholders. For Against Donald F. Mowbray 6,787,970 216,506 There were no broker non-votes. 2. Approval of the 2003 Stock Incentive Plan and authorizing 1,500,000 common shares for issuance thereunder. For 3,900,480; Against 276,639; Abstained 326,377 There were 2,500,980 broker non votes. 3. Ratify the appointment of Radin Glass & Co. as the Company's independent auditors for the fiscal year ended February 29, 2004. For 6,857,009; Against 44,901; Abstained 102,566 There were no broker non-votes. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31 - Rule 13a - 14(a)/15d - 14(a) Certification 32 - Certification Pursuant to 18 U.S.C. Section 1350 (b) Reports on Form 8-K The Company filed a report on Form 8-K on June 19, 2003 relating to the resignation of an outside director. The Company filed a report on Form 8-K on July 22, 2003 relating to a press release on the results of operations for the quarter ended May 31, 2003. The Company filed a report on Form 8-K on July 23, 2003 relating to a press release on the results of operations for the year ended February 28, 2003. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: October 7, 2003 SONO-TEK CORPORATION (Registrant) /s/ Christopher L. Coccio By: ____________________________________ Christopher L. Coccio Chief Executive Officer and President (principal executive and accounting officer) Exhibit 31 RULE 13a-14/15d - 14(a) CERTIFICATION I, Christopher L. Coccio, Chief Executive Officer and President (principal executive and accounting officer), certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Sono-Tek Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstance under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d - 15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the small business issuer and I have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. Date: October 7, 2003 /s/ Christopher L. Coccio Christopher L. Coccio Chief Executive Officer and President (principal executive and accounting officer) Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Sono-Tek Corporation on Form 10QSB for the period ended August 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"). I, Christopher L. Coccio, Chief Executive Officer and President (principal executive and accounting officer) of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: October 7, 2003 /s/ Christopher L. Coccio Christopher L. Coccio Chief Executive Officer and President (principal executive and accounting officer)