SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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: August 31, 1995 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 October 13, 1995 Common Stock, par value $.01 per share 4,204,913
SONO-TEK CORPORATION INDEX Part I - Financial Information Page Item 1 - Financial Statements: 1 - 3 Balance Sheets - August 31, 1995 (Unaudited) and February 28, 1995 1 Statements of Operations - Six Months and Three Months Ended August 31, 1995 and 1994 (Unaudited) 2 Statements of Cash Flows - Six Months Ended August 31, 1995 and 1994 (Unaudited) 3 Notes to Financial Statements 4 - 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 8 Part II - Other Information 9 Signatures 10
SONO-TEK CORPORATION BALANCE SHEETS <TABLE> <CAPTION> August 31 February 28 1995 1995 ASSETS Unaudited ------------------------------------------------- <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 47,330 $ 67,804 Accounts receivable (net of allowance for doubtful accounts of $40,000 at August 31 and $63,000 at February 28 ) 478,398 350,185 Receivable for common stock issued 0 25,000 Inventories (Note C) 498,284 490,571 Prepaid expenses and other current assets 17,677 44,819 --------------------- --------------------- Total Current Assets 1,041,689 978,379 Equipment, furnishings and leasehold improvements (less accumulated depreciation and amortization of $327,753 at August 31 and $301,113 at February 28 ) 129,611 151,873 Patents, patents pending and copyrights (less amortization of $125,481 at August 31 and $120,951 at February 28 ) 75,462 74,992 Other assets 6,317 5,917 --------------------- --------------------- T O T A L $ 1,253,079 $ 1,211,161 ===================== ===================== LIABILITIES Current liabilities: Current maturities of long term debt $ 132,932 $ 127,145 Accounts payable 278,387 335,242 Accrued expenses 409,341 321,953 --------------------- --------------------- Total Current Liabilities 820,660 784,340 Long term debt, less current maturities 700,227 754,449 Non-current rent payable 15,793 21,367 --------------------- --------------------- Total Liabilities 1,536,680 1,560,156 --------------------- --------------------- SHAREHOLDERS' EQUITY ( DEFICIENCY ) Common stock - $.01 par value: Authorized - 12,000,000 shares Issued - 4,204,913 shares 42,049 42,049 Additional paid-in capital 3,758,128 3,758,128 Deficit (4,083,778) (4,149,172) --------------------- --------------------- Total Shareholders' Deficiency (283,601) (348,995) --------------------- --------------------- T O T A L $ 1,253,079 $ 1,211,161 ===================== ===================== </TABLE> 1.
SONO-TEK CORPORATION STATEMENTS OF OPERATIONS <TABLE> <CAPTION> Six Months Ended Three Months Ended --------------------------------- ----------------------------------- August 31 August 31 Unaudited Unaudited 1995 1994 1995 1994 <S> <C> <C> <C> <C> NET SALES $ 1,349,508 $ 1,398,681 $ 613,549 $ 684,000 COST OF GOODS SOLD 568,018 754,398 236,807 362,097 ------------- ------------- -------------- ------------- Gross Profit 781,490 644,283 376,742 321,903 ------------- ------------- -------------- ------------- OPERATING EXPENSES Research and product development costs 196,797 145,071 95,791 74,298 Marketing and selling expenses 326,567 370,395 146,396 176,665 General and administrative costs 192,645 258,170 79,722 134,328 ------------- ------------- -------------- ------------- Total Operating Expenses 716,009 773,636 321,909 385,291 ------------- ------------- -------------- ------------- OPERATING INCOME (LOSS) 65,481 (129,353) 54,833 (63,388) INTEREST EXPENSE 33,020 30,135 16,503 15,548 INTEREST AND OTHER INCOME 32,933 107 38 77 ------------- ------------- -------------- ------------- NET INCOME (LOSS) (NOTE D) $ 65,394 $ (159,381) $ 38,368 $ (78,859) ============= ============= ============== ============= INCOME (LOSS) PER COMMON SHARE (NOTE E) $ 0.02 $ (0.04) $ 0.01 $ (0.02) ============= ============= ============== ============= WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED TO COMPUTE EARNINGS (LOSS) PER SHARE 4,205,000 3,872,000 4,205,000 3,872,000 </TABLE> 2.
SONO-TEK CORPORATION Statements of Cash Flows For Six Months Ended August 31 <TABLE> <CAPTION> 1995 1994 Unaudited ----------------- ------------------ <S> <C> <C> Cash flows from operating activities: Net income (loss) $ 65,394 $ (159,381) ------------- -------------- Adjustments to reconcile the results of operations to the net cash provided by operating activities: Depreciation and amortization 31,170 44,320 Accounts receivable (128,213) 101,714 Inventories (7,714) (116,634) Prepaid expenses 27,142 20,379 Other assets (400) (2,000) Accounts payable & accrued expenses 30,532 179,860 Noncurrent rent payable (5,574) (1,785) ------------- -------------- Total adjustments (53,057) 225,854 ------------- -------------- Net cash provided by operating activities 12,337 66,473 ------------- -------------- Cash flows from investing activities: Fixed asset, patent and copyright acquisition costs (9,378) (23,627) Cash flows from financing activities: Payments of capitalized leases (3,629) (2,093) Proceeds from sale of common stock 25,000 0 Repayments of notes payable (44,804) (82,923) ------------- -------------- Net cash used in financing activities (23,433) (85,016) ------------- -------------- Net Increase (decrease) in cash and cash equivalents (20,474) (42,170) Cash and cash equivalents: Beginning of period 67,804 70,871 ------------- -------------- End of period $ 47,330 $ 28,701 ============= ============== Supplemental disclosure: Interest paid $ 15,616 $ 14,856 Income taxes paid $ 0 $ 5,338 </TABLE> 3.
SONO-TEK CORPORATION Notes to Financial Statements August 31, 1995 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, 1995, 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: Inventory at August 31, 1995 is comprised of: Finished goods $105,940 Work in process 117,188 Raw materials and subassemblies 275,156 -------- Total $498,284 NOTE D: The Company has adopted FASB Statement no. 109 which became effective for the Fiscal Year Ended February 28, 1994. Accordingly, under the provision of Statement 109, the income tax benefit of the loss for the six months ended August 31, 1994 has been offset by an increase in the valuation allowance. NOTE E: Income (loss) per share is based on the weighted average number of shares outstanding during each period. 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. NOTE F: The financial statements for fiscal 1995 have been prepared under the assumption that the Company will continue as a going concern. During the year ended February 1995 the Company incurred a significant loss from operations. At February 28, 1995 the Company had a net capital deficiency of $348,995. The lack of sufficient working capital has hampered the Company's ability to produce and market its products efficiently and to make payments to its vendors and certain noteholders in a timely fashion. Some vendors have placed the Company's account 4.
NOTE F: for collection with a collection agency. These factors raise substantial doubt as to the Company's ability to continue as a going concern. The financial statements do not contain any adjustments that might be necessary if the Company is unable to continue as a going concern. 5.
SONO-TEK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Company's sales decreased $49,173 to $1,349,508 for the six months ended August 31, 1995 as compared to $1,398,681 for the six months ended August 31, 1994. The decrease was primarily a result of decreased sales of the Company's SonoFlux Systems. Sales of this product decreased approximately $251,000, while sales of the Company's Nozzle Systems increased approximately $202,000. For the three months ended August 31, 1995 the Company's sales decreased $70,451 to $613,549 as compared to sales of $684,000 for the three months ended August 31, 1994. During this period sales of the Company's Nozzle Systems inreased approximately $21,000 and sales of the Company's SonoFlux Systems decreased approximately $92,000 as compared to the three month period ended August 31, 1994. The decrease in sales of the Company's SonoFlux Systems is believed to be the result of a decline in export sales as well as an increase in competitive pressures. In response to the increase in competition the Company introduced its newest version of SonoFlux, the "9500". This new product, which has a lower manufacturing cost and a lower selling price is designed to be more "user friendly" through computer controled operation. Although there can be no assurances, the Company anticipates that this new version will appeal to a broader segment of the market, and lead to increased sales of this product line. The Company's gross profit increased $137,207 from $644,283 for the six month period ended August 31, 1994 to $781,490 for the six month period ended August 31, 1995, and increased $54,839 from $321,903 for the three months ended August 31, 1994 to $376,742 for the three months ended August 31, 1995. As a percent of sales, gross profit increased from 46% for the six months ended August 31, 1994 to 58% for the six months ended August 31, 1995, and increased from 47% for the three months ended August 31, 1994 to 61% for the three months ended August 31, 1995. For both the six and three month periods the increase in gross profit and gross profit percentage was primarily a result of a change in product mix and a reduction in production overhead costs. Sales of the Company's Nozzle Systems, which realize a higher gross margin as compared to sales of the Company's SonoFlux Systems, comprised 39% and 40% of sales for the six and three month periods ended August 31, 1995 as compared to 24% and 32% of sales for the six and three month periods ended August 31, 1994. The Company's production overhead costs decreased as a result of reduced warranty and labor costs. Research and product development costs increased $51,726 from $145,071 for the six months ended August 31, 1994 to $196,797 for the six months ended August 31, 1995 and increased $21,493 from $74,298 for the three months ended August 31, 1994 to $95,791 for the three months ended August 31, 1995 The increase was primarily a result of increased consulting and labor costs associated with the development of the Company's newest generation of spray fluxing system, the SonoFlux 9500. 6.
Marketing and selling costs decreased $43,828 from $370,395 for the six months ended August 31, 1994 to $326,567 for the six months ended August 31, 1995 and decreased $30,269 from $176,665 for the three months ended August 31, 1994 to $146,396 for the three months ended August 31, 1995. The decrease was primarily as a result of a decrease in travel costs. Travel costs were higher during the six months ended August 31, 1994 as a result of a greater number of sales leads generated by the increased level of advertising that had followed a period of reduced advertising activity. Additionally, during the past six months the Company has concentrated its selling efforts to focus on North American markets, thereby reducing the necessity for costly Far East and European travel. General and administrative costs decreased $65,525 from $258,170 for the six month period ended August 31, 1994 to $192,645 for the six months ended August 31, 1995 and decreased $54,606 from $134,328 for the three months ended August 31, 1994 to $79,722 for the three months ended August 31, 1995. The decrease resulted primarily from a reduction in the Company's reserve for doubtful accounts and a decrease in professional fees. Interest and other income increased $32,826 from $107 for the six months ended August 31, 1994 to $32,933 for the six months ended August 31, 1995. The increase is a result of funding received during the three months ended May 31, 1995 from SEMATECH for work done by the Company under the terms of a joint development agreement. SEMATECH is a consortium of U.S. semiconductor manufacturers and has provided the Company with funds for the development of a photoresist application system, or "Wafer Coating System". For the six months ended August 31, 1995 the Company earned $65,394 or $.02 per share as compared to a net loss of $159,381 or $.04 per share for the six months ended August 31, 1994. For the three months ended August 31, 1995, the Company had earnings of $38,368 or $.01 per share as compared to a net loss of $78,859 or $.02 per share for the three months ended August 31, 1994. The increase in earnings for both the six and three month periods resulted primarily from an increase in sales of the Company's Nozzle Systems, a decrease in general and administrative costs and an increase in other income from SEMATECH. Liquidity and Capital Resources The Company's working capital increased $26,990 to $221,029 at August 31, 1995 as compared to working capital of $194,039 at February 28, 1995. The increase in working capital was primarily a result of profitable operations. The Company's lack of working capital has hampered its ability to efficiently produce and market its products, and has impeded progress toward the development of new products. At times the Company has been unable to make payments to its vendors and certain note holders in a timely fashion. Some vendors have placed the Company's account for collection with a collection agency. During Fiscal 1995 the Company failed to make three of four scheduled interest payments to holders of the convertible secured subordinated promissory notes issued in November 1993. The failure to make such payments constitutes an act of default in accordance 7.
with the terms of the note. In March 1995 the Company and each noteholder agreed to an amendment whereby, among other things, the holder agreed to waive the right of default and remedies based on the Company's failure to make interest payments due on August 15, 1994 and thereafter through and including February 15, 1996. The Company's Chairman, who is entitled to receive consulting compensation from the Company at the rate of $26,000 per year has agreed that payments to him could be deferred commencing June 1993. The amount of such deferral at August 31, 1995 was $57,057. These factors raise serious doubt as to the Company's ability to continue as a going concern. During Fiscal 1995 the Company incurred a significant loss from operations. During this period of time the Company devoted significant resources, including working capital to the development of two new products. The first is a 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. The Company began shipping this new system to customers during the three months ended May 31, 1995. The second new product is a Wafer Coating System to be used in the semiconductor industry for the application of photoresist to semiconductor wafers. The Company anticipates that the Wafer Coating System will be available for shipment to customers during the fourth quarter of Fiscal 1996. Management believes that these new products will lead to broader markets and increased sales and profits quickly enough to improve its working capital position in the short term and to restore its equity in the long term, although there can be no assurances that these goals will be achieved. In order to generate additional working capital, the Company, in February 1995, sold 333,333 shares of common stock to its Chairman and a Noteholder for the fair market value of $100,000. As the long term debt of the Company to the bank matures on November 1, 1996 and the Convertible Secured Subordinated Notes mature on August 15, 1997, the Company will experience substantial difficulties in meeting these obligations unless the level of profitability improves substantially over the next several years or unless the bank and the Noteholders agree to extend the repayment terms of this debt. 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. 8.
PART II - OTHER INFORMATION 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, 1995. 1. The election of two (2) directors of the Company to serve until the Company's 1997 annual meeting of shareholders. For Withheld Total Harvey L. Berger 3,286,260 31,904 3,318,164 Stephen E. Globus 3,281,260 36,904 3,318,164 2. Ratify the appointment of Anchin, Block & Anchin as the Company's independant auditors for the fiscal year ending February 29, 1996. For Against Abstained Total 3,268,563 46,101 3,500 3,318,164 There were no broker non-votes. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports None Item 10. Material Contracts (g) Letter of agreement between the Company and J. Duncan Urquhart Item 27. Financial Data Schedule Edgar filing only 9.
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: October 13, 1995 SONO-TEK CORPORATION By: /s/ James L. Kehoe -------------------------- James L. Kehoe Chief Executive Officer By: /s/ J.Duncan Urquhart -------------------------- J. Duncan Urquhart Treasurer & Chief Financial Officer 10.