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: August 31, 1997 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 10, 1997 ----- ---------------- Common Stock, par value $.01 per share 4,374,387
SONO-TEK CORPORATION INDEX Part I - Financial Information Page Item 1 - Financial Statements: 1 - 3 Balance Sheets - August 31, 1997 (Unaudited) and February 28, 1997 1 Statements of Operations - Six Months and Three Months Ended August 31, 1997 and 1996 (Unaudited) 2 Statements of Cash Flows - Six Months Ended August 31, 1997 and 1996 (Unaudited) 3 Notes to Financial Statements 4 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 5 - 6 Part II - Other Information 7 Item 3 - Quantitative and Qualitative Disclosures about Market Risk - Not Applicable - Signatures 8
SONO-TEK CORPORATION BALANCE SHEETS <TABLE> <CAPTION> August 31 February 28 1997 1997 ASSETS Unaudited -------------------------- CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $ 79,684 $ 107,746 Accounts receivable (net of allowance for doubtful accounts of $41,814 at August 31 and $35,814 at February 28) 511,082 525,750 Inventories (Note C) 534,925 469,241 Prepaid expenses and other current assets 14,774 33,441 ------------- ------------- Total Current Assets 1,140,465 1,136,178 Equipment, furnishings and leasehold improvements (less accumulated depreciation of $353,395 at August 31 and $339,829 at February 28) 45,699 56,574 Patents, patents pending and copyrights (less amortization of $119,432 at August 31 and $116,318 at February 28) 49,685 52,799 Other assets 6,317 6,317 ------------- ------------- T O T A L 1,242,166 $ 1,251,868 ============= ============= LIABILITIES Current maturities of long term debt 94,200 $ 94,370 Accounts payable 229,245 267,673 Accrued expenses (Note E) 285,730 354,381 ------------- ------------- Total Current Liabilities 609,175 716,424 ------------- ------------- Long term debt, less current maturities 530,000 576,056 Non-current rent payable 4,662 666 ------------- ------------- Total Liabilities 1,143,837 1,293,146 ------------- ------------- STOCKHOLDERS' EQUITY (DEFICIENCY) Common stock - $.01 par value: (Note E) Authorized - 12,000,000 shares Issued - 4,374,387 at August 31 and 4,204,913 at February 28 43,744 42,049 Additional paid-in capital 3,824,220 3,758,128 Deficit (3,769,635) (3,841,455) ------------- ------------- Total Stockholders' Equity (Deficiency) 98,329 (41,278) ------------- ------------- T O T A L $ 1,242,166 $ 1,251,868 ============= ============= </TABLE> 1
<TABLE> SONO-TEK CORPORATION STATEMENTS OF OPERATIONS <CAPTION> Six Months Ended Three Months Ended ---------------------------- ----------------------------- August 31 August 31 Unaudited Unaudited 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> NET SALES $ 1,575,428 $ 1,501,698 $ 813,685 $ 750,061 COST OF GOODS SOLD 776,390 739,916 392,733 360,302 ------------- ------------- -------------- ------------- Gross Profit 799,038 761,782 420,952 389,759 ------------- ------------- -------------- ------------- OPERATING EXPENSES Research and product development costs 171,593 184,631 84,325 97,038 Marketing and selling expenses 339,449 308,232 166,597 149,057 General and administrative costs 190,912 191,657 96,743 103,862 ------------- ------------- -------------- ------------- Total Operating Expenses 701,954 684,520 347,665 349,957 ------------- ------------- -------------- ------------- OPERATING INCOME 97,084 77,262 73,287 39,802 INTEREST EXPENSE 25,264 32,257 12,184 15,937 INTEREST AND OTHER INCOME 0 19 0 3 ------------- ------------- -------------- ------------- NET INCOME $ 71,820 $ 45,024 $ 61,103 $ 23,868 ============= ============= ============== ============= INCOME PER COMMON SHARE (NOTE D) $ 0.02 $ 0.01 $ 0.01 $ 0.01 ============= ============= ============== ============= WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED TO COMPUTE EARNINGS PER SHARE 4,318,203 4,204,913 4,374,387 4,204,913 </TABLE> 2
SONO-TEK CORPORATION Statements of Cash Flows For Six Months Ended August 31 1997 1996 Unaudited ---------------------- Cash flows from operating activities: Net income $ 71,820 $ 45,024 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,680 30,072 Allowance for doubtful accounts 6,000 1,500 (Increase) decrease in: Accounts receivable 8,667 (9,904) Inventories (65,684) (10,673) Prepaid expenses and other current assets 18,667 7,028 Increase (decrease) in: Accounts payable & accrued expenses (Note E) (39,292) (29,061) Noncurrent rent payable 3,996 (5,575) Notes and obligations payable - professional fees (7,000) (500) Notes and obligations payable - lease termination 0 (10,522) --------- --------- Total adjustments (57,966) (27,635) --------- --------- Net cash used in operating activities 13,854 17,389 --------- --------- Cash flows from investing activities: Fixed asset, patent and copyright acquisition costs (2,690) (7,986) Cash flows from financing activities: Payments of capitalized leases 0 (3,485) Repayments of note payable - bank (39,226) (32,201) --------- --------- Net cash used in financing activities (39,226) (35,686) --------- --------- Net decrease in cash and cash equivalents (28,062) (26,283) Cash and cash equivalents: Beginning of period 107,746 69,033 --------- --------- End of period $ 79,684 $ 42,750 ========= ========= Supplemental disclosure: Interest paid $ 5,774 $ 25,565 Income taxes paid $ 0 $ 0 Non-cash exchange of accrued interest for common stock (Note E) $ 67,787 $ 0 3
SONO-TEK CORPORATION Notes to Financial Statements August 31, 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, 1997, 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, 1997 is comprised of: Finished goods $112,334 Work in process 133,731 Raw materials and subassemblies 288,860 -------- Total $534,925 ======== NOTE D: Income 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 E: In April 1997 the holders of $530,000 of Subordinated Convertible Notes entered into an agreement with the Company (the "Third Note Amendment Agreement") whereby the holders agreed to (1) accept 169,474 shares of the Company's Common Stock as payment for $67,787 of interest due as of February 15, 1997; (2) waive the default as to nonpayment of interest until March 1, 1998; (3) extend the due date of the note from August 15, 1997 until August 15, 2000; and (4) reduce the interest rate from 1/2% below prime to 1% below prime. 4
SONO-TEK CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- The Company's sales increased $73,730 to $1,575,428 for the six months ended August 31, 1997 as compared to $1,501,698 for the six months ended August 31, 1996. The increase was primarily a result of increased sales of the Company's SonoFlux Systems. Sales of this product increased approximately $152,000, while sales of the Company's Nozzle Systems decreased approximately $78,000. For the three months ended August 31, 1997 the Company's sales increased $63,624 to $813,685 as compared to sales of $750,061 for the three months ended August 31, 1996. During this three month period sales of the Company's SonoFlux Systems increased approximately $39,000 and sales of the Company's Nozzle Systems increased approximately $25,000. The Company believes the increase in sales of the SonoFlux System is a result of its efforts to provide the circuit board assembly industry with equipment that is reliable and cost-effective. The Company's gross profit increased $37,256 from $761,782 for the six month period ended August 31, 1996 to $799,038 for the six month period ended August 31, 1997, and increased $31,193 from $389,759 for the three months ended August 31, 1996 to $420,952 for the three months ended August 31, 1997. For both the three and six month periods the increase in gross profit was attributed to an increase in sales of the Company's products. Research and product development costs decreased $13,038 from $184,631 for the six months ended August 31, 1996 to $171,593 for the six months ended August 31, 1997 and decreased $12,713 from $97,038 for the three months ended August 31, 1996 to $84,325 for the three months ended August 31, 1997. The decrease for both the three and six month periods was primarily as a result of decreased compensation and consulting costs associated with the development of the "SonoFlux 9500". Marketing and selling costs increased $31,217 from $308,232 for the six months ended August 31, 1996 to $339,449 for the six months ended August 31, 1997 and increased $17,540 from $149,057 for the three months ended August 31, 1996 to $166,597 for the three months ended August 31, 1997. The increase for the six month period ended August 31, 1997 was primarily a result of an increase in outside commissions, compensation and advertising costs. The increase for the three month period ended August 31, 1997 was primarily a result of increased compensation and advertising costs. General and administrative costs decreased $7,119 from $103,862 for the three month period ended August 31, 1996 to $96,743 for the three month period ended August 31, 1997. Such costs decreased primarily as a result of lower compensation costs as well a decrease in finance charges assessed on past due vendor accounts. 5
Interest expense decreased $6,993 from $32,257 for the six month period ended August 31, 1996 to $25,264 for the six months ended August 31, 1997 and decreased $3,753 from $15,937 for the three month period ended August 31, 1996 to $12,184 for the three months ended August 31, 1997. The decrease in interest expense is primarily a result of the increasing maturity of the Company's loan with its bank. As such loan matures, the amount of each fixed monthly payment which pertains to interest declines as the amount applied to principal increases. For the six months ended August 31, 1997 the Company had earnings of $71,820 or $0.02 per share as compared to earnings of $45,024 or $0.01 per share for the six months ended August 31, 1996. For the three months ended August 31, 1997, the Company had earnings of $61,103 or $.01 per share as compared to earnings of $23,868 or $.01 per share for the three months ended August 31, 1996. The increase in earnings for both the six and three month periods resulted primarily from an increase in sales of the Company's products. Liquidity and Capital Resources - ------------------------------- The Company's working capital increased $111,536 to $531,290 at August 31, 1997 as compared to working capital of $419,754 at February 28, 1997. The increase in working capital was primarily a result of profitable operations and restructured debt. On April 30, 1997 the Company reached an agreement with the holders of $530,000 of Subordinated Convertible Notes whereby they agreed to, among other things, accept shares of the Company's Common Stock as payment for the total amount of interest due as of February 28, 1997 and extend the term of the Notes until August 2000. The improvement in working capital has allowed the Company to make steady progress in its efforts to reduce trade obligations and outstanding debt. The Company has improved its position with many of its trade vendors, however, payments remain in arrears with many others. Although there can be no assurances, management believes that working capital generated by continuing operations will be sufficient to support the Company's working capital needs for the next twelve months based on anticipated sales levels. 6
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, 1997. 1. The election of three (2) directors of the Company to serve until the Company's 1999 annual meeting of shareholders. For Withheld Total --- -------- ----- Harvey L. Berger 3,503,681 19,425 3,523,106 Stephen E. Globus 3,508,106 15,000 3,523,106 2. Ratify the appointment of Deloitte & Touche LLP as the Company's independent auditors for the fiscal year ending February 28, 1998. For Against Abstained Total --- ------- --------- ----- 3,467,505 46,701 8,900 3,523,106 There were no broker non-votes. 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 7
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 10, 1996 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 8