UNITED STATES
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: May 31, 2005
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 July 8, 2005
----- ------------
Common Stock, par value $.01 per share 14,168,497
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Consolidated Financial Statements: 1 - 3
Consolidated Balance Sheets - May 31, 2005 (Unaudited) and
February 28, 2005 1
Consolidated Statements of Operations - Three Months Ended
May 31, 2005 and 2004 (Unaudited) 2
Consolidated Statements of Cash Flows - Three Months Ended
May 31, 2005 and 2004 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 8
Item 2 - Management's Discussion and Analysis or Plan of Operations 9 - 13
Item 3 - Controls and Procedures 14
Part II - Other Information 15
Signatures and Certifications 16 - 22
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, February 28,
2005 2005
Unaudited Audited
--------- -------
Current Assets
Cash and cash equivalents $ 591,803 $ 421,043
Accounts receivable (less allowance of $20,942 and $18,123
at May 31and February 28, respectively) 1,009,359 813,703
Inventories 1,417,118 1,338,410
Prepaid expenses and other current assets 61,875 111,714
Deferred tax asset 117,000 117,000
----------- -----------
Total current assets 3,197,155 2,801,870
----------- -----------
Equipment, furnishings and leasehold improvements
(less accumulated depreciation of $735,478 and
$720,386 at May 31and February 28, respectively) 198,813 140,133
Intangible assets, net 21,805 22,894
Other assets 7,171 7,171
Deferred tax asset 468,000 468,000
----------- -----------
TOTAL ASSETS $ 3,892,944 $ 3,440,068
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 245,360 $ 292,729
Accrued expenses 464,018 491,828
Line of Credit 0 350,000
Current maturities of long term debt 7,442 0
----------- -----------
Total current liabilities 716,820 1,134,557
Long term debt, less current maturities 33,765 0
----------- -----------
Total liabilities 750,585 1,134,557
----------- -----------
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares authorized,
14,168,497 and 13,825,640 shares issued and outstanding
at May 31 and February 28, respectively 141,686 138,257
Additional paid-in capital 7,975,254 7,371,233
Stock Subscriptions (15,750) (15,750)
Accumulated deficit (4,958,831) (5,188,229)
----------- -----------
Total stockholders' equity 3,142,359 2,305,511
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,892,944 $ 3,440,068
=========== ===========
See notes to consolidated financial statements.
1
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended May 31,
--------------------------
Unaudited
2005 2004
-----------------------------
Net Sales $ 1,832,364 $ 1,206,432
Cost of Goods Sold 944,278 529,496
------------ ------------
Gross Profit 888,086 676,936
------------ ------------
Operating Expenses
Research and product development costs 145,773 96,136
Marketing and selling expenses 311,558 234,353
General and administrative costs 199,293 183,876
------------ ------------
Total Operating Expenses 656,624 514,365
------------ ------------
Operating Income 231,462 162,572
Interest Expense (2,761) (31,360)
Interest and Other Income 947 3,399
------------ ------------
Income from Operations Before Income Taxes 229,648 134,610
Income Tax Expense (250) 0
------------ ------------
Net Income $ 229,398 $ 134,610
============ ============
Basic Earnings Per Share $ 0.02 $ 0.01
============ ============
Diluted Earnings Per Share $ 0.02 $ 0.01
============ ============
Weighted Average Shares - Basic 13,952,488 10,853,471
============ ============
Weighted Average Shares - Diluted 14,386,259 12,973,240
============ ============
See notes to consolidated financial statements.
2
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended May 31,
Unaudited
2005 2004
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 229,398 $ 134,610
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 16,181 10,995
Provision for doubtful accounts 2,819 3,000
Decrease (Increase) in:
Accounts receivable (198,475) 135,518
Inventories (78,708) (202,831)
Prepaid expenses and other current assets 49,839 33,841
Decreases in:
Accounts payable and accrued expenses (75,178) (594)
--------- ---------
Net Cash (Used In) Provided By Operating Activities (54,124) 114,539
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent Application Costs -- (346)
Purchase of equipment and furnishings (73,772) (5,777)
Other -- (630)
--------- ---------
Net Cash Used In Investing Activities (73,772) (6,753)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of Credit Repayment (350,000) --
Proceeds from exercise of stock options and warrants 285,723 28,756
Proceeds from issuance of stock 321,727 --
Conversion of debt to equity -- 20,636
Loan payments/exchanges -- (20,636)
Proceeds (Repayments) of notes payable 41,206 (7,182)
--------- ---------
Net Cash Provided By Financing Activities 298,656 21,574
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 170,760 129,360
CASH AND CASH EQUIVALENTS
Beginning of period 421,043 189,987
--------- ---------
End of period $ 591,803 $ 319,347
========= =========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 2,761 $ 23,120
========= =========
Income taxes paid $ 753 $ 0
========= =========
See notes to consolidated financial statements.
3
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
Three Months Ended May 31, 2005 and 2004
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, 2005, 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 Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for the 2003 and 1993 Plans. 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 month periods ended May 31, 2005 and 2004 would have
been changed to the pro forma amounts indicated below:
4
Three Months Ended
May 31,
2005 2004
---- ----
Net income:
As reported $229,398 $134,610
Deduct: Total stock based
employee compensation under
intrinsic value based method for
all awards, net of tax effects 53,111 8,999
-------- --------
Pro forma net income (loss) $176,287 $125,611
======== ========
Basic and diluted earnings per share:
As reported $ 0.02 $ 0.01
Pro-forma $ 0.01 $ 0.01
Intangible Assets - Include cost of patent applications that are deferred and
charged to operations over seventeen years for domestic patents and twelve years
for foreign patents. The accumulated amortization is $46,576 and $45,488 at May
31, 2005 and February 28, 2005, respectively.
Reclassifications - Certain reclassifications have been made to the prior period
to conform with the presentations of the current period.
NOTE 2: INVENTORIES
Inventories at May 31, 2005 are comprised of:
Finished goods $ 505,671
Work in process 546,072
Consignment 9,305
Raw materials and subassemblies 616,320
-----------
Total 1,677,368
Less: Allowance (260,250)
-----------
Net inventories $ 1,417,118
===========
NOTE 3: EQUITY TRANSACTIONS
On May 3, 2005, the Company sold 125,000 shares of its common stock at $2.30 per
share and issued a warrant to purchase an additional 25,000 shares of common
stock at $2.45 per share to an institutional investor in a private placement. On
May 9, 2005, a warrant for 50,000 shares was exercised for $1.00 per share. On
May 11, 2005, a warrant for 142,857 shares of the Company's common stock was
exercised at $1.75 per share by Empire State Development Corporation, Small
Business Technology Investment Fund.
5
NOTE 4: STOCK OPTIONS AND WARRANTS
Stock Options - Under the 2003 Stock Incentive Plan, as amended ("2003 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. The 2003 Plan supplemented and replaced the 1993 Stock Incentive Plan
(the "1993 Plan"), under which no further options may be granted. Options
granted under the 1993 Plan expire on various dates through 2013. As of May 31,
2005 there were 152,062 options outstanding under the 1993 Plan and 749,000
options outstanding under the 2003 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 terminating at a stipulated period of time after an
employee's termination of employment.
Warrants - On May 11, 2005, a warrant for 142,857 shares of the Company's common
stock was exercised at $1.75 per share by Empire State Development Corporation,
Small Business Technology Investment Fund.
6
NOTE 5: EARNINGS PER SHARE
The denominator for the calculation of diluted earnings per share at May 31,
2005 and 2004 are calculated as follows:
May 31, 2005 May 31, 2004
------------ ------------
Denominator for basic earnings per share 13,952,488 10,853,471
Dilutive effect of warrants 51,888 1,940,209
Dilutive effect of stock options 381,883 179,560
---------- ----------
Denominator for diluted earnings per share 14,386,259 12,973,240
========== ==========
NOTE 6: NEW ACCOUNTING DEVELOPMENTS
FASB 123 (revised 2004) - Share-Based Payments
In December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock Based Compensation. This Statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." This Statement does not address
the accounting for employee share ownership plans, which are subject to AICPA
Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership
Plans.
A nonpublic entity will measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of those instruments, except in certain circumstances.
A public entity will initially measure the cost of employee services received in
exchange for an award of liability instruments based on its current fair value;
the fair value of that award will be re-measured subsequently at each reporting
date through the settlement date. Changes in fair value during the requisite
service period will be recognized as compensation cost over that period. A
nonpublic entity may elect to measure its liability awards at their intrinsic
value through the date of settlement.
7
The grant-date fair value of employee share options and similar instruments will
be estimated using the option-pricing models adjusted for the unique
characteristics of those instruments (unless observable market prices for the
same or similar instruments are available).
Excess tax benefits, as defined by this Statement, will be recognized as an
addition to paid-in-capital. Cash retained as a result of those excess tax
benefits will be presented in the statement of cash flows as financing cash
inflows. The write-off of deferred tax assets relating to unrealized tax
benefits associated with recognized compensation cost will be recognized as
income tax expense unless there are excess tax benefits from previous awards
remaining in paid-in capital to which it can be offset.
The notes to the financial statements of both public and nonpublic entities will
disclose information to assist users of financial information to understand the
nature of share-based payment transactions and the effects of those transactions
on the financial statements.
For public entities that file as small business issuers the effective date will
be as of the beginning of the first interim or annual reporting period that
begins after December 15, 2005, Management intends to comply with this Statement
at the scheduled effective date for the relevant financial statements of the
Company.
NOTE 7: SUBSEQUENT EVENTS
As previously disclosed on Form 8-K, filed on July 5, 2005, the Company
determined that a former employee had misappropriated approximately $250,000 of
the Company's monies, primarily through unauthorized check writing from the
Company's accounts over a period of time. The Company has previously expensed
substantially all of the misappropriated funds and the net effect on the
Company's results for the quarter ended May 31, 2005 is approximately $18,000.
As of July 5, 2005, the Company had pursued appropriate remedies to recover the
majority of the funds, and is proceeding to do so. However, the Company can
offer no assurance that it will be successful in its efforts to collect some or
all of the anticipated remaining restitution according to the negotiated
schedule of payments.
8
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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.
The Company undertakes no obligation to update publicly any forward-looking
statement.
Overview
Sono-Tek has developed a unique and proprietary series of ultrasonic atomization
nozzles, which are being used in an increasing variety of electronic, medical,
industrial, and nanotechnology applications. These nozzles are electrically
driven and create a fine, uniform, low velocity spray of atomized liquid
particles, in contrast to common pressure nozzles. These characteristics create
a series of commercial applications that benefit from the precise, uniform, thin
coatings that can be achieved. When combined with significant reductions in
liquid waste and less overspray than can be achieved with ordinary pressure
nozzle systems, there is lower environmental impact.
The Company has a well established position in the electronics industry with its
SonoFlux spray fluxing equipment. It saves customers from 40% to 80% of the
liquid flux required to solder printed circuit boards over more labor intensive
methods, such as foam fluxing. Less flux equates to lower material cost, fewer
chemicals in the workplace, and less clean-up. Also, the SonoFlux equipment
reduces the number of soldering defects, which reduces the level of rework. The
electronics industry market appears to be in a stable to moderate growth period.
In the past two years, the Company has focused engineering resources on the
medical device market, with emphasis on providing coating solutions for the new
generation of drug coated stents. The Company has sold many specialized
ultrasonic nozzles and AccuMist(TM) and Micromist stent coating systems to large
pharmaceutical and medical device customers. Sono-Tek's stent coating systems
are superior compared to pressure nozzles in their ability to uniformly coat the
very small arterial stents without creating webs or gaps in the coatings. The
Company sells a bench-top, fully outfitted stent coating system to a wide range
of customers that are manufacturing stents and/or applying coatings to be used
in developmental trials. The Company is licensed to use a unique patented
vacuum-based ultrasonic system capable of uniformly coating batches of stents
with anti-restenosis coatings, and has offered this technology to selected
manufacturers.
9
The Company also committed engineering resources to develop a general industrial
coating product, the WideTrack coating system, which is finding increasing
applications in the glass, food and textile manufacturing industries. The
WideTrack is saving customers money by reducing the use of materials and
lessening the environmental impact by significantly reducing overspray, which is
common with other types of coating systems.
In conclusion, the Company's sales levels have increased as the result of an
improved economy, product development efforts, related marketing thrusts and
international expansion which have had the effects of improving net income,
reducing debt, and increasing shareholders' equity.
Liquidity and Capital Resources
The Company's working capital increased $813,022 from a working capital of
$1,667,313 at February 28, 2005 to $2,480,335 at May 31, 2005. The Company's
current ratio is 4.46 to 1 at May 31, 2005 as compared to 2.47 to 1 at February
28, 2005. Stockholders' equity increased $836,848 from $2,305,511 at February
28, 2005 to $3,142,359 at May 31, 2005. The increase in stockholders' equity was
the result of the net profit of $229,000 for the three months ended May 31,
2005, warrant exercises of $286,000 and stock issuance of $322,000.
Inventory increased $79,000 from $ 1,338,000 to $1,417,000 as the result of
diversification of the Company's product lines.
The Company repaid $350,000 of its $500,000 revolving credit line with M&T bank
on April 12, 2005. The Company has no outstanding borrowings under this line as
of July 8, 2005.
Results of Operations
For the three months ended May 31, 2005, the Company's sales increased $626,000
or 52% to $1,832,000 as compared to $1,206,000 for the three months ended May
31, 2004. The increase was principally the result of sales of new products, such
as stent coaters, SonoDry spray dryers, WideTrack systems and the expansion into
new geographical markets.
The Company's gross profit increased $211,000 to $888,000 for the three months
ended May 31, 2005 from $677,000 for the three months ended May 31, 2004. The
gross profit margin was 48.5% of sales for the three months ended May 31, 2005
as compared to 56.1% of sales for the three months ended May 31, 2004. The
changes in gross margin occurred due to a changing mix of products in each
period.
Research and product development costs increased $50,000 to $146,000 for the
three months ended May 31, 2005 from $96,000 for the three months ended May 31,
2004. The increase was principally due to an increase in engineering personnel
and increased purchases of research and development materials in the current
period.
10
Marketing and selling costs increased $77,000 to $312,000 for the three months
ended May 31, 2005 from $234,000 for the three months ended May 31, 2004. The
increase was due principally to increased commissions, increased travel
expenses, increased salaries and fringe benefit costs.
General and administrative costs increased $15,000 to $199,000 for the three
months ended May 31, 2005 from $184,000 for the three months ended May 31, 2004.
The increase was due principally to increased salaries and fringe benefit costs.
Interest expense decreased $29,000 to $3,000 for the three months ended May 31,
2005 from $32,000 for the three months ended May 31, 2004. The decrease is
primarily due to reduced interest and amortization on the Norwood loans and
reduced interest on related party and bank loans.
The Company's net income was $229,000 for the three months ended May 31, 2005 as
compared to $135,000 for three months ended May 31, 2004. The increase is
primarily due to an increase in sales of $626,000 or 52% to $1,832,000 as
compared to $1,206,000 for the three months ended May 31, 2004.
The Company's backlog of firm orders was $512,000 at May 31, 2005. All of these
orders are deliverable before the end of the Company's current fiscal year,
which is February 28, 2006.
As previously disclosed on Form 8-K, filed on July 5, 2005, the Company
determined that a former employee had misappropriated Company monies, primarily
through unauthorized check writing from Company accounts over a period of time.
The Company has previously expensed these monies and the net effect on the
Company's results for the quarter ended May 31, 2005 is approximately $18,000.
The current effect of this misappropriation was an increase in Marketing and
Selling costs of approximately $15,000 and an increase in General and
Administrative costs of approximately $3,000.
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 2 to the Company's consolidated financial
statements included in Form 10-KSB for the year ended February 29, 2005.
11
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.
During the fourth quarter of the year ended February 29, 2004, the Company
reduced the valuation reserve for the deferred tax asset resulting from the net
operating losses carried forward due to the Company having demonstrated
consistent profitable operations. In the event that actual results differ from
these estimates, the Company may need to again adjust such valuation reserve.
Impact of New Accounting Pronouncements
FASB 123 (revised 2004) - Share-Based Payments
In December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock Based Compensation. This Statement supercedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." This Statement does not address
the accounting for employee share ownership plans, which are subject to AICPA
Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership
Plans.
A nonpublic entity will measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of those instruments, except in certain circumstances.
A public entity will initially measure the cost of employee services received in
exchange for an award of liability instruments based on its current fair value;
the fair value of that award will be re-measured subsequently at each reporting
date through the settlement date. Changes in fair value during the requisite
service period will be recognized as compensation cost over that period. A
nonpublic entity may elect to measure its liability awards at their intrinsic
value through the date of settlement.
12
The grant-date fair value of employee share options and similar instruments will
be estimated using the option-pricing models adjusted for the unique
characteristics of those instruments (unless observable market prices for the
same or similar instruments are available).
Excess tax benefits, as defined by this Statement, will be recognized as an
addition to paid-in-capital. Cash retained as a result of those excess tax
benefits will be presented in the statement of cash flows as financing cash
inflows. The write-off of deferred tax assets relating to unrealized tax
benefits associated with recognized compensation cost will be recognized as
income tax expense unless there are excess tax benefits from previous awards
remaining in paid-in capital to which it can be offset.
The notes to the financial statements of both public and nonpublic entities will
disclose information to assist users of financial information to understand the
nature of share-based payment transactions and the effects of those transactions
on the financial statements.
For public entities that file as small business issuers the effective date will
be as of the beginning of the first interim or annual reporting period that
begins after December 15, 2005, Management intends to comply with this Statement
at the scheduled effective date for the relevant financial statements of the
Company.
13
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 Stephen J.
Bagley, Chief Financial Officer (principal accounting officer) of the Company,
have evaluated the Company's disclosure controls and procedures as of May 31,
2005. Except as set forth below, based on this evaluation, they have 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.
As previously disclosed on Form 8-K, filed on July 5, 2005, the Company
determined that a former employee had misappropriated Company monies, primarily
through unauthorized check writing from Company accounts over a period of time.
In response, the Company has taken steps to improve its internal controls to
minimize the risk of recurrence. The steps include the expansion of the
accounting department, thus enabling a greater segregation of duties. All cash
disbursements are subject to increased review and scrutiny. The Company's
payroll is now prepared by an employee with no check writing authority.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On May 3, 2005, the Company sold 125,000 shares of its common
stock at $2.30 per share and issued a warrant to purchase an
additional 25,000 shares of common stock at $2.45 per share to
an institutional investor in a private placement. Such shares
and warrants were issued in reliance of the exemption of
Section 4(2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits
31.1 - 31.2 - Rule 13a - 14(a)/15d - 14(a) Certification
32.1 - 32.2 - Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
15
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: July 14, 2005
SONO-TEK CORPORATION
(Registrant)
/s/ Christopher L. Coccio
By: ____________________________________
Christopher L. Coccio
Chief Executive Officer and President
/s/ Stephen J. Bagley
By: ____________________________________
Stephen J. Bagley
Chief Financial Officer
16