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: November 30, 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 December 29, 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 - November 30, 2003 (Unaudited) and
February 28, 2003 1
Consolidated Statements of Operations - Nine Months and Three Months
Ended November 30, 2003 and 2002 (Unaudited) 2
Consolidated Statements of Cash Flows - Nine Months and Three Months
Ended November 30, 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
Signatures and Certifications 15 -18
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
November 30, February 28,
2003 2003
Unaudited Audited
Current Assets
Cash and cash equivalents $ 245,527 $ 265,658
Accounts receivable (less allowance of
$12,046 and $13,675 at November 30 and
February 28, respectively) 624,023 375,040
Inventories 868,998 794,666
Prepaid expenses and other current assets 84,308 56,023
--------- ---------
Total current assets 1,822,856 1,491,387
--------- ---------
Equipment, furnishings and leasehold
improvements (less accumulated depreciation
of $665,925 and $638,341 at November 30 and
February 28, respectively) 63,552 84,878
Intangible assets, net:
Patents and patents pending 26,972 29,520
Deferred financing fees 5,923 11,251
-------- ------
Total intangible assets 32,895 40,771
Other assets 6,541 6,541
-------- ------
TOTAL ASSETS $1,925,844 $1,623,577
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $203,975 $149,920
Accrued expenses 432,656 244,286
Line of Credit 312,000 312,000
Current maturities of long term loans
-related parties 64,876 63,924
Current maturities of long term debt 9,072 9,072
Current maturities of subordinated
mezzanine debt 212,508 141,672
Current maturities of subordinated loans 18,000 43,428
---------- ----------
Total current liabilities 1,253,087 964,302
Subordinated mezzanine debt 637,492 690,722
Long term debt, less current maturities 220,904 250,033
Subordinated loans 109,674 100,674
Other long-term liabilities 69,076 69,076
--------- ---------
Total liabilities 2,290,233 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 November 30 and February 28,
respectively 92,002 92,002
Additional paid-in capital 6,038,869 6,037,305
Accumulated deficit (6,683,483) (6,768,760)
--------- ---------
Total stockholders' deficiency (552,612) (639,453)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $1,925,844 $1,623,577
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
November 30, November 30,
Unaudited Unaudited
2003 2002 2003 2002
Net Sales $2,395,002 $2,234,027 $945,745 $748,036
Cost of Goods Sold 1,018,895 987,895 417,821 301,136
--------- --------- ------- -------
Gross Profit 1,376,107 1,246,132 527,924 446,900
Operating Expenses
Research and product development costs 269,812 262,800 86,983 99,628
Marketing and selling expenses 477,647 433,318 189,677 150,277
General and administrative costs 420,157 411,863 145,028 123,745
--------- --------- -------- --------
Total Operating Expenses 1,167,616 1,107,981 421,688 373,650
--------- --------- -------- --------
Operating Income 208,491 138,151 106,236 73,250
Interest Expense (130,209) (168,432) (38,004) (53,104)
Interest and Other Income 8,105 90,300 250 2,407
-------- -------- ------- ------
Income from Operations
Before Income Taxes 86,387 60,019 68,482 22,553
Income Tax Expense 1,110 3,085 0 2,020
-------- -------- ------- -------
Net Income $ 85,277 $ 56,934 $ 68,482 $20,533
Basic Earnings Per Share $0.01 $0.01 $0.01 $0.00
Diluted Earnings Per Share $0.01 $0.01 $0.01 $0.00
Weighted Average Shares - Basic 9,200,161 9,105,422 9,200,161 9,200,161
Weighted Average Shares - Diluted 10,582,278 10,300,229 10,943,467 9,779,139
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
November 30,
Unaudited
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $85,277 $ 56,934
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 36,595 57,384
Imputed interest expense 17,608 54,815
Provision for doubtful accounts (1,629) (12,106)
(Decrease) Increase in:
Accounts receivable (247,354) (100,430)
Inventories (74,332) (1,096)
Prepaid expenses and other current assets (28,285) 18,647
Increase (Decrease) in:
Accounts payable and accrued expenses 242,424 (96,202)
------- -------
Net Cash Provided By (Used In) Continuing Operations 30,304 (22,054)
Net Cash (Used In) Discontinued Operations 0 (167,403)
------- -------
Net Cash Provided By (Used In) Operating Activities 30,304 (189,457)
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Patent Application Costs (1,137) (10,795)
Purchase of equipment and furnishings (6,257) (8,159)
Deposits 0 (375)
------ -------
Net Cash Used In Investing Activities (7,394) (19,329)
------ -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 0 18,000
Proceeds from the issuance of options 1,564 0
Repayments of loans - related parties (21,373) (44,385)
Repayments of note payable and equipment loans (6,804) (49,375)
Repayments of subordinated loans (16,428) (3,695)
------- ------
Net Cash Used In Financing Activities (43,041) (79,455)
------- ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (20,131) (288,241)
CASH AND CASH EQUIVALENTS
Beginning of period 265,658 453,215
-------- --------
End of period $245,527 $164,974
SUPPLEMENTAL DISCLOSURE:
Interest paid $103,964 $135,676
See notes to consolidated financial statements.
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
Nine Months Ended November 30, 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 nine months ended November 30, 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 nine and three month periods ended November 30, 2003
and 2002 would have been changed to the pro forma amounts indicated
below:
Nine Months Ended Three Months Ended
November 30, November 30,
2003 2002 2003 2002
Net income (loss):
As reported $85,277 $56,934 $68,482 $20,533
Deduct: Total stock based
employee compensation
under intrinsic value
based method for all
awards, net of taxes 6,363 89,483 2,326 66,567
Pro forma net income (loss) $78,914 $(32,549) $66,156 $(46,034)
Basic and diluted earnings per share:
As reported $0.01 $0.01 $0.01 $0.01
Pro forma $0.01 $0.00 $0.01 $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 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
$69,455 and $65,770 at November 30, 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 November 30, 2003 are comprised of:
Finished goods $424,924
Work in process 326,177
Consignment 3,342
Raw materials and subassemblies 312,587
---------
Total 1,067,030
Less: Allowance (198,032
---------
Net inventories $868,998
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 $95,086 of
principal and interest due in the period from August 31, 2002 to
November 30, 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. 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
Noteand 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. The
Norwood Agreement provides for pre-emptive rights to purchase equity
from the Company at the most favorable terms offered to others.
If 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.
Upon measurement and exercise, one third of such put payment by the
Company would be due immediately, with the balance payable over 36
months with interest at 12%.
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 November 30, 2003.
Such deferrals were:
Current maturities of subordinated mezzanine debt $330,568
Current maturities of long-term loans - related parties 81,518
Current maturities of subordinated loans 50,421
Incentive compensation 18,067
Interest 13,567
-------
Total $494,141
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.
As of November 30, 2003, there were 1,057,562 options outstanding
under the 1993 Plan and no further grants are allowable.
The Company's shareholders approved the 2003 Stock Incentive Plan
("2003 Plan") at the August 21, 2003 meeting of shareholders. Under
the 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. 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 exercisable at $0.25 to a
director of the Company and options for 10,000 shares exercisable
at $0.19 to a consultant in the nine months ended November 30,
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
November 30, 2003 and 2002 are calculated as follows:
Nine Months Three Months
Ended Ended
November 30, November 30,
2003 2002 2003 2002
Denominator for
basic earnings per share 9,200,161 9,105,422 9,200,161 9,200,161
Dilutive effect of
warrants 1,161,111 1,129,501 1,423,015 550,000
Dilutive effect of
stock options 221,007 65,305 320,290 28,978
Denominator for dilutive
earnings per share 10,582,278 10,300,229 10,943,467 9,779,139
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 $42,684 from $527,085 at
February 28, 2003 to $569,769 at November 30, 2003. The increase in
working capital was a result of an increase in accounts receivable
of $249,000, an increase in inventory of $74,000 an increase in
prepaid expenses of $28,000, that was offset by an increase in
accounts payable of $54,000, an increase in accrued expenses of
$188,000, an increase in the current maturities of debt of $46,000
and a decrease in cash of $20,000. The stockholders' deficiency
decreased $86,841 from $639,453 at February 28, 2003 to $552,612 at
November 30, 2003. The decrease in stockholders' deficiency was
principally the result of the net profit of $85,277 for the nine
months ended November 30, 2003.
Accounts receivable at November 30, 2003 increased $248,983 or 66%
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 $74,332 or 9% as the result of increased
demand for the Company's products in the current quarter. The
increase was the result of newly introduced products.
Prepaid expenses increased $28,285 or 50% as the result of a
deposit made for contractual work being performed on equipment to
be delivered next quarter.
Accounts payable and accrued expenses increased $54,055 or 36% as
compared to February 28, 2003 due to purchases made to support
increased shipments.
Accrued expenses increased $188,370 or 7% principally as the
result of increased accrued compensation expense, increased
commissions and increased customer deposits.
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 November 30, 2003 and February 28, 2003 the
outstanding balance was $312,000. New borrowings are presently
precluded under this note.
Results of Operations
For the nine months ended November 30, 2003, the Company's sales
increased $160,975, or 7.2%, to $2,395,002 as compared to $2,234,027
for the nine months ended November 30, 2002. The increase was a
result of an increase in fluxer sales of $341,000, an increase in
nozzle sales of $15,000, partially offset by a decrease in sales of
specialty spraying systems of $190,000 and cleaning system spare
part sales of $6,000.
For the three months ended November 30, 2003, the Company's sales
increased $197,709, or 26.4%, to $945,745 as compared to $748,036
for the three months ended November 30, 2002. The increase was a
result of an increase in fluxer sales of $300,000, nozzle sales of
$2,000, and cleaning system spare part sales of $15,000, partially
offset by a decrease in sales of specialty spraying systems of
$120,000.
The Company's gross profit increased $129,974 to $1,376,107 for the
nine months ended November 30, 2003 from $1,246,133 for the nine
months ended November 30, 2002. The gross profit margin was 57.5%
of sales for the nine months ended November 30, 2003 as compared to
55.8% of sales for the nine months ended November 30, 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 $7,012 to $269,812
for the nine months ended November 30, 2003 from $262,800 for the
nine months ended November 30, 2002. The increase was due to
increased labor and fringes of $13,000, partially offset by reduced
travel of $3,000 and reduced costs for facility, utilities and
supplies. Research and product development costs of $50,000
incurred in the nine months ended November 30, 2002 were used to
manufacture saleable inventory items, and accordingly, were recorded
in inventory. During the nine months ended November 30, 2003
research and development personnel were not utilized for
manufacturing.
Research and product development costs decreased $12,645 to $86,983
for the three months ended November 30, 2003 from $99,628 for the
three months ended November 30, 2002. The decrease was due to less
engineering materials purchased this year.
Marketing and selling costs increased $44,329 and $39,400 for the
respective nine and three month periods ended November 30, 2003 as
compared to the same periods ended November 30, 2002. The increases
were due principally to increased commissions partially offset by
reduced labor and fringe benefits, facility, utility and trade show
costs.
General and administrative costs increased $21,283 and $8,294 for
the respective six and three month periods ended November 30, 2003
as compared to the same periods ended November 30, 2002. The
increase was due principally to increased payroll, legal, travel and
relocation costs partially offset by reduced bank fees and
consulting expenses.
Interest expense decreased $38,223 to $130,209 for the nine months
ended November 30, 2003 from $168,432 for the nine months ended
November 30, 2002. Interest expense decreased $15,100 to $38,004
for the three months ended November 30, 2003 from $53,104 for the
three months ended November 30, 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 $82,195 for the nine months
ended November 30, 2003 as compared to the nine months ended
November 30, 2002 and $2,157 for the three months period ended
November 30, 2003 as compared to the three month period ended
November 30, 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 $85,277 and $68,482 for the six and
three month periods ended November 30, 2003 as compared to $56,934
and $20,533 for the nine and three month periods ended November 30,
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 November 30, 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 November 30, 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
None
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 October 15,
2003 relating to a press release on the results of
operations for the quarter ended August 31, 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: December 29, 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: December 29, 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 November 30, 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: December 29, 2003
/s/ Christopher L. Coccio
Christopher L. Coccio
Chief Executive Officer and President
(principal executive and accounting officer)