UNITED STATES
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: May 31, 2008
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 Identification No.)
incorporation or organization)
|
2012 Rt. 9W, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (845) 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 |_|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |_| Accelerated Filer |_| Smaller reporting company |X| Non Accelerated Filer |_| (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
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:
Class Outstanding as of June 25, 2008
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Common Stock, par value $.01 per share 14,361,091
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SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Consolidated Financial Statements: 1 - 3
Consolidated Balance Sheets - May 31, 2008 (Unaudited) and
February 29, 2008 1
Consolidated Statements of Income - Three Months Ended
May 31, 2008 and 2007 (Unaudited) 2
Consolidated Statements of Cash Flows - Three Months Ended
May 31, 2008 and 2007 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 7
Item 2 - Management's Discussion and Analysis or Plan of Operations 8 - 11
Item 4 - Controls and Procedures 12
Part II - Other Information 13
Signatures and Certifications 14 - 20
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SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, February 29,
2008 2008
Current Assets Unaudited
-----------
Cash and cash equivalents $ 1,553,573 $ 2,339,550
Accounts receivable (less allowance of $18,500
at May 31 and February 29) 821,601 614,378
Inventories 1,822,360 1,602,511
Prepaid expenses and other current assets 111,692 69,032
Deferred tax asset 70,000 70,000
----------- -----------
Total current assets 4,379,226 4,695,471
----------- -----------
Equipment, furnishings and leasehold improvements
(less accumulated depreciation of $1,074,750
and $1,046,195 at May 31 and February 29,
respectively) 520,197 536,892
Intangible assets, net 46,220 34,011
Other assets 7,171 7,171
Deferred tax asset 615,803 615,803
----------- -----------
TOTAL ASSETS $ 5,568,617 $ 5,889,348
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 287,761 $ 412,692
Accrued expenses 342,879 452,911
Current maturities of long term debt 21,137 23,909
Deferred tax liability 16,239 16,239
----------- -----------
Total current liabilities 668,016 905,751
Long term debt, less current maturities 23,283 27,628
Deferred tax liability 57,978 57,978
----------- -----------
Total liabilities 749,277 991,357
----------- -----------
Commitments and Contingencies -- --
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares
authorized, 14,361,091 shares issued and
outstanding at May 31 and February 29 143,612 143,612
Additional paid-in capital 8,395,687 8,343,880
Accumulated deficit (3,719,959) (3,589,501)
----------- -----------
Total stockholders' equity 4,819,340 4,897,991
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,568,617 $ 5,889,348
=========== ===========
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See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three Months Ended May 31,
2008 2007
-----------------------------------
Net Sales $ 1,620,521 $ 1,232,643
Cost of Goods Sold 831,657 629,133
------------ ------------
Gross Profit 788,864 603,510
------------ ------------
Operating Expenses
Research and product development costs 205,570 194,740
Marketing and selling expenses 413,910 234,044
General and administrative costs 308,655 214,988
------------ ------------
Total Operating Expenses 928,135 643,772
------------ ------------
Operating (Loss) (139,271) (40,262)
------------ ------------
Interest Expense (803) (1,235)
Interest Income 6,785 24,767
Other Income 2,831 2,831
------------ ------------
8,813 26,363
------------ ------------
(Loss) Before Income Taxes (130,458) (13,899)
Income Tax (Benefit) -- (33,813)
------------ ------------
Net (Loss) Income $ (130,458) $ 19,914
============ ============
Basic Earnings Per Share $ (0.01) $ 0.00
============ ============
Diluted Earnings Per Share $ (0.01) $ 0.00
============ ============
Weighted Average Shares - Basic 14,361,091 14,360,541
============ ============
Weighted Average Shares - Diluted 14,361,091 14,436,298
============ ============
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See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended May 31,
2008 2007
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (130,458) $ 19,914
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 50,413 32,459
Stock based compensation expense 51,807 10,538
Gain on sale of equipment 23,384 --
Decrease (Increase) in:
Accounts receivable (207,223) 259,639
Inventories (219,849) (146,790)
Prepaid expenses and other current assets (42,660) (33,552)
Deferred tax asset -- (35,000)
Increase (Decrease) in:
Accounts payable and accrued expenses (234,963) (39,187)
----------- -----------
Net Cash (Used In) Provided By Operating Activities (709,549) 68,021
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent application costs (13,142) --
Purchase of equipment and furnishings (56,169) (28,788)
----------- -----------
Net Cash Used In Investing Activities (69,311) (28,788)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (7,117) (6,701)
----------- -----------
Net Cash Used In Financing Activities (7,117) (6,701)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (785,977) 32,532
CASH AND CASH EQUIVALENTS
Beginning of year 2,339,550 2,268,976
----------- -----------
End of period $ 1,553,573 $ 2,301,508
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 801 $ 1,294
=========== ===========
Income taxes paid $ 6,250 $ 1,187
=========== ===========
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See notes to consolidated financial statements.
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements Three Months Ended May 31, 2008 and 2007
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") which the Company acquired on August 3, 1999, whose operations have been discontinued. There have been no operations of this subsidiary since Fiscal Year Ended February 28, 2002. All significant intercompany accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents - Cash and cash equivalents consist of money market mutual funds, short term commercial paper and short term certificates of deposit with original maturities of 90 days or less. The Company occasionally has cash or cash equivalents on hand in excess of the $100,000 insurable limits at a given bank.
Fair Value of Financial Instruments - The carrying amounts reported in the balance sheet for cash, receivables, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments.
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 29, 2008, 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, normal and recurring, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results for such interim periods are not necessarily indicative of the results to be expected for the year.
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 $59,883 and $58,949 at May 31, 2008 and February 29, 2008, respectively. Annual amortization expense of such intangible assets is expected to be $4,600 per year for the next five years.
Reclassifications - Certain reclassifications have been made to the prior period to conform to the presentations of the current period.
NOTE 2: INVENTORIES
Inventories at May 31, 2008 are comprised of:
Finished goods $ 886,446
Work in process 558,938
Consignment 9,770
Raw materials and sub-assemblies 580,403
-----------
Total 2,035,557
Less: Allowance (213,197)
-----------
Net inventories $ 1,822,360
===========
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NOTE 3: 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, 2008 there were 80,000 options outstanding under the 1993 Plan and 1,157,375 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.
NOTE 4: STOCK BASED COMPENSATION
On March 1, 2006, the Company adopted SFAS No. 123R, "Share Based Payments." SFAS No. 123R requires companies to expense the value of employee stock options and similar awards for periods beginning after December 15, 2005, and applies to all outstanding and vested stock-based awards at a company's adoption date.
During the transition period of the Company's adoption of SFAS 123R, the weighted-average fair value of options has been estimated on the date of grant using the Black-Scholes options-pricing model. The weighted-average Black-Scholes assumptions are as follows:
2008 2007
-------------------------------
Expected life 4 years 4 years
Risk free interest rate 1.8% - 3.13% 4.35% - 5.07%
Expected volatility 55% - 70% 39% - 78%
Expected dividend yield 0% 0%
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In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company's stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company's forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company's actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.
For the quarters ended May 31, 2008 and 2007, net income and earnings per share reflect the actual deduction for stock-based compensation expense. The impact of applying SFAS 123R approximated $51,807 and $10,538 in additional compensation expense during the quarters ended May 31, 2008 and 2007, respectively. Such amount is included in general and administrative expenses on the statement of operations. The expense for stock-based compensation is a non-cash expense item.
NOTE 5: EARNINGS PER SHARE
The denominator for the calculation of diluted earnings per share at May 31, 2008 and 2007 are calculated as follows:
May 31, 2008 May 31, 2007
------------ ------------
Denominator for basic earnings per share 14,361,091 14,360,541
Dilutive effect of stock options -- 75,757
---------- ----------
Denominator for diluted earnings per share 14,361,091 14,436,298
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The effect of stock options for the three months ended May 31, 2008 is not used in the calculation of diluted earnings per share. Due to the net loss for the three months ended May 31, 2008, the inclusion of stock options in the calculation would have an anti-dilutive effect.
NOTE 6: OTHER INCOME
As previously reported 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 three calendar years. The Company had previously expensed substantially all of the misappropriated funds over the years.
The Company has recovered approximately 73% of these funds to date. The Company has a promissory note that is being repaid by the former employee. The note has been fully reserved for as the collectibility is questionable. As previously discussed, the Company can offer no assurances that it will be successful in its attempts to collect the balance of the remaining restitution.
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Forward-Looking Statements
We discuss expectations regarding our future performance, such as our business outlook, in our annual and quarterly reports, press releases, and other written and oral statements. These "forward-looking statements" are based on currently available competitive, financial and economic data and our operating plans. They are inherently uncertain, and investors must recognize that events could turn out to be significantly different from our expectations. These factors include, among other considerations, general economic and business conditions; political, regulatory, competitive and technological developments affecting the Company's operations or the demand for its products; timely development and market acceptance of new products; adequacy of financing; capacity additions, the ability to enforce patents and the successful implementation of the business development program.
We undertake no obligation to update any forward-looking statement.
Overview
Sono-Tek has developed a unique and proprietary series of ultrasonic atomizing 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 and lower energy use.
We have a well established position in the electronics industry with our SonoFlux spray fluxing equipment. It saves customers from 40% to 80% of the liquid flux required to solder printed circuit boards over other methods, such as foam fluxing. Less flux equates to less material cost, fewer chemicals in the workplace, and less clean-up. Also, the SonoFlux equipment reduces the number of soldering defects, which reduces the amount of rework.
One change that has proven successful is our diversification into the medical device market. In the past several years, we have focused engineering resources on the medical device market, with emphasis on providing coating solutions for the new generation of drug coated stents. We have sold a significant number of specialized ultrasonic nozzles and MediCoat stent coating systems to large 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. We sell 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. We have also introduced and sold several multiple stent coaters known as Medicoat II, designed for production use.
Another change that has stimulated an increase in business has been the development of the WideTrack coating system, a broad based platform for applying a variety of coatings to moving webs of glass, textiles, plastic, metal, food products and packaging materials. The WideTrack is a long-term product and market development effort. Thus far, we have made successful inroads with WideTrack systems into the glass, medical textile (bandages), textiles and solar and fuel cell industries. We plan to increase our marketing efforts into the broader textile and food industry markets. This will require a continuation of market and technology development in these areas in the years ahead. Some of these WideTrack applications involve nano-technology based liquids. We believe there is an excellent fit between the thin, precise films required in nano-technology coating applications and our ultrasonic nozzle systems.
The creation of technological innovations and the expansion into new geographical markets requires the investment of both time and capital. Although there is no guarantee of success, we expect that over time, these newer markets will be the basis for Sono-Tek's continued growth and will contribute to future profitability. It is management's opinion that this strategy will be a better one than relying solely on our traditional domestics electronics business.
Liquidity and Capital Resources
Working Capital - Our working capital decreased $79,000 from a working capital of $3,790,000 at February 29, 2008 to $3,711,000 at May 31, 2008. The Company's current ratio is 6.6 to 1 at May 31, 2008 as compared to 5.2 to 1 at February 28, 2008.
Stockholders' Equity - Stockholder's Equity decreased $79,000 from $4,898,000 at February 29, 2008 to $4,819,000 at May 31, 2008. The decrease is a result of the net loss of $130,000 and an adjustment for stock based compensation expense of $51,000.
Operating Activities - We used $710,000 of cash in our operating activities for the three months ended May 31, 2008. The use of cash resulted from the current period net loss of $130,000, an increase in accounts receivable of $207,000, an increase in inventories of $220,000 and an increase of $43,000 in prepaid assets. In addition to the above, our accounts payable and accrued expenses decreased $235,000 during the current period.
Investing Activities - We used $56,000 for the purchase of capital equipment and $13,000 for patent application costs during the three months ended May 31, 2008. For the three months ended May 31, 2007, we used $29,000 for the purchase of capital equipment.
Financing Activities - For the three months ended May 31, 2008 and May 31, 2007, we used $7,000 in financing activities resulting from the repayment of our notes payable.
Results of Operations
For the three months ended May 31, 2008, our sales increased $388,000 or 31% to $1,621,000 as compared to $1,233,000 for the three months ended May 31, 2007. Our sales for the quarter ended May 31, 2008 were improved over the same period last year due to additional sales of our WideTrack product. In addition, we also saw an increase in sales of our programmable XYZ precision coating units and Spray Dryer units. During the quarter ended May 31, 2008, sales of fluxer units, EVS solder recovery units and stent coating systems decreased when compared to the quarter ended May 31, 2007.
Our gross profit increased $185,000 to $789,000 for the three months ended May 31, 2008 from $604,000 for the three months ended May 31, 2007. The increase in gross profit is due to the current period increase in sales. The gross profit margin was 49% of sales for the three months ended May 31, 2008 and the three months ended May 31, 2007.
Research and product development costs increased $11,000 to $206,000 for the three months ended May 31, 2008 from $195,000 for the three months ended May 31, 2007. The increase was principally due to an increase in salary expense.
Marketing and selling costs increased $180,000 to $414,000 for the three months ended May 31, 2008 from $234,000 for the three months ended May 31, 2007. The increase in these expenditures is due to the reorganization of our sales force into two separate Strategic Business Units. We have added additional sales personnel, increased the number of trade shows we participate in and we have engaged an outside marketing firm to help increase the awareness of our products. These increases are part of the business development program which was initiated last year.
General and administrative costs increased $94,000 to $309,000 for the three months ended May 31, 2008 from $215,000 for the three months ended May 31, 2007. The increase was principally due to an increase in salary expense and an increase in stock based compensation expense.
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 those 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, 2008.
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 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.
Stock-Based Compensation
Prior to fiscal year 2007, the Company accounted for employee stock options under the fair value provisions of SFAS No. 123. On March 1, 2006, the Company adopted SFAS No. 123R, "Share Based Payments." SFAS No. 123R requires companies to expense the value of employee stock options and similar awards for periods beginning after December 15, 2005, and applies to all outstanding and vested stock-based awards at a company's adoption date. Results from prior periods have not been restated in the Company's historical financial statements.
Impact of New Accounting Pronouncements
None.
SONO-TEK CORPORATION
CONTROLS AND PROCEDURES
The Company has established and maintains "disclosure controls and procedures" (as those terms are defined in Rules 13a -15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (the "Exchange Act'). Christopher L. Coccio, Chief Executive Officer (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, 2008. Based on this evaluation, they have concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to Management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding timely disclosure.
In addition, there were no changes in the Company's internal controls over financial reporting during the first fiscal quarter of 2009 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity 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
(a) Exhibits
10.1 Executive Agreement between Sono-Tek Corporation and R. Stephen Harshbarger dated March 5, 2008.
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.
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 11, 2008
SONO-TEK CORPORATION
(Registrant)
By: /s/ Christopher L. Coccio
-----------------------------
Christopher L. Coccio
Chief Executive Officer
By: /s/ Stephen J. Bagley
-----------------------------
Stephen J. Bagley
Chief Financial Officer
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Exhibit 10.1
EXECUTIVE AGREEMENT between Sono-Tek Corporation, a New York corporation (the "Company") and R. Stephen Harshbarger ("Executive"), dated as of the Fifth day of March, 2008.
WHEREAS, Executive is an employee of the Company and is an integral part of its management; and
WHEREAS, it is in the best interest of the Company that Executive continue in the service of the Company without the benefits which would accrue to Executive pursuant to an employment agreement; and
WHEREAS, the Company wishes to assure itself of continuity of management during the critical period of any actual or threatened change in control of the Company.
NOW, THEREFORE, it is hereby agreed by and between the parties as follows:
1. Employment Status.
In consideration of the benefits provided to Executive pursuant to this Executive Agreement, Executive hereby agrees to continue to be employed by the Company as an employee-at-will without the benefit of an employment agreement. Nothing expressed or implied herein shall create any right or duty (on the part of the Company or Executive) to have Executive remain in the employment of the Company, each reserving all rights to terminate the employment relationship at any time, with or without "Cause" (as hereinafter defined).
2. Term.
The term of this Executive Agreement shall commence on the date hereof and shall terminate on the earlier to occur of (i) termination of Executive's employment for whatever reason, unless a Change of Control (as hereinafter defined) shall have occurred prior to such termination or (ii) twelve months following written notice of termination of this Executive Agreement given by the Company or Executive.
3. Payment Subsequent to Change of Control.
(a) Except as may otherwise be required in accordance with Section 8 hereof, in the event that a Change of Control of the Company shall occur during the time Executive is employed by the Company, there shall be payable to Executive upon the termination of Executive's employment without Cause or Executive's Resignation for Good Reason (as hereinafter defined) within 18 months following such Change of Control a lump sum (net of any required tax or other withholding) equal to one year of Executive's annual base and bonus compensation paid by the Company for the previous calendar year (or such lesser period as Executive shall have been employed by the Company) immediately
preceding the Change of Control as reflected in Executive's Forms W-2 in respect of such year. Payment made in accordance with this Section 3(a) shall represent full satisfaction of all of the obligations of the Company under this Executive Agreement and concurrent with receipt of such payment Executive shall execute a document satisfactory to the Company to that effect.
(b) For the purpose of this Executive Agreement, a "Change of Control" of the Company shall mean any of the following:
(i) The sale to a "Non-Affiliate" (as defined below) of all or substantially all of the assets of the Company;
(ii) The merger of the Company with or into a Non-Affiliate where immediately following such transaction 50% or more of the outstanding voting stock of the remaining entity is not owned by persons who were shareholders of the Company immediately prior to such transaction;
(iii) The acquisition by any person who is not on the date hereof an Affiliate or Major Shareholder (as such terms are defined below) of 50% or more of the issued and outstanding stock of the Company; or
(iv) The Board of Directors of the Company shall cease to be a "Qualified Board" (as defined below).
(c) For purposes of this Executive Agreement:
(i) Persons or entities shall be "Affiliates" if one controls the other or if they are under common control. "Control" shall mean the ownership of 50% or more of the issued and outstanding stock of any such entity.
(ii) "Major Shareholder" shall mean any person or entity who directly or indirectly currently owns as of the date of this Agreement 25% of the issued and outstanding stock of the Company.
(iii) "Qualified Board" shall mean the Board of Directors of the Company which is comprised of no fewer than five persons at least a majority of whose members are currently directors of the Company or shall have been elected or nominated to the Board by a "Qualified Board".
(iv) "Cause" shall mean: (1) proven or admitted (A) embezzlement, or (B) material dishonest misuse of the Company funds or assets; (2) an admitted or proven act constituting a felony or misdemeanor (other than minor offenses such as traffic violations) or conviction for such act; (3) continued conduct
materially adverse to the interests of the Company which does not cease within thirty (30) days of written notice from the Board of Directors of the Company; (4) repeated material failure by Executive, after written warning by the Board of Directors of the Company, to perform the duties of his or her employment (including without limitation material failure to follow or comply with the reasonable and lawful written directives of the Board of Directors of the Company); or (5) breach of any statutory or common law fiduciary duty of loyalty to the Company which is not cured within thirty (30) days of written notice from the Board of Directors of the Company.
(d) For purposes of this Executive Agreement "Resignation for Good Reason" shall be deemed to have occurred if the Executive shall resign from all of his or her positions as employee, officer, director of the Company, and its Affiliates within 60 days after the occurrence of any of the following events:
(i) If the Executive is an officer of the Company, the Executive is removed from that post except for the purposes of assuming another post in the Company which other post the Executive accepts.
(ii) The imposition on the Executive of a requirement to relocate the site of his or her employment by the Company to a place more than 50 miles from the site of his or her present employment.
(iii) A reduction in the Executive's rate of compensation from the Company, which reduction continues after the Executive has protested in writing to the Chief Executive Officer of the Company referring to this Executive Agreement.
(iv) A substantial negative change in the duties, responsibilities or supervisory authority of the Executive which change persists for a period of at least 60 days after written protest by the Executive to the Chief Executive Officer of the Company referring to this Executive Agreement.
4. Notices.
All notices, requests, demands and other communications provided for by this Executive Agreement shall be in writing and shall be sufficiently given if and when mailed in the continental United States by registered or certified mail or personally delivered to the party entitled thereto at the address stated below or to such changed address as the addressee may have given by a similar notice:
To the Company: Sono-Tek Corporation
2012 Route 9W
Milton, NY 12547
|
To the Executive: R. Stephen Harshbarger
13 Banks Hill
Pawling, NY 12564
|
5. Agreement for Benefit of Executive.
This Executive Agreement shall be binding upon and shall inure to the benefit of the Executive, the Executive's heirs and legal representative, and the Company and its successors.
6. Amendment or Modification; Waiver.
No provision of this Executive Agreement may be amended, modified or waived unless such amendment, modification or waiver shall be authorized by the Boards of Director of the Company or any authorized committees of the Boards of Directors and shall be agreed to in writing, signed by the Executive and by an officer of the Company thereunto duly authorized. Except as otherwise specifically provided in this Executive Agreement, no waiver by either party hereto of any breach by the other party hereto of any condition or provision of this Executive Agreement to be performed by such other party shall be deemed a waiver of a subsequent breach of such condition or provision or a waiver of a similar or dissimilar provision or condition at the same or at any prior or subsequent time.
7. Governing Law.
This Agreement shall be governed by and interpreted and construed in accordance with the internal laws of the State of New York (without reference to principles of conflicts or choice of law).
8. Section 409A.
Notwithstanding anything to the contrary in this Agreement, if the
Company determines (a) that on the date the Executive's employment with the
Company terminates or at such other time that the Company determines to be
relevant, the Executive is a "specified employee" (as such term is defined under
Section 409A of the Internal Revenue Code) of the Company and (b) that any
payments to be provided to the Executive pursuant to this Agreement are or may
become subject to the additional tax under Section 409A(a)(1)(B) of the Code or
any other taxes or penalties imposed under Section 409A of the Code ("Section
409A Taxes") if provided at the time otherwise required under this Agreement,
then such payments shall be delayed until the date (the " Deferred Payment
Date") that is six months after the date of the Executive's "separation from
service" (as such term is defined under Section 409A of the Code) with the
Company, or such shorter period that, as determined by the Company, is
sufficient to avoid the imposition of Section 409A Taxes; it being understood
that any payments so delayed shall become payable in the aggregate on the
Deferred Payment Date. It is the intent of the parties that the provisions of
this Agreement comply with Section 409A of the Code and related regulations and
Department of the Treasury pronouncements. Accordingly, notwithstanding any
provision in this Agreement to the contrary, this Agreement will be interpreted,
applied and to the minimum extent necessary, unilaterally amended by the Company
in its sole discretion, without the consent of Executive, as the Company deems
appropriate for the Agreement to satisfy the requirements of Section 409A and to avoid the imposition of Section 409A Taxes. Notwithstanding the foregoing, the Company shall not be liable for any taxes, penalties, interest or other costs that may arise under Section 409A or otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Executive Agreement as of the day and year first above written.
By /s/ Christopher L. Coccio -------------------------- Christopher L. Coccio Chief Executive Officer /s/ R. Stephen Harshbarger ----------------------------- R. Stephen Harshbarger |
Exhibit 31.1
RULE 13a-14/15d - 14(a) CERTIFICATION
I, Christopher L. Coccio, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 circumstances 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 issuer as of, and for the periods presented in this quarterly report;
4. Sono-Tek Corporation's other certifying officer and I are 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 issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us 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 our 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 issuer's disclosure controls and procedures and presented in this report our 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 issuer's internal control over financial reporting that occurred during the issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and
5. Sono-Tek Corporation's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the 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 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 issuer's internal controls over financial reporting.
Date: July 11, 2008 /s/ Christopher L. Coccio ------------------------- Christopher L. Coccio Chief Executive Officer |
Exhibit 31.2
RULE 13a-14/15d - 14(a) CERTIFICATION
I, Stephen J. Bagley, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 circumstances 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 issuer as of, and for the periods presented in this quarterly report;
4. Sono-Tek Corporation's other certifying officer and I are 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 issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us 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 our 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 issuer's disclosure controls and procedures and presented in this report our 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 issuer's internal control over financial reporting that occurred during the issuer's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and
5. Sono-Tek Corporation's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the 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 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 issuer's internal controls over financial reporting.
Date: July 11, 2008 /s/ Stephen J. Bagley --------------------- Stephen J. Bagley Chief Financial Officer |
Exhibit 32.1
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 (the "Company") on Form 10Q for the period ended May 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"). I, Christopher L. Coccio, Chief Executive 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: July 11, 2008 /s/ Christopher L. Coccio ------------------------- Christopher L. Coccio Chief Executive Officer |
Exhibit 32.2
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 (the "Company") on Form 10Q for the period ended May 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"). I, Stephen J. Bagley, Chief Financial Officer, 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: July 11, 2008 /s/ Stephen J. Bagley --------------------- Stephen J. Bagley Chief Financial Officer |