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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended: February 28, 2018
Commission File Number: 016035
(Name of registrant as specified in its charter)
NEW YORK
(State or other Jurisdiction of
Incorporation or Organization)
2012 Route 9W, Milton, New York
(Address of Principal Executive Offices)
141568099
(IRS Employer Identification Number)
12547
(Zip Code)
Registrant's Telephone Number, Including Area Code: (845) 7952020
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01 par value
(Title of Class)
Indicate by checkmark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☑ No
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
☐ Yes ☑ No
Indicate by checkmark 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 ☐ No
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (section 229.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☑ Yes
☐ No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10K or any amendment to this Form 10K. ☑
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b2 of the Exchange Act. (Check One):
Large Accelerated Filer ☐ Accelerated Filer ☐ Nonaccelerated Filer ☐ Smaller reporting company ☑ Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act). YES ☐ NO ☑
As of August 31, 2017 the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market
value of the Registrant's Common Stock held by nonaffiliates of the Registrant was approximately $14,504,312 computed by
reference to the average of the bid and asked prices of the Common Stock on said date, which average was $1.15.
The Registrant had 14,989,003 shares of Common Stock outstanding as of May 10, 2018.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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ITEM 1
BUSINESS
PART I
SonoTek Corporation (the “Company”, “SonoTek”, “We” or “Our”) is the world leader in the design and manufacture of ultrasonic
coating systems for applying precise, thin film coatings to protect, strengthen or smooth surfaces on parts and components for the
microelectronics/electronics, alternative energy, medical, industrial and emerging research & development/other markets. We
design and manufacture customengineered ultrasonic coating systems and also provide patented nozzles and generators for
manufacturers’ equipment. Our fiscal year ends on February 28. We refer to the fiscal year ended February 28, 2018 as “fiscal
2018” and use similar protocol for previous fiscal years.
Our ultrasonic nozzle systems use high frequency ultrasonic vibrations that atomize liquids into minute drops that can be applied
to surfaces at low velocity providing microscopic layers of protective materials over a wide variety of surfaces, including glass. Our
solutions are environmentallyfriendly, efficient and highly reliable. They enable dramatic reductions in overspray, savings in raw
material, water and energy usage and provide improved process repeatability, transfer efficiency, high uniformity and reduced
emissions. We serve a variety of industries and applications and have a broad base of customers with no single customer that
provides more than 10% of our revenue. Our largest customer accounted for 8% of revenue in fiscal 2018.
The applications that are employing our unique coating technology and expertise have been expanding as the advantages of
ultrasonic coatings are more broadly recognized. The original application of our technology was to coat the inner surface of blood
collection tubes used for medical diagnostic testing. Our products enable the application of a thin and uniform coating of material
that prevents coagulation of blood. Following that initial breakthrough, our technology was then used for applying uniform flux
coatings to printed circuit boards, a critical part of the fabrication process for all electronic devices. A later application for much
larger surfaces was to address the many challenges that glass manufacturers faced. They needed a solution for specialized glass
applications in the construction and automotive industries. Among other things, our ultrasonic nozzles are used to provide
coatings that improve durability, create filters, increase clarity, reduce reflection, enable conductivity, and enhance safety.
Our corporate offices are located in Milton, New York where our production facilities are colocated. We also have a sales and
service office in Hong Kong and an equipment demonstration room in Shenzen, China. We are ISO 9001 qualified since registering
in September 1998 and we have been recertified annually since then.
We were founded by the inventor of the ultrasonic nozzle and incorporated in New York on March 21, 1975. We became a public
company in 1987 and our stock is traded on the OTCQX U.S. tier of the OTC exchange under the ticker symbol “SOTK”.
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Our Products, Markets and Customers
Our products are used in a wide range of applications. We provide our customers a differentiated offering of ultrasonic spray
solutions custom suited for their requirements and we continually expand our offerings to address new applications. Our products
include fullyintegrated MultiAxis Coating Systems, Integrated Coating Systems, Fluxing Systems, OEM Systems and other related
systems. We invest heavily in research and development to continually bring to market new solutions for our customers, to
increase our market share and to solve high value problems in manufacturing.
Our MultiAxis Coating Systems, Integrated Coating Systems and Fluxing Systems provide complete fullyintegrated solutions for
our customers, while we created the Universal Align to offer our customers subsystems that integrate our nozzles and generators
that they can then incorporate into their original equipment.
We target the following markets where our product quality and consistency and application knowledge are valued by our
customers. We have built our brand and reputation on providing high quality, highly reliable products that provide consistent
performance for critical applications in demanding operating environments. Our surface coating solutions are used in 24/7 work
schedules, under harsh and challenging manufacturing environments, where they provide value in a continuous and dependable
fashion. The industries and applications in which our products can be found include:
(cid:120) MicroElectronics/Electronics:
o Printed circuit boards: Ultrasonic flux application removes oxidation and is more efficient than standard, historic
processes.
o Semiconductors: Applies micronthin photoresist layers onto complex wafers
o Sensors
o Display/panel glass on personal electronic devices
(cid:120) Medical: Our systems are used in this industry to apply micron layers of polymers and drugs; biomedical materials and
anticoagulants.
o Implanted medical devices such as:
(cid:131)
Stents and balloons
(cid:131) Artificial joints
o Blood collection tubes
o Diagnostic devices
o Bandages/protective wraps
o Lenses
(cid:120)
Industrial
o Flat (“float”) glass used for windows in buildings and vehicles
o Textiles: high performance value adding coatings onto fabrics, such as antimicrobial, antistain, flame retardant
and moisture barriers
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o Food packaging and food safety: antimicrobial coatings
o Food: coatings of flavors, ingredients and other additives
(cid:120) Alternative Energy
o Fuel cells
o Solar cells
o Batteries
(cid:120)
Emerging Research and Development / Other Markets
o Research and development efforts at universities, research institutions and government agencies that are not in the
above already established SonoTek markets.
o A variety of other small industries using SonoTek coating technology, that have not yet matured into a developed
marketplace for our ultrasonic coating machines.
Our principal customers include original equipment manufacturers, distributors and end users of our products in the industries
that we serve.
Our products are sold primarily through select independent distributors and sales representatives around the world that are
trained on our technologies and products. Our distributors are typically experts in their industries and recognize the significant
value our technology provides their customers. We provide extensive training and onsite support with our direct sales force and
application engineers, who also respond to leads generated by our web sites and the trade shows in which we participate. To grow
sales, we have strengthened our team of application engineers and expanded our process development laboratory.
We also provide application consulting services enabling our customers to rely on our surface coating expertise and specific
customer process optimization. We offer these services both in our application laboratory and at our customers’ sites where we
can assist in the design and development of customized coating systems.
We are a global business and, depending on the timing of orders from customers, our geographical sales mix can vary from year to
year. In fiscal 2018 56% of our sales were from outside the U.S.
Our Strengths
Our core strengths and capabilities include:
(cid:120) We have built a strong reputation in the industry based on our ability to solve complex problems and provide custom
engineered, valueadded solutions for our customers.
(cid:120) We are renowned for our product quality, customer service and responsiveness and critical thinking that enables a strong
problem solving culture throughout our organization.
(cid:120) We have expanded our ability to provide coating services for low to midvolume demand to support our customers’
product development and testing.
(cid:120) We are continually developing new technologies and solutions to address an everchanging marketplace.
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Our Strategy
We are focused on the further development of technologies that enable the microscopic coating of surfaces to enable better
outcomes for our customers’ products and processes. We believe product superiority is imperative in all that we produce and that
it is developed through the extensive experience we have in the coatings industry, our proprietary manufacturing knowhow and
skills, and our unique work force we have built over the years.
We intend to leverage our innovative technologies, proprietary knowhow, unique talent and experience, and global reach to:
(cid:120) Grow the business globally by reaching new markets and further penetrating the markets and customers we currently
serve;
(cid:120)
Improve our earnings power through lean manufacturing processes, automation and continuous improvement;
(cid:120) Develop new and unique technologies that solve our customers’ most challenging problems;
(cid:120) Meet or exceed our customers’ expectations; and
(cid:120)
Provide an acceptable return to our shareholders.
To accomplish these objectives, we believe we must judiciously deploy our monetary and human capital, in order to expand our
presence in our targeted markets and create a broader offering for our customers.
Availability of Raw Materials and Working Capital Practices
Historically, we have not been adversely impacted by the availability of raw materials or components used in the manufacture of
our products. All raw materials used in our products are readily available from many different domestic suppliers. We purchase
circuit board assemblies and sheet metal components from a wide range of suppliers throughout the world.
We carefully manage our inventory using lean manufacturing processes. We provide a limited warranty on all our products
covering parts and labor for a period of one year from the date of sale.
Research and Development
We believe that our longterm growth and stability are linked to the development and release of products that provide solutions to
customer needs across a wide spectrum of industries, while advancing the utility of our core technology. During fiscal 2018 and
fiscal 2017, we spent $1,280,000 and $1,276,000, respectively, on research and development activities related to new products
and services and the ongoing improvement of existing products and services.
Intellectual Property
Our business is based in part on the technology covered by our U.S. patents. We also rely on unpatented knowhow in the design
and production of our nozzle systems, subsystems and complete solutions. We have executed nondisclosure and noncompete
agreements with all of our employees to safeguard our intellectual property. We execute reciprocal nondisclosure agreements
with our key customers to safeguard any jointly developed intellectual property.
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Competition
We operate in competitive markets in many of our industry segments. We compete against alternative coating technologies, as well
as global and regional manufacturers of nozzles and other products based on price, quality, product features and follow up service.
We maintain our competitive position by providing highly effective solutions that meet our customers’ requirements and needs. In
several emerging markets, we encounter less competition based on the uniqueness of our ultrasonic technology in these
applications.
Information Regarding Sales Outside the United States
During fiscal 2018 and fiscal 2017, sales to customers outside the U.S. accounted for approximately $6,303,000, or 57% of total
revenue, and $6,052,000, or 63% of total revenue, respectively.
Employees
As of February 28, 2018, we employed 64 fulltime employees. We believe that relations with our employees are generally good.
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. Therefore, we file reports,
proxy statements and other information with the Securities and Exchange Commission (“SEC”). The SEC maintains a website at
www.sec.gov that contains the reports, proxy statements and other information for registrants that file electronically, as we do.
Additionally, these reports may be read and copied at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, DC
20549. Information regarding the SEC’s Public Reference Room may be obtained by calling 1800SEC0330.
We maintain a website at http://www.sonotek.com. On our site, we provide copies of our Forms 8K, 10K, 10Q, Proxy and
Annual Report at no charge as soon as reasonably practicable after filing electronically such material with the SEC. Copies are also
available, without charge, from SonoTek Corporation, 2012 Route 9W, Milton, NY 12547.
ITEM 1A
RISK FACTORS – Not Required for Smaller Reporting Companies.
ITEM 1B
UNRESOLVED STAFF COMMENTS None.
ITEM 2
DESCRIPTION OF PROPERTIES
We own an industrial park located in Milton, New York that is subject to a tenyear mortgage, of which six years remain. The
industrial park consists of approximately 50,000 square feet of office and warehouse space. Our offices, product development,
manufacturing and assembly facilities are located in the industrial park. We presently utilize 33,000 square feet or 66% of the park
for our operations. We believe our facilities will be adequate for the foreseeable future and the ownership of the industrial park
provides us opportunity to expand as we grow.
Approximately 17,000 square feet of the park is leased or available for lease to unrelated third parties at any given time.
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ITEM 3
LEGAL PROCEEDINGS – None
ITEM 4
MINE SAFETY DISCLOSURES – Not Applicable
PART II
ITEM 5
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock currently trades on the OTCQX U.S. tier of the OTC exchange under the ticker symbol “SOTK”. The following
table sets forth the range of high and low closing bid quotations for our Common Stock for the periods indicated.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Years Ended
February 28, 2018
HIGH
LOW
February 28, 2017
HIGH
LOW
$
$
1.19
1.22
1.49
1.93
$
1.05
1.12
1.14
1.50
$
1.14
1.08
1.19
1.30
0.91
0.84
1.00
1.01
The above quotations are believed to represent interdealer quotations without retail markups, markdowns or commissions and
may not represent actual transactions.
As of February 28, 2018, there were 131 shareholders of record of our Common Stock, according to our stock transfer agent. We
estimate that we have between 1,000 and 1,400 beneficial shareholders of our common stock. Beneficial shareholders are those
that hold their shares in “street name”, that is in brokerage accounts.
We have not paid any cash dividends on our Common Stock since inception. We intend to retain earnings, if any, for use in our
business and for other corporate purposes.
ITEM 6
SELECTED FINANCIAL DATA – Not Required for Smaller Reporting Companies.
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ForwardLooking 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 “forwardlooking 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 our
operations or the demand for our products; timely development and market acceptance of new products; adequacy of financing;
capacity additions, the ability to enforce patents and the ability to achieve increased sales volume and continued profitability.
We undertake no obligation to update any forwardlooking statement.
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Overview
Founded in 1975, SonoTek Corporation designs and manufactures ultrasonic coating systems that apply precise, thin film coatings
to a multitude of products for the microelectronics/electronics, alternative energy, medical and industrial markets, including
specialized glass applications in construction and automotive. We also sell our products to emerging research and development
and other markets.
Our ultrasonic nozzle systems use high frequency ultrasonic vibrations that atomize liquids into minute drops that can be applied
to surfaces at low velocity providing microscopic layers of protective materials over a surface such as glass. Our solutions are
environmentallyfriendly, efficient and highly reliable. They enable dramatic reductions in overspray, savings in raw material,
water and energy usage and provide improved process repeatability, transfer efficiency, high uniformity and reduced emissions.
We are focused on the further development of technologies that enable the microscopic coating of surfaces to enable better
outcomes for our customers’ products and processes. We believe product superiority is imperative in all that we produce and that
it is developed through the extensive experience we have in the coatings industry, our proprietary manufacturing knowhow and
skills and our unique work force we have built over the years.
We are a global business with approximately 57% of our sales generated from outside the United States. Our direct sales team and
our distributor and sales representative network is located in North America, Latin America, Europe and Asia. Over the last few
years, we have expanded our sales capabilities by increasing the size of our direct sales force, adding new distributors and sales
representatives (‘reps”). Of note, we have developed demonstration labs in Asia and at our facility in New York that are used to
train our distributors and reps. These labs are also very valuable for demonstrating to prospective customers the capabilities of
our equipment and enable us to develop custom solutions to meet their needs.
Highlights
Highlights for fiscal 2018 include:
(cid:120) Net sales for fiscal 2018 were $11,008,000, up 14% compared with $9,635,000 for fiscal 2017
(cid:120) Gross profit and operating margins for fiscal 2018 expanded to 48.1% and 3.5%, respectively, from 45.3% and (1.9%),
respectively, for fiscal 2017
(cid:120) Basic Earnings and Diluted Earnings per share were $0.02 in fiscal 2018 compared with $0.01, for fiscal 2017
(cid:120) Operating cash flow for fiscal 2018 was $1,802,000, an improvement over $1,029,000 in fiscal 2017.
(cid:120) Backlog on February 28, 2018 was $1,238,000, up 64% from backlog of $754,000on February 28, 2017
(cid:120)
Cash and cash equivalents and shortterm investments at February 28, 2018 were $6,422,000 compared with $4,899,000
as of February 28, 2017, an increase of $1,523,000.
(cid:120) At fiscal 2018year end, our balance sheet showed strength with debt representing only 13% of total capitalization. We
believe that provides us with the financial flexibility to pursue our business strategy for growth.
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Market and Geographic Diversity
We have invested significant resources to enhance our market diversity. Based on our core ultrasonic coating technology, we
increased our portfolio of products, the industries we serve, and the countries in which we sell our products.
Today, we serve five industries: microelectronics/electronics, medical, alternative energy, emerging research and development
and other, as well as the industrial markets.
We are a global company. We are geographically present directly and through distributors and trade representatives in United
States and Canada , EMEA (Europe, Middle East and Africa), APAC (Asia Pacific) and Latin America (including Mexico). In fiscal
2018, approximately 56% of sales in fiscal 2018 originated outside of the United States and Canada. We established an
infrastructure to drive our geographic diversity including a newly equipped process development laboratory in APAC, a
strengthened sales organization of application engineers, expanded talent on our engineering team, the latest, most sophisticated
design software tools, as well as an expanded, highly trained installation and service organization.
We believe that the new products we have introduced, the new markets we have penetrated, and the regions in which we now sell
our products, are a strong foundation for our future sales growth and enhanced profitability.
Results of Operations
Sales:
Net Sales
Cost of Goods Sold
Gross Profit
Gross Profit %
Fiscal Year Ended
February 28,
Change
2018
$ 11,008,000
5,712,000
5,296,000
$
2017
9,635,000
5,272,000
4,363,000
$
$
$
1,373,000
440,000
933,000
$
$
%
14%
8%
21%
48.1%
45.3%
Strong market conditions and the expansion of our global sales effort drove sales up 14% to $11,008,000 in fiscal 2018 compared
with the prior fiscal year. Stronger sales were primarily driven by the alternative energy industry, specifically fuels cell
development programs in China, and the medical device coating market in the US and Canada, where we provide coating
technologies for stents, medical devices, blood collection tubes and other items.
Product Sales:
Fluxing Systems
Integrated Coating Systems
MultiAxis Coating Systems
OEM Systems
Other
TOTAL
2018
$ 2,175,000
2,330,000
4,168,000
1,823,000
512,000
$ 11,008,000
Fiscal Year Ended
February 28,
% of total
20%
21%
38%
17%
5%
2017
$ 2,325,000
1,309,000
3,466,000
1,783,000
752,000
$ 9,635,000
8
% of total
$
Change
24%
14%
36%
19%
8%
(150,000)
1,021,000
702,000
40,000
(240,000)
$ 1,373,000
%
(6%)
78%
20%
2%
(32%)
14%
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The increase in MultiAxis Systems and Integrated Coating Systems reflects new customers and increased demand from existing
customers primarily in the alternative energy and medical markets.
Market Sales:
Electronics/Microelectronics
Medical
Alternative Energy
Emerging R&D and Other
Industrial
TOTAL
2018
$ 4,088,000
3,073,000
1,808,000
1,149,000
890,000
$ 11,008,000
Fiscal Year Ended
February 28,
% of total
37%
28%
16%
10%
8%
2017
$ 4,870,000
1,601,000
757,000
1,340,000
1,067,000
$ 9,635,000
% of total
$
Change
50%
17%
8%
14%
11%
(782,000)
1,472,000
1,051,000
(191,000)
(177,000)
$ 1,373,000
%
(16%)
92%
139%
(14%)
(17%)
14%
Growth in the Medical market was from sales of customized machines primarily used for coating implantable devices with
polymers and other active nanomaterials. The Company’s application expertise provides a competitive advantage in this market.
The Alternative Energy market expanded as applications for fuel cells increased. Asia, specifically China, has been driving demand
for fuel cells because of the investments being made by the Chinese government. Our equipment is used to produce highly durable,
uniform, pinhole free coatings of carbonbased catalyst inks onto fuel cell proton exchange membranes reducing waste and
improving functionality.
Geographic Sales:
U.S. & Canada
Asia Pacific (APAC)
Europe, Middle East, Asia (EMEA)
Latin America
TOTAL
Fiscal Year Ended
February 28,
Change
$
2018
4,820,000
2,459,000
2,617,000
1,112,000
$ 11,008,000
2017
3,848,000
2,671,000
1,939,000
1,177,000
9,635,000
$
$
$
972,000
(212,000)
678,000
(65,000)
1,373,000
$
$
%
25%
(8%)
35%
(6%)
14%
In fiscal 2018, approximately 56% of sales originated outside of the United States and Canada. This compares with 60% in fiscal
2017.
Gross Profit:
Our gross profit increased $933,000, or 21%, to $5,296,000 for fiscal 2018 from $4,363,000 for the prior fiscal year. Gross profit
margin improved by 280 basis points to 48.1% for fiscal 2018 primarily due to product mix, as a greater portion of the
sales growth was from higher margin MultiAxis Systems and Integrated Coating Systems. In addition, our fixed
overhead costs marginally decreased during fiscal 2018.
Operating Expenses:
Research and product development
Marketing and selling
General and administrative
Fiscal Year Ended
February 28,
Change
2018
1,280,000
2,516,000
1,118,000
$
$
$
2017
1,276,000
2,217,000
1,048,000
$
$
$
$
$
$
$
4,000
299,000
70,000
%
—
13%
7%
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Research and Product Development:
Research and product development costs increased $4,000 to $1,280,000 for fiscal 2018 as compared with $1,276,000 for the
prior fiscal year. For fiscal 2018, we experienced decreases in engineering materials and supplies expense and engineering
salaries. These decreases were partially offset by increases in health insurance and depreciation.
Marketing and Selling:
Marketing and selling costs increased $299,000 to $2,516,000 for fiscal 2018 as compared with $2,217,000 for the prior fiscal year.
For fiscal 2018, we experienced increases in sales salaries, international commission expense and health insurance. These
increases were partially offset by decreased depreciation and other miscellaneous expenses.
During fiscal 2018, we expended approximately $530,000 for commissions as compared with $417,000 for the prior fiscal year, an
increase of $113,000 resulting primarily from increased sales.
During fiscal 2018, we expended approximately $280,000 for advertising and trade show expense compared with $286,000 for the
prior fiscal year, a decrease of $6,000.
General and Administrative:
General and administrative costs increased $70,000 to $1,118,000 for fiscal 2018 as compared with $1,048,000, for the prior fiscal
year ended February 28, 2017. For fiscal 2018, we experienced increases in salary expense, health insurance and corporate and
other miscellaneous expenses. These increases were partially offset by decreases in professional fees and stock based
compensation expense.
Operating Income (Loss):
We maintained or increased spending levels for new product development and sales and marketing as we continued to address
market expansion opportunities. However, as a percentage of net sales, operating expenses were down 250 basis points to 44.6%
in fiscal 2018. As a result, fiscal 2018 operating income increased significantly to $382,000, from an operating loss of $179,000 for
the prior fiscal year, and the operating margin improved to 3.5%.
Interest Expense:
Interest expense decreased to $46,000 for fiscal 2018 as compared with $52,000 for the prior fiscal year.
Interest and Dividend Income:
Interest and dividend income increased to $91,000 for fiscal 2018 as compared with $71,000 for the prior fiscal year. Our present
investment policy is to invest excess cash in highly liquid, lower risk fixed income mutual funds. At February 28, 2018, the majority
of our holdings are rated at or above investment grade.
Other Income:
Included in other income is the net revenue related to the rental of the Company’s real estate . For fiscal 2018, the Company’s
rental revenue was $77,800, expenses were $58,900 and the net revenue was $18,900.
For fiscal 2017, the Company’s rental revenue was $89,000, expenses were $59,000 and the net revenue was $30,000. In addition,
during fiscal 2017, we received a payout of $200,000 in life insurance proceeds from the death of a former employee.
Income Tax Expense (Benefit):
We recorded income tax expense of $92,000 for fiscal 2018 compared with a benefit of $19,000 for the prior fiscal year. The details
of the current year’s tax expense are explained in Note 11 in our financial statements.
Net Income:
For fiscal 2018, net income increased to $368,000 from $96,000 for the prior fiscal year, which was due to higher revenue and
gross profit margin which was partially offset by an increase in operating expenses and income tax expense.
For fiscal 2018 and 2017, we do not believe that our sales revenue or net income has been adversely affected by the impact of
inflation or changing prices.
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Other Comprehensive Income (Loss)
Net unrealized income (loss) on marketable securities:
As of February 28, 2018, certain of our marketable securities were in an unrealized gain position. Unrealized gains and losses are
principally due to changes in the fair value of our investments held as availableforsale. Because the Company has the ability and
intent to hold the securities for the foreseeable future as classified as availableforsale, the Company does not deem these
unrealized gains or losses to be other than temporary.
For fiscal 2018, the unrealized gain on our availableforsale marketable securities was $59,000 compared with $112,000 for the
prior fiscal year.
Liquidity and Capital Resources
Working Capital - Our working capital increased $490,000 from $6,070,000 at February 28, 2017 to $6,560,000 at February 28,
2018. The increase in working capital is due to net income of $368,000 and our noncash items, including $399,000 for
depreciation and amortization, $42,000 for stock based compensation, $59,000 for an increase in the market values of our
AvailableForSale Investments, and $33,000 for an increase in our deferred tax expense. These noncash expenses were partially
offset by cash outflows of $189,000 for the purchase of equipment and furnishings and $156,000 for the repayment of notes
payable. The Company’s current ratio was 4.08 to 1 at February 28, 2018 as compared with 5.19 to 1 at February 28, 2017.
The aggregate balance of cash and marketable securities increased $1,523,000 during fiscal 2018. At February 28, 2018, our
working capital included $2,016,000 of cash and $4,406,000 of marketable securities, a total of $6,422,000. At February 28, 2017,
our working capital included $2,557,000 of cash and $2,342,000 of marketable securities, a total of $4,899,000.
Stockholders’ Equity - Stockholders' equity increased $469,000 from $7,923,000 at February 28, 2017 to $8,392,000 at February
28, 2018. The increase in stockholders’ equity is the result of the current year’s net income of $368,000, stock based compensation
of $42,000, and an increase in our accumulated comprehensive income of $59,000.
Operating Activities – Our operating activities provided $1,802,000 of cash for fiscal 2018 as compared with providing
$1,029,000 for the prior fiscal year. For fiscal 2018, we had net income of $368,000, accounts receivable decreased $376,000,
inventories increased $118,000, prepaid expenses and other assets increased $12,000, accounts payable and accrued expenses
increased $341,000, customer deposits increased $265,000 and income taxes payable increased $70,000. In addition, we incurred
noncash expenses of $399,000 for depreciation and amortization, $42,000 for stock based compensation expense, an increase in
our inventory reserve of $104,000, and $33,000 for an increase in our deferred tax expense.
Investing Activities - For fiscal 2018, we used $2,194,000 of cash in our investing activities as compared with using $716,000 for
the prior fiscal year. In fiscal 2018 and fiscal 2017, we used $189,000 and $183,000, respectively, for the purchase or manufacture
of equipment, furnishings and leasehold improvements. In fiscal 2018 and fiscal 2017, we used $2,004,000 and $534,000,
respectively, for the purchase of marketable securities.
Financing Activities – For fiscal 2018, we used $149,000 of cash in our financing activities as compared with using $143,000 for
the prior fiscal year. In fiscal 2018 and fiscal 2017, we used $150,000 and $143,000, respectively, for the repayments of notes
payable.
Net Decrease in Cash – For fiscal 2018, our cash balance decreased by $541,000 as compared with an increase of $169,000 for the
prior fiscal year ended February 28, 2017. During fiscal 2018, our operations provided $1,802,000 of cash, we used $2,194,000 in
our investing activities and used $150,000 in our financing activities.
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Bank Credit Facilities:
We currently have a revolving credit line of $750,000 and a $250,000 equipment purchase facility, both of which are with a bank.
The revolving credit line is collateralized by all of the assets of the Company, except for the land and buildings. The line of credit is
payable on demand and must be retired for a 30day period once annually. As of February 28, 2018, there were no outstanding
borrowings under the line of credit.
We had outstanding borrowings under a note payable of $1,027,000 at February 28, 2018. The note is payable over six years and
accrues interest at 4.15% per year. The note payable is secured by a mortgage on our land and buildings.
Off Balance Sheet Arrangements
We do not have any Off Balance Sheet Arrangements as of February 28, 2018.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s
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. As of February 28, 2018, management believes
there are no critical accounting policies applicable to the Company that are reflective of significant judgments and or uncertainties.
StockBased Compensation
The computation of the expense associated with stockbased compensation requires the use of a valuation model. ASC 718 is a
complex accounting standard, the application of which requires significant judgment and the use of estimates, particularly
surrounding BlackScholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates,
to value equitybased compensation. We currently use a BlackScholes option pricing model to calculate the fair value of stock
options. We primarily use historical data to determine the assumptions to be used in the BlackScholes model and have no reason
to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future
stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards
in the future and may result in a material change to the fair value calculation of stockbased awards. ASC 718 requires the
recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our
estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in
recording stock option expense that may materially impact our financial statements for each respective reporting period.
Impact of New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 201409,
“Revenue from Contracts with Customers” (Topic 606), to clarify the principles of recognizing revenue and create common revenue
recognition guidance between U.S. GAAP and International Financial Reporting Standards. Under ASU 201409, revenue is
recognized when a customer obtains control of promised goods or services and is recognized at an amount that reflects the
consideration expected to be received in exchange for such goods or services. In addition, ASU 201409 requires disclosure of the
nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for
fiscal years beginning after December 15, 2017.
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The new revenue standard is principle based and interpretation of those principles may vary from company to company based on
their unique circumstances. It is possible that interpretation, industry practice, and guidance may evolve as companies and the
accounting profession work to implement this new standard. The Company is still in the process of evaluating the effect of the new
standard on the Company’s historical financial statements and disclosures. While the Company has not completed its evaluation,
the Company currently believes that the impact to revenue and expense recognized will not be material to any of the years
presented.
In February 2018, the FASB issued ASU 201802, Income Statement Reporting Comprehensive Income (Topic 220),
“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. ASU 201802 was issued to allow the
reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effect resulting from the
Tax Cuts and Jobs Act enacted on December 22, 2017. The Tax Cuts and Jobs Act, among other things, reduced the corporate tax
rate from 35% to 21%, which required the reevaluation of any deferred tax assets and liabilities at the lowered tax rate which
potentially could leave a disproportionate tax effect in accumulated other comprehensive income. ASU 201802 allows for the
election to reclassify these stranded tax effects to retained earnings. ASU 201802 is effective for all entities for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption
in any interim period for public business entities for reporting periods for which financials statements have not yet been issued.
The Company is currently evaluating the impact of adopting ASU 201802.
Other than, Accounting Standards Update (“ASU”) No. 201409 and ASU 201802 discussed above, all new accounting
pronouncements issued but not yet effective have been deemed to be not applicable to the Company. Hence, the adoption of these
new accounting pronouncements, once effective, is not expected to have an impact on the Company.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK – Not Required for Smaller
Reporting Companies.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements are presented on pages 32 to 49 of this Report.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE –
None.
ITEM 9A
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the design and operation of our disclosure controls and procedures (as defined in Rule 13a15(e) under the Securities Exchange
Act of 1934, as amended (the “Act”)) as of the end of the period covered by this annual report on Form 10K. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were
effective as of such date, at a reasonable level of assurance, in ensuring that the information required to be disclosed by us in the
reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive
Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms.
Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a15(f). Under the supervision and with the participation of our management, including our
Chairman & CEO (principal executive officer) and Chief Financial Officer (principal accounting officer), we conducted an evaluation
of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation,
management has concluded that our internal control over financial reporting was effective as of February 28, 2018. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a15(f) under the Securities Exchange
Act of 1934, as amended) that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B
OTHER INFORMATION None.
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PART III
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
(a)
Identification of Directors
Name
Age
Position with the Company
Christopher L. Coccio
Edward J. Handler, Esq.
R. Stephen Harshbarger
Eric Haskell, CPA
Donald F. Mowbray
Joseph Riemer
Samuel Schwartz
Philip A. Strasburg, CPA
* Member of the Audit Committee.
77
81
50
71
80
69
98
79
Chief Executive Officer, Chairman and a Director
Director*
President and Director
Director*
Director
Director
Chairman Emeritus and Director
Director*
The Board of Directors is divided into two classes. The directors in each class serve for a term of two years. The terms of the
classes are staggered so that only one class of directors is elected at each annual meeting of the Company. The terms of Dr.
Mowbray and Messrs. Handler, Haskell and Schwartz run until the annual meeting to be held in 2018, and in each case until their
respective successors are duly elected and qualified. The terms of Drs. Coccio and Riemer and Messrs. Strasburg and Harshbarger
run until the annual meeting to be held in 2019.
Audit Committee
The Company’s Board of Directors has an Audit Committee composed of “independent directors”, Edward J. Handler, Eric Haskell,
CPA and Philip A. Strasburg, CPA, as Chairman. The “audit committee financial expert” designated by the Board is Philip A.
Strasburg.
The Audit Committee is responsible for (i) selecting an independent public accountant for ratification by the stockholders, (ii)
reviewing material accounting items affecting the consolidated financial statements of the Company, and (iii) reporting its findings
to the Board of Directors.
Nominating Committee
There have been no changes to the procedures by which shareholders may recommend nominees to the Board of Directors.
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(b)
Identification of Executive Officers
Name
Age
Position with the Company
Stephen J. Bagley, CPA
Bennett D. Bruntil
Christopher L. Coccio
Robb W. Engle
R. Stephen Harshbarger
55
37
77
47
50
Chief Financial Officer
Vice President
Chief Executive Officer, Chairman and a Director
Vice President
President and Director
The foregoing officers are appointed for terms of one year or until their successors are duly elected and qualified or until
terminated by the action of the Board of Directors. There are no arrangements or understandings between any executive officer
and any other persons(s) pursuant to which he was or is to be selected as an officer.
Business Experience
STEPHEN J. BAGLEY, CPA was appointed Chief Financial Officer in June 2005. From 1987 to 1991 he worked in public accounting
in various capacities. From 1992 to 2005, he held various leadership positions as Controller, Chief Financial Officer and Vice
President of Finance for companies with up to $45,000,000 in revenues. Mr. Bagley earned a Bachelor of Science degree from The
State University of NY – College at Oneonta and an MBA from Marist College. He was licensed as a CPA in 1990. Mr. Bagley is a past
President of the Board of Education for the New Paltz Central School District and a past Chairman of the Audit and Finance
Committee for the District.
BENNET D. BRUNTIL was appointed Vice President in March 2018. Mr. Bruntil joined SonoTek in 2007 as a Regional Sales
Manager and has served as Marketing Brand Manager and Director of the Electronics and Advanced Energy Division. Mr. Bruntil
has experience in branding and product development and has successfully implemented sales strategies, launched new products
and management of a diverse product line. Prior to joining SonoTek, Mr. Bruntil was a branch manager in the retail banking
industry. He is a graduate of Central Connecticut State University with a major in psychology and a concentration in sociology.
DR. CHRISTOPHER L. COCCIO was appointed President and Chief Executive Officer of SonoTek on April 30, 2001, has been a
Director of the Company since June 1998, and was appointed Chairman in August 2007. From 1964 to 1996, he held various
engineering, sales, marketing and management positions at General Electric Company, with P&L responsibilities for up to $100
million in sales and 500 people throughout the United States. He also won an ASME Congressional Fellowship and served with the
Senate Energy Committee in 1976. His business experience includes both domestic and international markets and customers. He
founded a management consulting business in 1996, and was appointed a legislative Fellow on the New York State Assembly’s
Legislative Commission on Science and Technology from 1996 to 1998. From 1998 to 2001, he worked with Accumetrics
Associates, Inc., a manufacturer of digital wireless telemetry systems, as Vice President of Business Development and member of
the Board of Advisors. Dr. Coccio received a B.S.M.E. from Stevens Institute of Technology, an M.S.M.E. from the University of
Colorado, and a Ph.D. from Rensselaer Polytechnic Institute in Chemical Engineering.
Key attributes, Experience and Skills: Dr. Coccio brings his strategic vision for our Company to the Board together with his
leadership, business experience and investor relations skills. Dr. Coccio has an immense knowledge of our Company and its related
applications which is beneficial to the Board. Dr. Coccio’s service as Chairman and CEO bridges a critical gap between the
Company’s management and the Board, enabling the Board to benefit from management’s perspective on the Company’s business
while the Board performs its oversight function.
ROBB W. ENGLE joined SonoTek in 2000 as a Field Service Technician and became Vice President of Engineering in January 2013.
Mr. Engle created the SonoTek Service Department and led the development of key products in his leadership role of our
engineering resources. As Vice President of Engineering, he directs the engineering department, service department, IT and Sono
Tek laboratory services. Mr. Engle was formally trained and certified by the U.S. Navy as a Nuclear Operator where he was
recognized with an induction into the Navy League Memorial for meritorious service and the advancement of training techniques.
He also served with honors on board a submarine and earned the prestigious SubSurface Warfare (E) Insignia.
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EDWARD J. HANDLER, III, Esq., is a retired partner from Kenyon & Kenyon, a law firm that provided intellectual property advice to
the Company. Mr. Handler became a Director of the Company on October 1, 2004, coincident with his retirement from his law firm.
Mr. Handler has 40 years of experience in all aspects of intellectual property, including patents, trade secrets, trademarks and
copyrights, including litigation and other adversarial proceedings. Mr. Handler is Chairman and CEO of The Bronx Project, Inc., a
private Delaware corporation active in the area of therapeutics for acute (CNS) inflammatory conditions. Mr. Handler is past
President of the West Point Society of New York and a past Trustee of the Association of Graduates, U.S. Military Academy. He
holds a J.D. degree from the University of Virginia Law School and a B.S. in Engineering Science from the United States Military
Academy.
Key attributes, Experience and Skills: Mr. Handler’s extensive experience as an attorney enables him to bring valuable
strategic insights to the Board. Mr. Handler’s past experience as the Company’s intellectual property attorney provides him with an
in depth knowledge of the Company and its related market applications. Mr. Handler also brings leadership and oversight
experience to the Board.
R. STEPHEN HARSHBARGER joined SonoTek in 1993. He was appointed President of the Company in 2012 and became a Director
in August 2013. As President, he directs the Company’s Sales, Marketing, Engineering, Service, and Manufacturing Operations.
Prior to assuming his present position, Mr. Harshbarger served as Sales Engineer, World Wide Sales and Marketing Manager, Vice
President & Director of Electronics and Advanced Energy (E&AE) and Executive Vice President. In his years managing the sales
organization, he established a worldwide distribution and representative network in more than 40 countries consisting of more
than 300 persons, with revenue growth of greater than 300%. He has over 20 years of experience in ultrasonic coating equipment
for the electronics, medical device and advanced energy industries. Prior to joining SonoTek, Mr. Harshbarger was the Sales and
Marketing Manager for Plasmaco Inc., a world leader in the development of flat panel displays. In that position, he established their
distribution network, participated in venture capital funding, and introduced the first flat panel technology to Wall Street trading
floors. He is a graduate of Bentley University, with a major in Finance and a minor in Marketing.
Key attributes, Experience and Skills: Mr. Harshbarger is among a small handful of ultrasonic coating experts in the world.
He has a proven track record of identifying, developing and implementing the technology for new markets and applications. His
expertise in ultrasonic coating brings specific product application insights to the Board. Mr. Harshbarger also brings leadership
and oversight experience to the Board.
ERIC HASKELL, CPA has been a Director since August 2009. He has over 40 years of experience in senior financial positions at
several public and private companies. He has significant expertise in the areas of acquisitions and divestitures, strategic planning
and investor relations. From December 2005 through March 2008, Mr. Haskell served as the Executive Vice President and Chief
Financial Officer of SunCom Wireless Holdings, Inc., a company providing digital wireless communications services which was
publicly traded until its merger with a whollyowned subsidiary of TMobile USA, Inc. in February 2008. He also served as a
member of SunCom’s Board of Directors from November 2003 through May 2007. From 1989 until April 2004, Mr. Haskell served
as the Chief Financial Officer of Systems & Computer Technology Corp., a NASDAQ listed software and services corporation. Mr.
Haskell received his Bachelors Degree in Business Administration from Adelphi University in 1969.
Key attributes, Experience and Skills: Mr. Haskell’s training and extensive experience in financial management at both public
and private companies provide the Board with valuable insights. Mr. Haskell’s significant experience in acquisitions and
divestitures and investor relations bring strategic judgment and experience to the Board. Mr. Haskell’s strong operational and
business background complement his accounting and finance experience and are valuable resources to the Board as it exercises its
oversight duties and support of the Company’s growth strategies.
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DR. DONALD F. MOWBRAY has been a Director since August 2003. He has been an independent consultant since August 1997.
From September 1992 to August 1997, he was the Manager of the General Electric Company’s Corporate Research and
Development Mechanical Engineering Laboratory. From 1962 to 1992 he worked for the General Electric Company in a variety of
engineering and managerial positions. Dr. Mowbray received a B.S. in Aeronautical Engineering from the University of Minnesota
in 1960, a Master of Science in Engineering Mechanics from the University of Minnesota in 1962 and a Ph.D. from Rensselaer
Polytechnic Institute in Engineering Mechanics in 1968.
Key attributes, Experience and Skills: Dr. Mowbray’s extensive research and managerial experience enables him to bring
valuable insights to the Board. His knowledge of the Company’s products and the materials sciences technology underlying them
has enabled him to contribute to the Company’s advanced products development and designs. Dr. Mowbray also brings leadership
and oversight experience to the Board from his GE management background.
DR. JOSEPH RIEMER joined the Company in January 2007 as Vice President of Engineering, and has been a Director since August
2007. Dr. Riemer served as President from September 2007 until August 2012 when he became Vice President of Food Business
Development, which position he held until June 2016. Dr. Riemer holds a Ph.D. in Food Science and Technology from the
Massachusetts Institute of Technology (MIT), focusing on food technology, food chemistry, biochemical analysis, and food
microbiology. His experience includes seven years with Pfizer in its Adams Confectionary Division, where he was Director, Global
Operations Development. Dr. Riemer has also held leading positions with several food, food ingredients, and personal care
products companies. He has served in the capacities of research and development, operations, and general management. Prior to
joining the Company, he was a management consultant serving clients in the food, biotech and pharmaceutical industries.
Key attributes, Experience and Skills: Dr. Riemer’s extensive research and management experience enables him to bring
valuable insights to the Board. His considerable experience in the biotech, food and pharmaceutical industries bring specific
product application insights to the Board. Dr. Riemer’s previous service as Vice President of Food Business Development helps to
provide focus to the Board on this important marketing area. Dr. Riemer also brings leadership and oversight experience to the
Board.
SAMUEL SCHWARTZ has been a Director of the Company since August 1987, and was Chairman of the Board from February 1993
to May 1999 and August 2001 to August 2007. From 1959 to 1992, he was the Chairman and Chief Executive Officer of Krystinel
Corporation, a manufacturer of ceramic magnetic components used in electronic circuitry. He received a B.Ch.E. from Rensselaer
Polytechnic Institute in 1941 and an M.Ch.E. from New York University in 1948.
Key attributes, Experience and Skills: Mr. Schwartz’s longtime experience as a businessman and manufacturer enables him
to bring valuable operational insights to the Board. Mr. Schwartz’s experience as former Chairman of the Board enable him to bring
operational insights to the Board. Mr. Schwartz also brings leadership and oversight experience to the Board.
PHILIP STRASBURG, CPA, has been a Director since August 2004. He is a retired partner from the firm of Anchin Block and Anchin,
LLP and has 40 years of experience in auditing. He has served as Audit Committee Chairman since 2005. He was the lead partner
on the SonoTek account from fiscal 1994 to fiscal 1996. Mr. Strasburg is a certified public accountant in New York State. He has a
Master of Science in economics from The London School of Economics and Political Science and a Bachelors of Science degree from
Lehigh University, where he majored in business administration.
Key attributes, Experience and Skills: Mr. Strasburg’s training and extensive experience in auditing provide the Board with
valuable insights and skills necessary to lead the Audit Committee. Mr. Strasburg’s strong operational and business background
complement his accounting and finance experience, and are valuable resources to the Board as it exercises its oversight duties and
support of the Company’s growth strategies.
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(c)
Identification of Certain Significant Employees
Not applicable.
(d)
Family Relationships
None.
(e)
Involvement in certain legal proceedings
None.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's Directors, executive officers and persons who own
more than ten percent of the Company's common stock to file with the Securities and Exchange Commission initial reports of
beneficial ownership and reports of changes of beneficial ownership of common stock. Such persons are also required by
Securities and Exchange Commission regulations to furnish the Company with copies of all such reports. Based solely on a review
of such filings, during the year ended February 28, 2018, all of the Company's Directors and executive officers and holders of more
than ten percent of the Company’s stock have made timely filings of such reports.
Code of Ethics
The Company has adopted a Code of Ethics for senior executives and financial officers. The Board intends that this Code satisfy the
requirements of the Securities and Exchange Commission rules for a Code of Ethics that applies to senior management. A copy of
the Company's Code of Ethics is posted on the "information for investors" web page located at http://www.sonotek.com/codeof
ethics/ and is available in print to any shareholder who requests a copy.
ITEM 11
EXECUTIVE COMPENSATION
The following table sets forth the aggregate remuneration paid or accrued by the Company for fiscal 2018 and fiscal 2017 for each
named officer of the Company.
Name and
Principal Position
Christopher L. Coccio
CEO, Chairman and Director
R. Stephen Harshbarger
President and Director
Stephen J. Bagley
Chief Financial Officer
Summary Compensation Table
Year
2018
2017
2018
2017
2018
2017
Salary
($)
150,000
130,962
223,692
182,692
154,596
134,669
Bonus
($)
36,000
30,000
30,000
25,000
24,000
20,500
Stock
Awards
Option
Awards
($)
All Other
Compensation
($)
0
0
0
0
0
0
—
—
20,873
19,952
5,429
3,668
3,485
2,256
4,989
4,154
3,446
3,104
Total
($)
189,485
163,218
279,554
231,798
187,471
161,941
All Other Compensation represents Company contributions to the Company’s 401K plan.
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Option awards in the above table are calculated using the BlackScholes options pricing model which is further discussed in Note 4
– Stock Based Compensation, in the Company’s financial statements.
Officer Compensation Arrangements
During fiscal 2018, Dr. Coccio was compensated at a rate of $150,000 per annum.
During fiscal 2018, Mr. Harshbarger was compensated at a rate of $220,000 per annum.
During fiscal 2018, Mr. Bagley was compensated at a rate of $155,000 per annum.
In addition, each named officer earned bonus compensation based on the achievement of certain operating objectives.
Name
Christopher L. Coccio
CEO, Chairman and Director
R. Stephen Harshbarger
President
Stephen J. Bagley
Chief Financial Officer
Outstanding Equity Awards At Fiscal Year End
Number of Securities
Underlying Unexercised
Options (#) Exercisable
Number of Securities
Underlying Unexercised
Options (#) Unexercisable
Option
Exercise Price ($)
Option
Expiration Date
—
33,000
36,000
43,200
—
—
167,0001
—
—
110,0002
90,0003
—
0.91
1.05
1.19
1.06
0.91
—
07/20/2026
02/20/2024
02/19/2025
05/18/2027
07/20/2026
166,000 of these options vested on March 15, 2018, 67,000 of these options will vest on March 15, 2019 and 34,000 of these options will vest on March
15, 2020.
2 36,667 of these options vested on March 15, 2019, 36,667 of these options will vest on March 15,2020 and 36,666 of these options will vest on March
15, 2021.
3 20,000 of these options vested on March 15, 2018, 33,333 of these options will vest on March 15, 2019, 23,333 of these options will vest on March 15,
2020 and 13,334 of these options will vest on March 15, 2021.
Estimated Payments and Benefits Upon Termination or Change in Control
On September 1, 2007, the Company entered into identical Executive Agreements with Stephen J. Bagley, Chief Financial Officer and
Christopher L. Coccio, Chief Executive Officer. The Company also entered into an Executive Agreement with R. Stephen Harshbarger,
President, on March 5, 2008. The agreements, as subsequently amended, provide that in the event of a change of control of the Company
followed by a termination of the executives’ employment under certain circumstances, the officers shall receive severance payments equal
to two years of the executive’s annual base, commissions and bonus compensation paid by the Company for the previous calendar year.
Based on last year’s salary arrangements, if the rights of the foregoing officers were to be triggered following a change of control, they
would be entitled to the following payments from the Company: Stephen J. Bagley $345,000, Christopher L. Coccio $360,000 and R.
Stephen Harshbarger $499,000.
Severance Agreements
On October 20, 2017, the Company entered into identical Executive Agreements with Stephen J. Bagley, Chief Financial Officer,
Christopher L. Coccio, Chief Executive Officer and R. Stephen Harshbarger, President. The agreements provide that in the event of
termination of the executive’s employment, other than for the cause, the officers shall receive severance payments equal to two weeks of
compensation for each full year employed by the Company.
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Compensation of Directors
Each nonemployee director receives $1,000 for each meeting attended. Directors who are employees of the Company receive no
additional compensation for serving as directors. For the year ended February 28, 2018, director compensation was as follows:
2018 Director Compensation
Fees
Earned
or Paid in
Cash ($)
3,000
3,000
3,000
2,000
3,000
2,000
Stock
Awards ($)
Option
Awards ($)
Non-Equity
Incentive Plan
Compensation ($)
Nonqualified
Deferred
Compensation
Earnings ($)
All Other
Compensation ($)
Total
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,000
3,000
3,000
2,000
3,000
2,000
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Name
Edward J.
Handler
Eric Haskell
Donald F.
Mowbray
Samuel
Schwartz
Philip
Strasburg
Joseph
Riemer
ITEM 12
The following information is furnished as of May 10, 2018 to indicate beneficial ownership of the Company's Common Stock by
each Director, by each named executive officer, by all Directors and executive officers as a group, and by each person known to the
Company to be the beneficial owner of more than 5% of the Company's outstanding Common Stock. Such information has been
furnished to the Company by the indicated owners. Unless otherwise indicated, the named person has sole voting and investment
power.
Name (and address if more than 5%) of
Beneficial owner
Amount
Beneficially
Owned
Directors and Officers
*Stephen J. Bagley
*Christopher L. Coccio
*Edward J. Handler
*R. Stephen Harshbarger
*Eric Haskell
*Donald F. Mowbray
*Joseph Riemer
*Samuel Schwartz
*Philip A. Strasburg
All Executive Officers and Directors as a Group
Additional 5% owners
Herbert Spiegel
425 East 58th Street
New York, NY 10022
Emancipation Management LLC
825 Third Avenue
New York, NY 10022
The above ownership percentages are based on 14,989,003 shares outstanding as of May 10, 2018.
*c/o SonoTek Corporation, 2012 Route 9W, Milton, NY 12547.
** Less than 1%
20
32,3261
532,3382
110,7263
246,7564
20,0005
65,0006
217,554
1,383,0477
75,9638
2,779,5229
756,93110
Percent
**
3.55%
**
1.63%
**
**
1.45%
9.21%
**
18.06%
5.02%
6,714,89110
44.54%
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1 Includes 20,000 options currently exercisable issued under the Company’s Stock Incentive Plans.
2 Includes 2,000 shares held in the name of Dr. Coccio’s wife.
3Includes 44,797 shares owned jointly with Mr. Handler’s wife, 35,929 shares in the name of Mr. Handler’s wife and 30,000 options currently
exercisable issued under the Company’s Stock Incentive Plans.
4Includes 178,200 options currently exercisable issued under the Company’s Stock Incentive Plans.
5Represents 20,000 options currently exercisable issued under the Company’s Stock Incentive Plans.
6Includes 20,000 options currently exercisable issued under the Company’s Stock Incentive Plans.
7Includes 30,000 options currently exercisable issued under the Company’s Stock Incentive Plans
8Includes 10,000 shares in the name of Mr. Strasburg’s wife and 20,000 options currently exercisable issued under the Company’s Stock Incentive
Plans.
9 The group total includes 405,600 options currently exercisable issued under the Company’s Stock Incentive Plans. The group total does not include
351,000 options that are currently unexercisable. The group total includes 5,896 shares and 77,400 exercisable options held by Robb Engle, a Vice
President of Engineering and 2,516 shares and 10,000 exercisable options held by Bennett Bruntil, a Vice President.
10The Company does not consider this holder to be an “affiliate” of the Company.
Securities Authorized for Issuance Under Equity Compensation Plans:
EQUITY COMPENSATION PLAN INFORMATION
Number of
securities to be
issued upon
exercise of
outstanding options,
warrants and rights
(a)
744,100
168,000
912,100
Weighted
average exercise
price of
outstanding options,
warrants and rights
(b)
$0.99
$0.72
Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
1,735,900
—
1,735,900
Equity compensation plans approved by security
holders:
2013 Stock Incentive Plan
2003 Stock Incentive Plan
Total
Description of Equity Compensation Plans:
2013 Stock Incentive Plan
Under the 2013 Stock Incentive Plan, as amended (the "2013 Plan"), options can be granted to officers, directors, consultants and
employees of the Company and its subsidiaries to purchase up to 2,500,000 shares of the Company's common stock. Under the
2013 Plan options expire ten years after the date of grant. As of February 28, 2018, there were 744,100 options outstanding
under the 2013 plan.
Under the 2013 Stock Incentive Plan, 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 plan 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.
2003 Stock Incentive Plan
Under the 2003 Stock Incentive Plan, as amended (the "2003 Plan"), until May 2013, options were available to 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. As of February 28, 2018, there were 168,000 options outstanding under the 2003 Plan, under which no
additional options may be granted.
21
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ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions With Related Persons – None
Independence of Directors
The Company’s Board of Directors is comprised of six “independent directors”, as that term is defined under NASDAQ rules, and
two directors who are not “independent directors”. The Company’s “independent directors” are Samuel Schwartz, Donald
Mowbray, Edward Handler, Eric Haskell, Joseph Riemer and Philip Strasburg. Christopher Coccio and R. Stephen Harshbarger are
employees of the Company and are therefore not independent.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
For each of fiscal 2018 and fiscal 2017, the Company paid or accrued fees of approximately $46,500 for services rendered by
Liggett & Webb, P.A., its independent auditors. These fees included audit and review services.
Audit Related Fees None
Tax Fees
For each of fiscal 2018 and fiscal 2017, the Company paid or accrued tax preparation fees of approximately $5,500 for services
rendered by Liggett & Webb, P.A., its independent auditors.
All Other Fees – None
PreApproval Policies and Procedures
The Audit Committee’s current policy is to preapprove all audit and nonaudit services that are to be performed and fees to be
charged by the Company’s independent auditor to assure that the provision of these services does not impair the independence of
the auditor. The Audit Committee preapproved all audit and nonaudit services rendered by the Company’s principal accountants
in fiscal 2018 and fiscal 2017.
22
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ITEM 15
EXHIBITS
PART IV
Ex. No.
3(a)1
3(b)2
10(a)1
10(b) 3
10(c) 3
10(d) 4
10(e) 4
10(f) 4
10(g) 5
10(h)6
10(i)6
10(j)7
10(k)8
10 (l)8
10(m)8
10(n)8
10(o)8
10(p)9
10(q)9
10(r)10
10(s)11
10(t)11
10(u)11
10(v)12
10(w)12
10(x)12
1413
Description
Certificate of Incorporation of the Company and all amendments thereto.
Bylaws of the Company as amended.
SonoTek Corporation 2003 Stock Incentive Plan.
Equipment Line Credit Agreement between SonoTek Corporation and M&T Bank, dated March 24, 2005.
General Security Agreement between SonoTek Corporation and M&T Bank, dated December 21, 2004.
Executive Agreement between SonoTek Corporation and Stephen J. Bagley dated September 1, 2007.
Executive Agreement between SonoTek Corporation and Christopher L. Coccio dated September 1, 2007.
Executive Agreement between SonoTek Corporation and Joseph Riemer dated September 1, 2007.
Executive Agreement between SonoTek Corporation and R. Stephen Harshbarger dated March 5, 2008.
Amended Executive Agreement between SonoTek Corporation and R. Stephen Harshbarger dated March 8,
2012.
Equipment Term Note between SonoTek Corporation and M&T Bank dated June 17, 2011.
SonoTek Corporation 2013 Stock Incentive Plan.
Form of Amended and Restated Mortgage dated December 16, 2013, between SonoTek Industrial Park LLC and
M&T Bank.
Form of Amended and Restated Term Note dated December 16, 2013, between SonoTek Industrial Park LLC
and M&T Bank.
Form of Assignment of Rents dated December 16, 2013, between SonoTek Industrial Park LLC and M&T Bank.
Form of Environmental Compliance and Indemnification Agreement dated December 16, 2013, between Sono
Tek Industrial Park LLC and M&T Bank.
Form of Modification and Extension Agreement dated December 16, 2013, between SonoTek Industrial Park
LLC and M&T Bank.
Amended Executive Agreement between SonoTek Corporation and Christopher L. Coccio dated August 24,
2014.
Amended Executive Agreement between SonoTek Corporation and R. Stephen Harshbarger dated August 24,
2014.
Amended Executive Agreement between SonoTek Corporation and Stephen J. Bagley dated May 21, 2015.
Amended Executive Agreement between SonoTek Corporation and Christopher L. Coccio dated November 17,
2016.
Amended Executive Agreement between SonoTek Corporation and R. Stephen Harshbarger dated November
17, 2016.
Amended Executive Agreement between SonoTek Corporation and Stephen J. Bagley dated November 17, 2016.
Letter Agreement between SonoTek Corporation and Christopher L. Coccio dated October 20, 2017.
Letter Agreement between SonoTek Corporation and R. Stephen Harshbarger dated October 20, 2017.
Letter Agreement between SonoTek Corporation and Stephen J. Bagley dated October 20, 2017.
Code of Ethics.
23
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2112
23.112
31.112
31.212
32.112
32.212
101.INS12
101.SCH12
101.CAL12
101.DEF12
101.LAB12
101.PRE12
Subsidiaries of Issuer.
Consent of Liggett & Webb, P.A.
Rule 13a14/15d – 14(a) Certification.
Rule 13a14/15d – 14(a) Certification.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of
2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of
2002.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
1 Incorporated herein by reference to the Company’s Registration Statement No. 33311913 on Form S8 filed on February 18, 2004.
2 Incorporated herein by reference to the Company’s Current Report on Form 8K dated May 19, 2016 and filed with the Securities and
Exchange Commission on May 24, 2016.
3 Incorporated herein by reference to the Company’s Form 10KSB for the year ended February 28, 2005.
4 Incorporated herein by reference to the Company’s Form 10QSB for the quarter ended August 31, 2007
5 Incorporated herein by reference to the Company’s Form 10Q for the quarter ended May 31, 2008.
6 Incorporated herein by reference to the Company’s Form 10K for the year ended February 29, 2012.
7 Incorporated herein by reference to Exhibit A to the Company’s definitive proxy statement filed with the Securities and Exchange
Commission on July 25, 2013.
8 Incorporated herein by reference to the Company’s Form 10K for the year ended February 29, 2014.
9 Incorporated herein by reference to the Company’s Form 10K for the year ended February 29, 2015.
10 Incorporated herein by reference to the Company’s Form 10K for the year ended February 29, 2016.
11 Incorporated herein by reference to the Company’s Form 10K for the year ended February 28, 2017.
12 Filed herewith.
13 Incorporated herein by reference to the Company’s Form 10KSB for the year ended February 29, 2004.
24
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SONOTEK CORPORATION
FORM 10K
ITEM 7
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
FOR THE YEARS ENDED FEBRUARY 28, 2018 and 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at February 28, 2018 and 2017
Consolidated Statements of Operations and Comprehensive Income
For the Years Ended February 28, 2018 and 2017
Consolidated Statements of Stockholders' Equity
For the Years Ended February 28, 2018 and 2017
Consolidated Statements of Cash Flows
For the Years Ended February 28, 2018 and 2017
Notes to the Consolidated Financial Statements
25
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
SonoTek Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SonoTek Corporation (the "Company") as of February 28, 2018
and 2017, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for
the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2018 and
2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Liggett & Webb P.A.
Liggett & Webb, P.A.
Certified Public Accountants
We have served as the Company’s auditor since 2012.
New York, NY
May 24, 2018
26
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SONOTEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets:
Cash and cash equivalents
Marketable securities
Accounts receivable (less allowance of $46,000)
Inventories, net
Prepaid expenses and other current assets
Total current assets
Land
Buildings, net
Equipment, furnishings and leasehold improvements, net
Intangible assets, net
Deferred tax asset
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accrued expenses
Customer deposits
Current maturities of long term debt
Income taxes payable
Total current liabilities
Deferred tax liability
Long term debt, less current maturities
Total Liabilities
Commitments and Contingencies
Stockholders’ Equity
Common stock, $.01 par value; 25,000,000 shares authorized, 14,986,367 and 14,961,076 issued
and outstanding, respectively
Additional paidin capital
Accumulated deficit
Accumulated other comprehensive income
Total stockholders’ equity
February 28,
2018
2017
$
$
2,016,464
4,405,900
774,778
1,354,083
139,406
8,690,631
250,000
1,807,339
498,401
136,576
396,387
2,557,223
2,342,184
1,150,801
1,340,684
127,276
7,518,168
250,000
1,875,074
624,197
153,326
315,171
$
11,779,334
$
10,735,936
$
$
652,863
893,192
344,098
156,119
84,621
336,561
868,755
78,902
149,698
14,619
2,130,893
1,448,535
385,384
870,532
337,726
1,026,650
3,386,809
2,812,911
—
—
149,864
8,901,171
(760,115)
101,605
149,611
8,859,486
(1,128,322)
42,250
8,392,525
7,923,025
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
11,779,334
$
10,735,936
See notes to consolidated financial statements.
27
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SONOTEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Research and product development
Marketing and selling
General and administrative
Total Operating Expenses
Operating Income (Loss)
Other Income (Expense):
Interest Expense
Interest and Dividend Income
Other Income
Income before Income Taxes
Income Tax (Benefit) Expense
Net Income
Other Comprehensive Income
Net unrealized gain on marketable securities
Comprehensive Income
Basic Earnings Per Share
Diluted Earnings Per Share
Weighted Average Shares – Basic
Weighted Average Shares – Diluted
See notes to consolidated financial statements.
28
Fiscal Year Ended
February 28,
2018
2017
$
11,008,444
5,711,951
5,296,493
$
9,634,956
5,272,050
4,362,906
1,280,308
2,516,461
1,118,107
4,914,876
1,275,902
2,217,218
1,048,407
4,541,527
381,617
(178,621)
(46,117)
91,459
33,104
460,063
91,856
(52,294)
70,797
236,450
76,332
(19,374)
368,207
$
95,706
59,355
112,390
427,562
.02
.02
$
$
$
208,096
.01
.01
14,968,450
14,961,076
15,095,123
15,018,282
$
$
$
$
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Balance – February 29, 2016
Exercise of stock options
Stock based compensation expense
Unrealized gain on marketable
securities
Net Income
Balance – February 28, 2017
Exercise of stock options
Stock based compensation expense
Unrealized gain on marketable
securities
Net Income
Balance – February 28, 2018
SONOTEK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED FEBRUARY 28, 2018 AND 2017
Common Stock
Par Value $.01
Shares
Amount
Additional
Paid – In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
14,955,400
5,676
$
149,554
57
$
8,812,224
(57)
47,319
$
(70,140) $ (1,224,028) $
14,961,076
$
149,611
$
8,859,486
$
42,250
$ (1,128,322) $
112,390
95,706
25,291
253
(43)
41,728
14,986,367
$
149,864
$
8,901,171
$
101,605
$
368,207
(760,115) $
59,355
7,667,610
—
47,319
112,390
95,706
7,923,025
210
41,728
59,355
368,207
8,392,525
See notes to consolidated financial statements.
29
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SONOTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
Stock based compensation expense
Inventory reserve
Deferred tax expense
(Increase) Decrease in:
Accounts receivable
Inventories
Prepaid expenses and other assets
(Decrease) Increase in:
Accounts payable and accrued expenses
Customer deposits
Income taxes payable
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, furnishings and leasehold improvements
(Purchase) of marketable securities
Net Cash (Used In) Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options
Repayment of long term debt
Net Cash (Used In) Financing Activities
Fiscal Year Ended
February 28,
2018
2017
$
368,207
$
95,706
399,526
41,728
104,601
(33,558)
376,023
(118,000)
(12,130)
340,739
265,196
70,002
1,802,334
(189,245)
(2,004,360)
(2,193,605)
210
(149,698)
(149,488)
440,223
47,319
80,006
5,750
63,912
524,693
(17,322)
(16,017)
(122,576)
(73,041)
1,028,653
(182,837)
(533,559)
(716,396)
—
(143,389)
(143,389)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(540,759)
168,868
CASH AND CASH EQUIVALENTS:
Beginning of year
End of year
Supplemental Cash Flow Disclosure:
Interest Paid
Income Taxes Paid
2,557,223
2,016,464
46,117
59,494
2,388,355
2,557,223
52,294
56,502
$
$
$
$
$
$
See notes to consolidated financial statements.
30
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SONOTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2018 AND 2017
NOTE 1: BUSINESS DESCRIPTION
SonoTek Corporation (the “Company”) was incorporated in New York on March 21, 1975 for the purpose of engaging in the
development, manufacture, and sale of ultrasonic liquid atomizing nozzles, which are sold worldwide. Ultrasonic nozzle systems
atomize low to medium viscosity liquids by converting electrical energy into mechanical motion in the form of high frequency
ultrasonic vibrations that break liquids into minute drops that can be applied to surfaces at low velocity.
Based on its core technology of ultrasonic liquid atomizing nozzles, the Company has developed intellectual property in the area of
precision spray coating of liquids. The Company is presently engaged in the development, manufacture, sales, installation and
servicing of diverse ultrasonic coating equipment for various manufacturing industries worldwide.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Advertising Expenses - The Company expenses the cost of advertising in the period in which the advertising takes place.
Advertising expense for fiscal 2018 and fiscal 2017 was $280,348 and $285,572, respectively.
Allowance for doubtful accounts The Company records a bad debt expense/allowance based on management’s estimate of
uncollectible accounts. All outstanding accounts receivable accounts are reviewed for collectability on an individual basis. The bad
debt expense recorded for fiscal 2018 and fiscal 2017 was approximately $0.
AvailableForSale Investments – The Company’s available for sale investments are carried at fair value with the unrealized gains
or losses, net of tax, included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized
losses and declines in value below cost judged to be other than temporary, if any, are included as a component of asset
impairments expense in the consolidated statement of operations. The fair value of the availableforsale investments are based on
quoted market prices. The Company’s fair value determination method is discussed below in “Fair Value of Financial Instruments.”
Cash and Cash Equivalents - Cash and cash equivalents consist of money market mutual funds, short term commercial paper and
shortterm certificates of deposit with original maturities of 90 days or less.
Concentration of Credit Risk - The Company does not believe that it is subject to any unusual or significant risks, in the normal
course of business. The Company had one customer, which accounted for 8% of sales during fiscal 2018. Two customers accounted
for 22% of the outstanding accounts receivables at February 28, 2018.
The Company had one customer, which accounted for 7% of sales during fiscal 2017. Six customers accounted for 46% of the
outstanding accounts receivables at February 28, 2017.
Consolidation The accompanying consolidated financial statements of the Company include the accounts of the Company and its
wholly owned subsidiary, SonoTek Industrial Park, LLC (“SIP”). SIP operates as a real estate holding company for the Company’s
real estate operations.
Earnings Per Share - Basic earnings per share (“EPS”) is computed by dividing net income by the weightedaverage number of
common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
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Equipment, Furnishings and Leasehold Improvements – Equipment, furnishings and leasehold improvements are stated at cost.
Depreciation of equipment and furnishings is computed by use of the straightline method based on the estimated useful lives of
the assets, which range from three to five years.
Fair Value of Financial Instruments The Company follows the guidance in the “Fair Value Measurements and Disclosure Topic”
of the Accounting Standards Codification for assets and liabilities measured at fair value on a recurring basis. This guidance
establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the
use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value
measurements. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. Additionally, the guidance requires the use of
valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are
prioritized below:
Level 1: Quoted prices in active markets.
Level 2: Observable marketbased inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own
assumptions.
The fair values of financial assets of the Company were determined using the following categories at February 28, 2018 and 2017,
respectively:
Quoted Prices in Active Markets
(Level 1)
February 28,
2018
2017
Marketable Securities
$
4,405,900
$
2,342,184
Marketable Securities include mutual funds of $4,405,900 and $2,342,184, that are considered to be highly liquid and easily
tradeable as of February 28, 2018 and 2017, respectively. These securities are valued using inputs observable in active markets for
identical securities and are therefore classified as Level 1 within the Company’s fair value hierarchy. The Company’s marketable
securities are considered to be availableforsale investments as defined under ASC 320 “Investments – Debt and Equity
Securities.”
Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred income
taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. If it
is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
Intangible Assets -Include costs of patent applications which are deferred and charged to operations over seventeen years for
domestic patents and twelve years for foreign patents. The accumulated amortization of patents is $149,654 and $138,777 at
February 28, 2018 and 2017, respectively. Annual amortization expense of such intangible assets is expected to be approximately
$11,000 per year for the next five years.
Inventories - Inventories are stated at the lower of cost or market. Cost is determined using the firstin, firstout (FIFO) method for
raw materials, subassemblies and workinprogress and the specific identification method for finished goods.
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Land and Buildings – Land and buildings are stated at cost. Buildings are being depreciated by use of the straightline method
based on an estimated useful life of forty years.
LongLived Assets - The Company periodically evaluates the carrying value of longlived assets, including intangible assets, when
events and circumstances warrant such a review. The carrying value of a longlived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss
is recognized based on the amount by which the carrying value exceeds the fair market value of the longlived asset. Fair market
value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.
Management Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America 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.
New Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) No. 201409, “Revenue from Contracts with Customers” (Topic 606), to clarify the principles of recognizing revenue
and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. Under ASU
201409, revenue is recognized when a customer obtains control of promised goods or services and is recognized at an amount
that reflects the consideration expected to be received in exchange for such goods or services. In addition, ASU 201409 requires
disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The
ASU is effective for fiscal years beginning after December 15, 2017.
The new revenue standard is principle based and interpretation of those principles may vary from company to company based on
their unique circumstances. It is possible that interpretation, industry practice, and guidance may evolve as companies and the
accounting profession work to implement this new standard. The Company is still in the process of evaluating the effect of the new
standard on the Company’s historical financial statements and disclosures. While the Company has not completed its evaluation,
the Company currently believes that the impact to revenue and expense recognized will not be material to any of the years
presented.
In February 2018, the FASB issued ASU 201802, Income Statement Reporting Comprehensive Income (Topic 220),
“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. ASU 201802 was issued to allow the
reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effect resulting from the
Tax Cuts and Jobs Act enacted on December 22, 2017. The Tax Cuts and Jobs Act, among other things, reduced the corporate tax
rate from 35% to 21%, which required the reevaluation of any deferred tax assets and liabilities at the lowered tax rate which
potentially could leave a disproportionate tax effect in accumulated other comprehensive income. ASU 201802 allows for the
election to reclassify these stranded tax effects to retained earnings. ASU 201802 is effective for all entities for fiscal years
beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption
in any interim period for public business entities for reporting periods for which financials statements have not yet been issued.
The Company is currently evaluating the impact of adopting ASU 201802.
Other than, Accounting Standards Update (“ASU”) No. 201409 and ASU 201802 discussed above, all new accounting
pronouncements issued but not yet effective have been deemed to be not applicable to the Company. Hence, the adoption of these
new accounting pronouncements, once effective, is not expected to have an impact on the Company.
Product Warranty Expected future product warranty expense is recorded when the product is sold.
Reclassifications – Where appropriate, prior year’s financial statements reflect reclassifications to conform to the current year’s
presentation.
Recognition of Revenue – Sales are recorded at the time title passes to the customer, which, based on shipping terms, generally
occurs when the product is shipped to the customer. Based on prior experience, the Company reasonably estimates its sales
returns and warranty reserves. Sales are presented net of discounts and allowances. Discounts and allowances are determined
when a sale is negotiated. The Company does not grant its customers or independent representatives the ability to return
equipment nor does it grant price adjustments after a sale is complete.
Research and Product Development Expenses - Research and product development expenses represent engineering and other
expenditures incurred for developing new products, for refining the Company's existing products and for developing systems to
meet unique customer specifications for potential orders or for new industry applications and are expensed as incurred.
Shipping and Handling Costs – Shipping and handling costs are included in cost of sales in the accompanying consolidated
statements of operations.
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NOTE 3: STOCKBASED COMPENSATION
The Company adopted ASC 718, “Share Based Payments.” which requires companies to expense the value of employee stock
options and similar awards.
The weightedaverage fair value of options has been estimated on the date of grant using the BlackScholes optionspricing model.
The weightedaverage BlackScholes assumptions are as follows:
Expected life
Risk free interest rate
Expected volatility
Expected dividend yield
Fiscal Year Ended February 28,
2018
28 years
1.79% 2.32%
12.65% 22.24%
0%
2017
4 years
1.16%
28.02%
0%
In computing the impact, the fair value of each option is estimated on the date of grant based on the BlackScholes optionspricing
model utilizing certain assumptions for a riskfree interest rate, volatility and expected remaining lives of the awards. The
assumptions used in calculating the fair value of sharebased 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 stockbased 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 number 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 years ended February 28, 2018 and 2017, net income and earnings per share reflect the actual deduction for stockbased
compensation expense. The impact of applying ASC 718 approximated $41,728 and $47,319 in additional compensation expense
for the years then ended, respectively. Such amount is included in general and administrative expenses on the statement of
operations. The expense for stockbased compensation is a noncash expense item.
NOTE 4: INVENTORIES
Inventories consist of the following:
Raw materials and subassemblies
Finished goods
Work in process
Total
Less: Allowance
Net inventories
February 28,
2018
673,969
395,410
489,082
1,558,461
(204,378)
1,354,083
$
$
2017
1,197,506
369,428
28,460
1,595,394
(254,710)
1,340,684
$
$
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NOTE 5: BUILDINGS, EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS
Equipment, furnishings and leasehold improvements consist of the following:
Buildings
Laboratory equipment
Machinery and equipment
Leasehold improvements
Tradeshow and demonstration equipment
Furniture and fixtures
Totals
Less: Accumulated depreciation
February 28,
2018
2,250,000
1,082,051
872,598
413,529
1,070,860
971,011
6,660,049
(4,354,309)
2,305,740
$
$
February 28,
2017
2,250,000
1,012,824
858,694
369,433
1,072,425
907,428
6,470,804
(3,971,533)
2,499,271
$
$
Depreciation expense for the years ended February 28, 2018 and 2017 was $382,777 and $429,360, respectively.
NOTE 6: ACCRUED EXPENSES
Accrued expenses consist of the following:
Accrued compensation
Estimated warranty costs
Accrued commissions
Professional fees
Other accrued expenses
NOTE 7: REVOLVING LINE OF CREDIT
February 28,
2018
2017
362,405
64,050
194,934
64,928
206,875
893,192
$
$
303,711
32,700
255,604
63,462
213,278
868,755
$
$
The Company has a $750,000 revolving line of credit at prime which was 4.50% at February 28, 2018 and 3.75% at February 28,
2017. The line of credit is collateralized by all assets of the Company, except for the land and buildings. The line of credit is payable
on demand and must be retired for a 30day period once annually. If the Company fails to perform the 30day annual pay down or
if the bank elects to terminate the credit line, the bank may at its option convert the outstanding balance to a 36month term note
with payments including interest in 36 equal installments. As of February 28, 2018, and 2017, the Company’s outstanding balance
was $0, and the unused credit line was $750,000.
NOTE 8: LONGTERM DEBT
Longterm debt consists of the following:
Note payable, bank, collateralized by land and buildings, payable in monthly installments of
principal and interest of $16,358 through January 2024. Interest rate 4.15%. 10 year term.
Total long term debt
Due within one year
Due after one year
35
February 28,
2018
2017
1,026,651
1,176,348
1,026,651
156,119
870,532
1,176,348
149,698
1,026,650
$
$
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Longterm debt is payable as follows:
Fiscal Year ending February 28,
2019
2020
2021
2022
2023
2024
156,119
162,816
169,716
177,081
184,677
176,242
$ 1,026,651
NOTE 9: BANK GUARANTEES
As of February 28, 2018, $72,318 of the Company’s cash on deposit with a foreign bank was being utilized to collateralize
guarantees issued by the bank in favor of international customers of the Company to secure cash deposits on orders that have been
remitted to the Company. The customers may exercise the guarantees, subject to certain performance requirements being met by
the Company. The guarantees expire at various dates in 2018.
NOTE 10: COMMITMENTS AND CONTINGENCIES
The Company did not have any material commitments or contingencies as of February 28, 2018.
NOTE 11: INCOME TAXES
The annual provision (benefit) for income taxes differs from amounts computed by applying the maximum U.S. Federal income tax
rate of 34% to pretax income as follows:
Expected federal income tax
State tax, net of federal
Research and development tax credits
Under (Overaccrual) of prior year state taxes
Change in recapture tax rate from 39.3% to 27.3%
Permanent timing difference
Change in valuation allowances
Other adjustments
Income tax Expense (Benefit)
The deferred tax asset and liability are comprised of the following:
Deferred tax asset
Inventory
Allowance for accounts receivable
Accrued expenses and other
Research tax credits
Valuation allowance
Deferred tax asset – Long Term
Deferred tax liability
Intangible asset amortization
Building and leasehold depreciation
Deferred tax liability – Long Term
February 28,
2018
2017
156,421
24,383
(57,994)
40,793
15,343
33,107
(159,300)
39,103
91,856
$
$
64,165
10,002
(70,827)
(63,351)
—
17,795
—
22,842
(19,374)
February 28,
2018
2017
186,800
18,100
111,200
208,300
(128,000)
396,400
(25,000)
(360,400)
(385,400)
$
$
297,000
18,100
79,300
208,000
(287,300)
315,100
(30,000)
(308,000)
(338,000)
$
$
$
$
At February 28, 2018 and 2017, the Company had $208,000 of research and development tax credits being carried forward.
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Deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide a valuation
allowance against the deferred tax assets for amounts when the realization is uncertain.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs
Act (the "Tax Act"). The Tax Act establishes new tax laws that affects 2018 and future years, including a reduction in the U.S.
federal corporate tax rate to 21%, effective March 1, 2018.
NOTE 12: STOCKHOLDERS’ EQUITY
Stock Options – Under the 2013 Stock Incentive Plan, as amended (the "2013 Plan"), options can be granted to officers, directors,
consultants and employees of the Company and its subsidiaries to purchase up to 2,500,000 shares of the Company's common
stock. Under the 2013 Plan options expire ten years after the date of grant. As of February 28, 2018, there were 744,100 options
outstanding under the 2013 plan.
Under the 2003 Stock Incentive Plan, as amended (the "2003 Plan"), until May 2013, options were available to 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. As of February 28, 2018, there were 168,000 options outstanding under the 2003 Plan, under which no
additional options may be granted.
Under the 2013 Stock Incentive Plan, 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 plan 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 threeyear period during the term of the option, and terminating at a stipulated
period of time after an employee's termination of employment.
During fiscal 2018, the Company granted options to acquire 110,000 shares to an officer, at an exercise price of $1.06 and options
for 20,000 shares exercisable at prices from $1.15 to $1.67 to employees of the Company.
During fiscal 2017, the Company granted options to acquire 400,000 shares to officers, at an exercise price of $0.91.
A summary of the activity of both plans for fiscal 2018 and fiscal 2017 is as follows:
Stock Options
Exercise Price $
Weighted Average
Exercisable
Fair Value
Vested
Balance February 29, 2016
Granted
Exercised
Cancelled
Balance February 28, 2017
Granted
Exercised
Cancelled
Balance February 28, 2018
Outstanding
Exercisable
464,100
400,000
(10,000)
(14,500)
839,600
130,000
(57,500)
—
912,100
349,820
395,405
425,400
Outstanding
0.91
$
0.91
(0.48)
(1.21)
0.91
$
$
$
1.12
(0.84)
—
0.96
$
$
$
0.83
$
0.39
0.89
$
0.32
0.92
$
0.35
The intrinsic value of the Company’s options exercised during fiscal 2018 and fiscal 2017 was $19,250 and $1,632, respectively.
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Information, at date of issuance, regarding stock option grants for fiscal 2018:
Year ended February 28, 2018:
Exercise price exceeds market price
Exercise price equals market price
Exercise price is less than market price
Weighted
Average
Exercise
Price
—
$ 1.12
—
Weighted
Average
Fair
Value
—
$ .18
—
Shares
—
130,000
—
The aggregate intrinsic value of the Company’s outstanding options at February 28, 2018 and 2017 was $233,776 and $226,601,
respectively.
The following table summarizes information about stock options outstanding and exercisable at February 28, 2018:
Range of exercise prices:
$.42 to $.50
$.51 to $1.00
$1.01 to $1.20
$1.21 to $1.67
Total Options:
NOTE 13: EARNINGS PER SHARE
Number
Outstanding
Remaining Life
in Years
Exercise
Price
Number
Exercisable
Weighted Average
12,500
533,000
341,600
25,000
912,100
4.40
7.32
7.42
7.82
$ 0.47
$ 0.83
$ 1.10
$ 1.47
12,500
186,000
214,400
12,500
425,400
The following table sets forth the computation of basic and diluted earnings per share:
Numerator for basic and diluted earnings per share
$
368,207
$
95,706
Denominator for basic earnings per share weighted average
14,968,450
14,961,076
Fiscal Year Ended
February 28,
2018
2017
Effects of dilutive securities:
Stock options for employees, directors and outside consultants
Denominator for diluted earnings per share
Basic Earnings Per Share – Weighted Average
Diluted Earnings Per Share – Weighted Average
38
126,673
15,095,123
57,206
15,018,282
$
$
0.02
0.02
$
$
0.01
0.01
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NOTE 14: OTHER COMPREHENSIVE INCOME (LOSS)
As of February 28, 2018, certain of the Company’s marketable securities were in an unrealized gain position. Unrealized gains and
losses are principally due to changes in the fair value of the Company’s investments held as availableforsale. Because the
Company has the ability and intent to hold the securities for the foreseeable future as classified as availableforsale, the Company
does not deem these unrealized gains or losses to be other than temporary.
For fiscal 2018, the unrealized gain on the Company’s availableforsale marketable securities was $59,000 compared with
$112,000 for the prior fiscal year.
As of February 28, 2018, the unrealized gain on the Company’s availableforsale securities was $102,000.
The following table sets forth the changes in Accumulated Other Comprehensive Gain for fiscal 2018:
Beginning Balance February 28, 2017
Current Period Unrealized Gains
Ending Balance February 28, 2018
NOTE 15: OTHER INCOME
Unrealized Gain on
Available for Sale Securities
$
$
42,250
59,355
101,605
Included in other income is the net revenue related to the rental of the Company’s real estate. For fiscal 2018, the Company’s rental
revenue was $77,800, expenses were $58,900 and the net revenue was $18,900.
For fiscal 2017, the Company’s rental revenue was $89,000, expenses were $59,000 and the net revenue was $30,000. During fiscal
2017, the Company received a payout of $200,000 in life insurance proceeds from the death of a former employee.
NOTE 16: SIGNIFICANT CUSTOMERS AND FOREIGN SALES
Export sales to customers located outside the United States were approximately as follows:
Latin America
Asia Pacific
Europe, Middle East, Asia
Other
Fiscal Year Ended
February 28,
2018
1,112,000
2,459,000
2,618,000
114,000
6,303,000
$
$
2017
1,177,000
2,671,000
1,939,000
265,000
6,052,000
$
$
During fiscal 2018 and fiscal 2017, sales to foreign customers accounted for approximately $6,303,000 and $6,052,000, or 57%
and 63% respectively, of total revenues.
One customer accounted for 8% of the Company’s sales for fiscal 2018.
NOTE 17: SUBSEQUENT EVENTS
The Company has evaluated subsequent events for disclosure purposes.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 24, 2018
SonoTek Corporation
(Registrant)
By: /s/ Dr. Christopher L. Coccio
Dr. Christopher L. Coccio,
Chief Executive Officer and Chairman
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
/s/ Dr. Christopher L Coccio
Christopher L. Coccio
Chief Executive Officer, Chairman and
Director
/s/ Stephen J. Bagley
Stephen J. Bagley
Chief Financial Officer
/s/ Edward J. Handler, III
Edward J. Handler, III
Director
/s/ R. Stephen Harshbarger
R. Stephen Harshbarger
President and Director
/s/ Eric Haskell
Eric Haskell
Director
May 24, 2018
May 24, 2018
May 24, 2018
May 24, 2018
May 24, 2018
40
/s/ Samuel Schwartz
Samuel Schwartz
Director
/s/ Dr. Joseph Riemer
Dr. Joseph Riemer
Director
/s/ Philip A. Strasburg
Philip A. Strasburg
Director
/s/ Dr. Donald F. Mowbray
Donald F. Mowbray
Director
May 24, 2018
May 24, 2018
May 24, 2018
May 24, 2018
ex10v.htm
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October 20, 2017
Christopher L. Coccio
10 Bennington Loop
Saratoga Springs, NY 12866
Dear Christopher,
This will confirm our understanding as to your entitlement to severance payments under the circumstances set forth in this
Letter Agreement.
1.
If your employment with the Company (as hereinafter defined) is terminated by the Company other than for Cause (as
hereinafter defined) at any time after the date of this Letter Agreement, the Company shall pay you the Severance Payment (as
hereinafter defined). Any Severance Payment due to you under this Letter Agreement shall be paid to you as salary in
installments in accordance with the Company’s ordinary payroll practices as then in effect.
2. As used in this Letter Agreement, the following definitions shall apply:
a. "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 Chief Executive Officer or Board of Directors of the Company;
(4) repeated material failure by you, after written warning by the Chief Executive Officer or Board of Directors of the
Company, to perform the duties of your employment (including without limitation material failure to follow or comply with
the reasonable and lawful written directives of the Chief Executive Officer or 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 Chief Executive Officer or Board of Directors of the Company.
b. “Company” shall mean Sono-Tek Corporation and any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization, or otherwise) to all or substantially all of the business and/or assets of Sono-Tek Corporation.
c. “Severance Payment” shall be calculated as (x) two weeks of compensation (determined on the basis of your total
compensation from the Company, including base, bonuses and commissions, for the calendar year period immediately prior
to the termination of your employment as reflected on your Form W-2 from such year) multiplied by (y) the number of Full
Years (as hereinafter defined) that you have been employed by the Company prior to the termination of your employment.
Any Severance Payment paid to you shall be subject to reduction to reflect applicable withholding and payroll taxes and
shall be paid to you as salary in installments in accordance with the Company’s ordinary payroll practices as then in effect.
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d. “Full Year” shall mean each 365-day period commencing with the date that your full-time employment commenced with
the Company. Your full-time employment began on May 3, 2001.
3. Your employment with the Company will be “at will,” meaning that either you or the Company will be entitled to
terminate your employment at any time and for any reason, subject to the provisions of this Letter Agreement. Although your
job duties, title, compensation and benefits (other than those expressly provided for in this Letter Agreement), as well as the
Company’s human resources policies and procedures, may from time to time change, the “at will” nature of your employment
may only be changed in an express written agreement signed by you and a duly authorized officer of the Company. For the
avoidance of doubt, if your employment with the Company terminates as a result of Cause, resignation, permanent disability or
death, you shall not be entitled to any Severance Payment under this Letter Agreement.
4. In the event that you receive any payments under that certain Amended and Restated Executive Agreement between you
and the Company dated as of September 1, 2007 (the “Executive Agreement”) following a Change of Control (as defined in the
Executive Agreement) of the Company, you shall not be entitled to any Severance Payments under this Letter Agreement.
5. This Letter Agreement contains the entire understanding between the Company and you with respect to the matters
referenced herein. This Letter Agreement may not be amended or modified except by an express written agreement signed by
you and a duly authorized officer of the Company. The terms of this Letter Agreement and the resolution of any disputes will
be governed by the laws of the State of New York, as applied to agreements entered into and wholly performed within such
State.
Please confirm your understanding of the terms of this Letter Agreement by signing in the space provided below and returning
a signed copy to me.
SONO-TEK CORPORATION
By: /s/ R. Stephen Harshbarger
R. Stephen Harshbarger, President
I have read and confirm the terms of this Letter Agreement:
/s/ Christopher L. Coccio
Christopher L. Coccio
Dated: October 20, 2017
ex10w.htm
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October 20, 2017
R. Stephen Harshbarger
Route 22
Pawling, NY 12564
Dear Stephen,
This will confirm our understanding as to your entitlement to severance payments under the circumstances set forth in this
Letter Agreement.
1.
If your employment with the Company (as hereinafter defined) is terminated by the Company other than for Cause (as
hereinafter defined) at any time after the date of this Letter Agreement, the Company shall pay you the Severance Payment (as
hereinafter defined). Any Severance Payment due to you under this Letter Agreement shall be paid to you as salary in
installments in accordance with the Company’s ordinary payroll practices as then in effect.
2. As used in this Letter Agreement, the following definitions shall apply:
a. "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 Chief Executive Officer or Board of Directors of the Company;
(4) repeated material failure by you, after written warning by the Chief Executive Officer or Board of Directors of the
Company, to perform the duties of your employment (including without limitation material failure to follow or comply with
the reasonable and lawful written directives of the Chief Executive Officer or 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 Chief Executive Officer or Board of Directors of the Company.
b. “Company” shall mean Sono-Tek Corporation and any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization, or otherwise) to all or substantially all of the business and/or assets of Sono-Tek Corporation.
c. “Severance Payment” shall be calculated as (x) two weeks of compensation (determined on the basis of your total
compensation from the Company, including base, bonuses and commissions, for the calendar year period immediately prior
to the termination of your employment as reflected on your Form W-2 from such year) multiplied by (y) the number of Full
Years (as hereinafter defined) that you have been employed by the Company prior to the termination of your employment.
Any Severance Payment paid to you shall be subject to reduction to reflect applicable withholding and payroll taxes and
shall be paid to you as salary in installments in accordance with the Company’s ordinary payroll practices as then in effect.
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d. “Full Year” shall mean each 365-day period commencing with the date that your full-time employment commenced with
the Company. Your full-time employment began on January 19, 1993.
3. Your employment with the Company will be “at will,” meaning that either you or the Company will be entitled to
terminate your employment at any time and for any reason, subject to the provisions of this Letter Agreement. Although your
job duties, title, compensation and benefits (other than those expressly provided for in this Letter Agreement), as well as the
Company’s human resources policies and procedures, may from time to time change, the “at will” nature of your employment
may only be changed in an express written agreement signed by you and a duly authorized officer of the Company. For the
avoidance of doubt, if your employment with the Company terminates as a result of Cause, resignation, permanent disability or
death, you shall not be entitled to any Severance Payment under this Letter Agreement.
4. In the event that you receive any payments under that certain Amended and Restated Executive Agreement between you
and the Company dated as of September 1, 2007 (the “Executive Agreement”) following a Change of Control (as defined in the
Executive Agreement) of the Company, you shall not be entitled to any Severance Payments under this Letter Agreement.
5. This Letter Agreement contains the entire understanding between the Company and you with respect to the matters
referenced herein. This Letter Agreement may not be amended or modified except by an express written agreement signed by
you and a duly authorized officer of the Company. The terms of this Letter Agreement and the resolution of any disputes will
be governed by the laws of the State of New York, as applied to agreements entered into and wholly performed within such
State.
Please confirm your understanding of the terms of this Letter Agreement by signing in the space provided below and returning
a signed copy to me.
SONO-TEK CORPORATION
By: /s/ Christopher L. Coccio
Christopher L. Coccio, CEO
I have read and confirm the terms of this Letter Agreement:
/s/ R. Stephen Harshbarger
R. Stephen Harshbarger
Dated: October 20, 2017
ex10x.htm
EX-10
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October 20, 2017
Stephen J. Bagley
128 North Ohioville Road
New Paltz, NY 12561
Dear Stephen,
This will confirm our understanding as to your entitlement to severance payments under the circumstances set forth in this
Letter Agreement.
1.
If your employment with the Company (as hereinafter defined) is terminated by the Company other than for Cause (as
hereinafter defined) at any time after the date of this Letter Agreement, the Company shall pay you the Severance Payment (as
hereinafter defined). Any Severance Payment due to you under this Letter Agreement shall be paid to you as salary in
installments in accordance with the Company’s ordinary payroll practices as then in effect.
2. As used in this Letter Agreement, the following definitions shall apply:
a. "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 Chief Executive Officer or Board of Directors of the Company;
(4) repeated material failure by you, after written warning by the Chief Executive Officer or Board of Directors of the
Company, to perform the duties of your employment (including without limitation material failure to follow or comply with
the reasonable and lawful written directives of the Chief Executive Officer or 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 Chief Executive Officer or Board of Directors of the Company.
b. “Company” shall mean Sono-Tek Corporation and any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization, or otherwise) to all or substantially all of the business and/or assets of Sono-Tek Corporation.
c. “Severance Payment” shall be calculated as (x) two weeks of compensation (determined on the basis of your total
compensation from the Company, including base, bonuses and commissions, for the calendar year period immediately prior
to the termination of your employment as reflected on your Form W-2 from such year) multiplied by (y) the number of Full
Years (as hereinafter defined) that you have been employed by the Company prior to the termination of your employment.
Any Severance Payment paid to you shall be subject to reduction to reflect applicable withholding and payroll taxes and
shall be paid to you as salary in installments in accordance with the Company’s ordinary payroll practices as then in effect.
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d. “Full Year” shall mean each 365-day period commencing with the date that your full-time employment commenced with
the Company. Your full-time employment began on June 9, 2005.
3. Your employment with the Company will be “at will,” meaning that either you or the Company will be entitled to
terminate your employment at any time and for any reason, subject to the provisions of this Letter Agreement. Although your
job duties, title, compensation and benefits (other than those expressly provided for in this Letter Agreement), as well as the
Company’s human resources policies and procedures, may from time to time change, the “at will” nature of your employment
may only be changed in an express written agreement signed by you and a duly authorized officer of the Company. For the
avoidance of doubt, if your employment with the Company terminates as a result of Cause, resignation, permanent disability or
death, you shall not be entitled to any Severance Payment under this Letter Agreement.
4. In the event that you receive any payments under that certain Amended and Restated Executive Agreement between you
and the Company dated as of September 1, 2007 (the “Executive Agreement”) following a Change of Control (as defined in the
Executive Agreement) of the Company, you shall not be entitled to any Severance Payments under this Letter Agreement.
5. This Letter Agreement contains the entire understanding between the Company and you with respect to the matters
referenced herein. This Letter Agreement may not be amended or modified except by an express written agreement signed by
you and a duly authorized officer of the Company. The terms of this Letter Agreement and the resolution of any disputes will
be governed by the laws of the State of New York, as applied to agreements entered into and wholly performed within such
State.
Please confirm your understanding of the terms of this Letter Agreement by signing in the space provided below and returning
a signed copy to me.
SONO-TEK CORPORATION
By: /s/ Christopher L. Coccio
Christopher L. Coccio, CEO
I have read and confirm the terms of this Letter Agreement:
/s/ Stephen J. Bagley
Stephen J. Bagley
Dated: October 20, 2017
ex21.htm
EX-21
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Exhibit 21
Subsidiaries of the Registrant
Name
SonoTek Industrial Park LLC
State of Organization
New York
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EX-23.1
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
SonoTek Corporation
We consent to the use in connection with the Annual Report on Form 10K of SonoTek Corporation, of our report dated May 24,
2018, relating to the financial statements of SonoTek Corporation, as of February 28, 2018 and 2017 and for the years then ended.
We hereby consent to incorporation by reference, in Registration Statements Nos. 33311913 and 333216504 on Form S8.
/s/ LIGGETT & WEBB, P.A.
Certified Public Accountants
New York, New York
May 24, 2018
ex31-1.htm
EX-31.1
7968
RULE 13a14/15d – 14(a) CERTIFICATION
I, Christopher L. Coccio (principal executive officer), certify that:
1.
I have reviewed this Annual Report on Form 10K of SonoTek Corporation;
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Exhibit 31.1
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods
presented in this report;
4. SonoTek Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a15(e) and 15d – 15(e) and internal control over financial reporting
(as defined in Exchange Act Rules 13a15(f) and 15d15(f) for the registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. SonoTek Corporation’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing equivalent functions):
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 registrant’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 registrant’s internal controls over financial reporting.
Date: May 24, 2018
/s/ Christopher L. Coccio
Christopher L. Coccio
Chief Executive Officer and Chairman
(principal executive officer)
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Exhibit 31.2
RULE 13a14/15d – 14(a) CERTIFICATION
I, Stephen J. Bagley (principal accounting officer), certify that:
1.
I have reviewed this Annual Report on Form 10K of SonoTek Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods
presented in this report;
4. SonoTek Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a15(e) and 15d – 15(e) and internal control over financial reporting
(as defined in Exchange Act Rules 13a15(f) and 15d15(f) for the registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. SonoTek Corporation’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing equivalent functions):
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 registrant’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 registrant’s internal controls over financial reporting.
Date: May 24, 2018
/s/ Stephen J. Bagley
Stephen J. Bagley
Chief Financial Officer
(principal accounting officer)
ex32-1.htm
EX-32.1
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANESOXLEY ACT OF 2002
In connection with the Annual Report of SonoTek Corporation on Form 10K for the year ended February 28, 2018 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”). I, Christopher L. Coccio, Chief Executive Officer and
Chairman (principal executive officer) of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section
906 of the SarbanesOxley 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: May 24, 2018
/s/ Christopher L. Coccio
Christopher L. Coccio
Chief Executive Officer and Chairman
(principal executive officer)
ex32-2.htm
EX-32.2
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Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANESOXLEY ACT OF 2002
In connection with the Annual Report of SonoTek Corporation on Form 10K for the year ended February 28, 2018 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”). I, Stephen J. Bagley, Chief Financial Officer (principal
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: May 24, 2018
/s/ Stephen J. Bagley
Stephen J. Bagley
Chief Financial Officer
(principal accounting officer)