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Dragon Pharma (DRUG, sec) 51 cents. Long slow decline. Q2 results: Big jump in assets held for sale and payables, lots of liabilities are now current. Distress? Revenues way up, so is G&A. Operating profit, but net loss.
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Smith-Midland Corp (SMID, sec) stock tanked on Aug 14 after Q2 announced results

The decreased net income was primarily the result of the unusual profitability of barrier and security work in 2005 related to the Presidential Inauguration. In comparing the Company's regularly occurring production and sales volumes, Slenderwall(TM) production and sales increased significantly during 2006, resulting from growing customer acceptance and continued success in expanding the applications and capabilities of Slenderwall(TM). These increased revenues were offset by increased fuel costs, raw material costs, and direct labor, which also contributed to the decreased net income.

Q2 results: Period ending June 30, 2006.
4.6 million shares on Aug 11, 2006. 562K options.
AR is up, inventories are up. Cash is down. Lots of debt (8.25% interest), not much equity.
Revenues are up to $6.4 million from $5.3 million in Q2 over prior year (but prior year was unusually bad. Gross margins are down to 16% from 22%.

Cost of goods sold as a percentage of total revenue increased from 78% for the three months ended June 30, 2005 to 84% for the three months ended June 30, 2006. The majority of the increase was due to extra labor costs and materials related to complex forming of elaborate architectural detail related to one large project in production during the second quarter. Raw materials also increased mostly due to fuel surcharges from vendors combined with the increased freight in costs related to getting the materials to the plant. Also, included in cost of goods sold were shipping and installation expenses of $1,262,892 for the three months ended June 30, 2006 and $991,390 for the same period in 2005, an increase of $271,502, or 27%. The increase related mostly to overall increased shipping and installation activity, plus increased fuel costs associated with operating Company trucks combined with various add-ons and change orders from installation activity related to Slenderwall™ architectural projects.

That's not the sign of a good business to be in.

SG&A is up. Operating loss of ($158K) vs $92K profit. 6 month profit, but not much. Cash flow from operations is weak due to AR and inventories. About $300K capex for this year and last (6 months). Some finance activity.

This seems like a brutal business.
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Sono-Tek Corp (SOTK, sec) This was the liquid atomizing nozzle sprayer business. Stock price hasn't really gone anywhere over the past year, now at around $1.40. There was this statement at the Aug 18, 2006 shareholder meeting.

...continued efforts aimed at developing both new geographical markets and new technology and application based markets.... revenue growth of over 18% and net income growth of over 31% in Fiscal Year 2006.... newer applications involving fuel cells, solar cells, nanocoatings, diabetes monitor coatings, and the development of a new line of nozzles based on advanced materials technology.... continued development of strategic partnerships in India and China aimed at increasing both our market presence in these key countries....

They expect revenue growth of around 5% over last year. Net income is not predictable due to timing issues of large orders. Opening an office in China and a Chinese language website. Seems a bit like Epolin.

Q1 results:
period ending May 31, 2006. 14.4 million shares on June 16, 2006. 122K options.
$690K net cash.
Revenues down slightly. 46% gross margins (down from 48%) due to field service cost increases. Increases in marketing, R&D, G&A. Operating income way down. No tax, net income $125K.
Cash flow from ops is weak due to AR and inventories. Very low capex.

Looking back at the 10-K:
Same share count but 942K options???
A patent expires Dec 2007. They applied for a patent for a new design for the entire line of nozzle systems.
Mild customer concentration (6.4% and 6%).
Foreign revenues were 44% vs 41%.
37 employees.
The market is fairly cyclical in the electronics industry. They've been expanding into the medical area.

We have sold a significant number of specialized ultrasonic nozzles and MediCoat stent coating systems to large medical device customers. Sono-Tek's stent coating systems are superior compared to pressure nozzles in their ability to uniformly coat the very small arterial stents without creating webs or gaps in the coatings. We sell a bench-top, fully outfitted stent coating system to a wide range of customers that are manufacturing stents and/or applying coatings to be used in developmental trials.

AR was up 17% due to increased sales (of 18%). Inventory up 14%. Stock options have been large in the past (2.3 million warrants, 671K options in 2004, much less in 2005).
Gross margins down to 50% (from 54%) due to lower margins in overseas sales which increased by 27%.
A former employee misappropriated $250K via unauthorized check writing over 3 years. Recovered $158K.
The directors are mostly in their 60s, Chairman is 86.
Executives seem strong: Chief technologist got a PhD from Rensselaer Polytechnic. CEO has good experience at GE. CFO good. Max salary is $160K plus $85K bonus. Executives and directors own 21.77% of the stock.
Warrants issued for loans. Mezzanine financing [ugh] back in 2001.
Sherb & Co. auditors.
$1 million net income but with no taxes.
Cash flow from ops somewhat weak due to AR and inventories, even worse in prior year. Low capex.
Rough guess: if the business is as good as it looks, maybe the stock is worth 75 cents, maybe more, but maybe not the current price of $1.40.
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