s
e
i
t
i
n
u
t
r
o
p
p
O
w
e
N
,
s
t
c
u
d
o
r
P
w
e
N
2016 Annual Report
27
2016 Annual Report
On the Cover:
Sono-Tek’s New Product
Development (NPD) team
is solely focused on
bringing new products to
market, from concept to
design, control, and systems
integration. The NPD team
successfully introduced
three new products in
FY2016, with more systems
planned for FY2017.
Sono-Tek’s focus on
continued innovation and
new systems development
enables the Company to
pursue long term growth
plans and entrance into
new markets.
Sono-Tek’s dedicated team of precision
machinists, designers, engineers, and
factory trained service personnel have
decades of expertise providing turn-key
ultrasonic coating solutions to industry
globally. Sono-Tek is the first and largest
ultrasonic spray technology company in the
world, with patented full coating solutions
and unique custom design capabilities.
Corporate Highlights
Contents
► 9% growth in sales to nearly $12M.
► Net Income similar to last year, even after significant
expenditures on new product developments for
future growth.
► Cash and cash equivalents approximately same
as last year, while investing nearly half a million
dollars in new factory equipment, and upgrading
our information technology platform for enhanced
efficiency and cyber security.
BUSINESS FOCUS .....................................................................IFC
CORPORATE HIGHLIGHTS .......................................................... 1
OVERVIEW .................................................................................. 2-4
CHAIRMAN’S MESSAGE .............................................................. 5
MANAGEMENT’S DISCUSSION .............................................. 6-10
INDEPENDENT AUDITOR’S REPORT ......................................... 11
CONSOLIDATED FINANCIAL STATEMENTS ........................ 12-24
COMMON STOCK ....................................................................... 24
CORPORATE DIRECTORY. ......................................................... 25
Fiscal Year 2016 (March 1,2015-February 29, 2016) was a year of continued profitable growth
derived from our new product developments. The strong US dollar directly impacted equipment prices
to our international customers. This, in combination with a decelerating economic climate in several key
Asian, European, and South American countries, resulted in softening international sales for some of our
more established product lines.
Sales to the advanced textiles, float glass and food safety markets enabled us to offset these geographic
specific economic challenges, resulting in 9% growth, and allowed us to significantly outperform the US
industrial growth rate and GNP this past year. These applications require complex assemblies of our
ultrasonic nozzles, computerized control systems, and pumping systems for various liquids, combined
with an in-depth knowledge of our customer’s application needs.
Sono-Tek has moved well beyond supplying hardware alone to customers. We help them in the initial appli-
cation evaluation stage in our laboratories to find the right system match for their needs, and then follow up
at delivery with our service team to make sure their operators are well versed in the use of these systems.
This year we communicated our Vision 2020 to shareholders, a plan to increase our sales to $20M by that
year based on continuing new product developments. These investments and expenditures will allow us to
continue expanding the applications for our ultrasonic spraying and coating systems, and they are made
possible by our profitability and the strength of our balance sheet.
Significant Press Releases
New Patents Awarded to Sono-Tek Corporation - Published February 19, 2016
Excerpt: “Sono-Tek is pleased to announce that it has been awarded three new patents for its ultrasonic spray technology. The patents relate
to: Sono-Tek’s flagship ECHO Multiband Ultrasonic Generator, a continuation in part for its unique SonicSyringe, and an ultrasonic spray
process for applying coatings directly onto food products.”
4,000 Fluxers in 40 Years! - Published December 14, 2015
Excerpt: “Sono-Tek Corporation, Milton, NY, is proud to announce the sale of its 4,000th fluxer to Jabil Circuit Inc. Established in 1975, this
milestone has been achieved in Sono-Tek’s 40th year in business.”
Sono-Tek Holds Worldwide Distributor Event - Published September 8, 2015
Excerpt: “Sono-Tek held a large worldwide distributor event at our Corporate Headquarters in Milton, NY the week of September 1st. The
event included representatives from 14 countries: China, Hong Kong, Taiwan, Singapore, Korea, Turkey, Thailand, Israel, Denmark, France,
Japan, Australia, Germany, and the US.”
Sono-Tek Corp. Upgrades To OTCQX U.S. Premier - Published June 3, 2015
Excerpt: “Sono-Tek announced that it will begin trading today on the Premier tier of the OTCQX® Marketplace. U.S. investors can find
current financial disclosure and Real-Time Level 2 quotes for the company at: www.otcmarkets.com/stock/SOTK/quote.”
1
2016 Annual Report Company Overview
Sono-Tek, founded in 1975 and publicly traded on the OTC Bulletin
Board (OTCQX: SOTK), develops, manufactures and sells unique
high-end ultrasonic spray coating systems to a broad portfolio of
industries: Electronics, Advanced Energy, Medical Devices, Glass,
Textiles and Food.
Our Company is the inventor and world leader in the technology
of ultrasonic atomization of liquids. We possess comprehensive
intellectual property, trade secrets and application expertise in this
disruptive technology, which is continuously replacing conventional
spraying systems. Sono-Tek’s ultrasonic spray nozzle systems
atomize low to medium viscosity liquids by converting electrical
energy into mechanical motion in the form of ultrasonic vibrations
that break liquids into very small and uniform droplets that can be
applied with precision to surfaces at a low velocity.
Concerns over increasing costs and excessive use of expensive
liquid coating materials in various industries have led numerous
manufacturers to adopt Sono-Tek ultrasonic spray nozzle systems.
Sono-Tek’s coating application technology is the preferred solution
relative to alternatives because of its more precise, controllable
and environmentally friendly advantages. Sono-Tek ultrasonic
spray nozzles, with their characteristic fine mist spray, dramatically
reduce overspray, save costs and minimize atmospheric
contamination. Our ultrasonic nozzle technology has created
a broad range of new applications that could not have been
achieved with conventional spraying systems. Many additional
application possibilities have been identified and remain to be
pursued as part of our future growth plans.
Technology Leadership
The Sono-Tek Engineering team is responsible for a continuous
new product pipeline which has been the primary driver behind
the Company’s steady organic growth strategy over the past five
years. This pipeline provides existing and new customers with ever-
improving equipment and processes. Joint development projects
with leading high-tech companies and research institutions, as well
as various defense, energy and health agencies of governments
from around the world, have produced a portfolio of next generation
ultrasonic spray coating systems for electronics, energy, medical,
industrial, nanotechnology and microencapsulation applications.
2
Highlights
Fiscal Year 2016 (March 2015-February 2016) was successful in
achieving growth in revenues close to our 10% goal for the year.
This year we chose to use a significant portion of our operating
income for new product development and this resulted in our
net income being slightly lower than the preceding year, rather
than showing an increase. We believe this is a sound strategy,
as we have numerous opportunities for organic growth based on
developing new applications for ultrasonic spraying and coating.
We now have three new product developments in our pipeline,
with one being in the sales phase, one completing beta testing
at a key customer site, and one in engineering development,
scheduled for mid-year beta testing.
We also chose to use the excess cash generated above last
year’s closing figure to invest in new capital equipment for our
factory, as well as a complete upgrade and overhaul of our
information technology infrastructure. The first investment is
contributing to our progress in streamlining our manufacturing
platform towards a Lean approach. This will allow shorter delivery
times with less inventory. The objective of the second investment
was to provide a much more efficient and robust cyber security
platform, and to reduce and avoid exposure to loss of intellectual
property or financial transaction records.
Stock Price
Sono-Tek has demonstrated the ability to grow revenues, profits,
and cash reserves over the past decade. Today, we have a
strong balance sheet, which provides the ability for us to choose
investments in our future growth either organically or in terms of
possible strategic additions from outside. The Company has a
relatively small public float, and thus has not been adequately
followed by public market investors. Therefore, the Company’s
public market valuation at times does not necessarily reflect the
value associated with its proprietary technology, unique products
and substantial growth potential. We do take steps to bring our
story to new investors, and will continue to do so in the future.
We believe that the market responds over time to companies like
ours that demonstrate sound financial results coupled with the
proven ability to grow profitably.
3
2016 Annual Report Market Overview
The Company markets and distributes its products through independent
distributors, sales representatives, OEMs and an in-house direct sales
force. The Company’s sales force proactively markets products directly
to customers located around the world, including North America,
Asia, Europe and Latin America. The distributor network has increased
markedly in strength over the past several years and serves as one of
the Company’s primary distribution channels.
Sono-Tek’s geographically diverse customer base includes leading
domestic and international OEMs and other Tier One suppliers.
Sono-Tek’s outreach efforts have led to strong, long-term customer
relationships. Sono-Tek maintains these relationships through in-
house teams of application and service engineers who regularly visit
distributors and customers. A brief summary of our current market
segments and product offerings is shown below, highlighting NEW
product introductions:
GEOGRAPHIC DIVERSIFICATION
Sales by Territory Fiscal Year 2016
15% Mexico & Latin America
26% Asia & Middle East
23% Europe (Including Russia)
36% US & Canada
EXPANDING SALES TO NEW MARKETS AND APPLICATIONS
HVAC/
Automotive
Semiconductor
*Flux Brazing - SonoBraze
*Photoresist - SPT200 (Spray Photoresist Tool)
Automotive, industrial manufacturing for heating, ventilating, and
air conditioning
Advantageous alternative for semiconductor lithography, MEMs
Food
*Medical Marijuana (Medibles)
THC oil coatings, controlled dosage
University/
Research
Medical
Glass
Antimicrobials for Food Safety
Direct protection onto sliced deli meat
*Research and Development Coatings - SimCoat
Tabletop R&D ultrasonic coating system for labs
*Blood Collection Tube Coating - MedXT
Heparin, Silica, anti-coagulent coatings
*Balloon Catheters
Drug coated balloons
*Plastic Laser Welding Liquid Deposition
Stents
Diagnostic Devices
Textiles & Bandages
Float Glass
Lenses
Clearweld® coatings for clear-on-clear plastic welds for
diagnostic, cell culture, sample collection vessels
Anti-restenosis coatings for cardiac, peripheral stents
Enzyme and reagent coatings onto microfluidics
Antimicrobials, antibiotics
Wide area anti-corrosion coatings onto float glass
Functional layers - photochromic, CNTs, anti-smudge
Displays (Touch Screen, Panel)
Transparent Conductive Oxides, anti-fingerprint, hard coatings
Textiles
High Tech Performance Fabrics
Next generation fabrics - stain repellent, antimicrobials
Spray Drying
Partnership with BUCHI
Ultrasonic nozzles for lab scale spray dry processes
Printed Circuit
Boards
Spray Fluxing
Full line of systems for spraying flux onto printed circuit boards
EVS Solder Recovery Systems
US distributor for solder recycling systems
Alternative
Energy
Fuel Cell
Solar Cell
Carbon Platinum coatings for PEM, SOFC manufacturing
Advanced coatings for thin film and silicon solar
Thin Film Battery
Electrolytes, functional coatings
Nanotechnology Functional Nanolayers - Carbon Nanotubes (CNTs),
Graphene, Nanowires
R&D systems at worldwide labs, universities, and major industry
for next generation applications
4
* = New product introductions
2016 Chairman’s Message
Sono-Tek has demonstrated a successful business approach to introducing a disruptive technology
to various high tech and industrial spraying and coating markets. Many of our customers previously
used pressure-based nozzles for their coating applications and came to accept waste and environ-
mental control as a necessary evil in the processes. Our mission has been to educate them to the
advantages of substituting ultrasonic atomization nozzles in their applications, reducing cost and the
need for waste control. The list of successful applications gets longer every year, as we pioneer new
applications for our technology. The first application, and still a core business, was for applying fluxes
in circuit board manufacturing. Next came precision coating of implantable medical devices such as
cardiovascular stents, an area that continues to grow in size and scope. We now have added glass
coatings, clean energy device coatings, food safety coatings, and advanced textile coatings to the
mix, and are far from finished.
Each of these applications has been successful through the marriage of our core technology, a
total system design, and acquired application expertise. Customers need a complete solution in
order to change to a new approach. The promise is there for them to increase quality and output,
combined with a reduction in environmental emissions due to overspray associated with pressure
based nozzles. Their life cycle cost is dramatically reduced and the payback can be in as little as
one or two years with our ultrasonic spraying and coating systems.
We have grown as a result, tripling over the past decade. With the organic growth we’ve experienced
over the past several years, we have announced “Vision 2020”, our growth goal for Sono-Tek to reach
$20 million in revenue in 2020. As we progress toward this goal, our continuing organic growth has
called for investments in plant and facility, machine tools, and information technology. Of course our
team has grown as well, and we are fortunate to have so many talented and dedicated people working
here at creating the future. We look forward to the continued pursuit of our mission at Sono-Tek, and
fully expect that it will lead to enhanced financial performance and valuation.
Sincerely,
Christopher L. Coccio, Ph.D.
Chairman and CEO
July 25, 2016
Dr. Christopher Coccio
CEO
Stephen Harshbarger
President
5
2016 Annual Report
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
We discuss expectations regarding our future performance, such as our business outlook, in our annual and quarterly reports,
press releases, and other written and oral statements. These “forward-looking statements” are based on currently available
competitive, financial and economic data and our operating plans. They are inherently uncertain, and investors must recognize
that events could turn out to be significantly different from our expectations. These factors include, among other considerations,
general economic and business conditions; political, regulatory, competitive and technological developments affecting 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 forward-looking statement.
Overview
We have developed a unique and proprietary series of ultrasonic atomizing nozzles and systems, which are being used in an
increasing variety of electronics, advanced energy (solar and fuel cells), medical device, glass, textiles and food applications.
These nozzles are electrically driven and create a fine, uniform, low velocity spray of atomized liquid particles, in contrast to
common pressure nozzles. These characteristics create a series of commercial applications that benefit from the precise,
uniform, thin coatings that can be achieved. When combined with significant reductions in liquid waste and less overspray
than can be achieved with ordinary pressure nozzle systems, there is lower environmental impact and lower energy use.
Market Diversity
During the past five years we have invested significant time, monies and efforts 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 six major industries: electronics, advanced energy (solar and fuel cells), medical device, glass, textiles and food.
In recent years, a substantial portion of our sales originated outside the United States, and we are geographically present directly
and through distributors and trade representatives in North and Latin America, Europe and Asia. The infrastructure upon which
this diversified market approach is based, includes a newly equipped process development laboratory, a strengthened sales
organization with application engineers, an engineering team with additional talent and the latest, most sophisticated design
software tools, as well as an expanded, highly trained installation and service organization.
The new products which we have introduced, the new markets that 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.
Liquidity and Capital Resources
Working Capital – Our working capital increased $343,000 from a working capital of $5,512,000 at February 28, 2015 to
$5,855,000 at February 29, 2016. The increase in working capital is due to: net income of $548,000, offset by cash expenditures
of $17,000 for patent and other asset costs, $465,000 for the purchase of equipment and furnishings and $158,000 for the
repayment of notes payable. In addition, we incurred non-cash expenses for depreciation and amortization expense of $477,000,
stock based compensation expense of $43,000 and a decrease in our current deferred tax asset of $86,000. The Company’s
current ratio was 4.5 to 1 at February 29, 2016 as compared to 3.6 to 1 at February 28, 2015.
At February 29, 2016, our working capital includes $2,388,000 of cash and $1,696,000 of marketable securities as compared to
$2,563,000 of cash and $1,652,000 of marketable securities at February 28, 2015.
Stockholders’ Equity – Stockholders’ equity increased $524,000 from $7,144,000 at February 28, 2015 to $7,668,000 at
February 29, 2016. The increase in stockholders’ equity is the result of the current year’s net income of $548,000, stock
based compensation of $43,000 and stock option proceeds of $3,000 offset by the current year’s comprehensive loss valuation
of $70,000.
6
Operating Activities – Our operating activities provided $629,000 of cash for the year ended February 29, 2016 as compared to
providing $924,000 for the year ended February 28, 2015. For the year ended February 29, 2016, we had net income of $548,000,
accounts receivable increased $188,000, inventories decreased $234,000, prepaid expenses and other assets increased
$15,000, accounts payable and accrued expenses decreased $56,000, customer deposits decreased $261,000 and income
taxes payable decreased $142,000. In addition, we incurred non-cash expenses of $477,000 for depreciation and amortization,
$43,000 for stock based compensation expense, $3,000 for our accounts receivable reserve, an increase of $107,000 in our
deferred tax expense and a decrease in our inventory reserve of $120,000.
Investing Activities – For the year ended February 29, 2016, we used $648,000 of cash in our investing activities as compared
to using $1,401,000 for the year ended February 28, 2015. In 2016 and 2015, we used $465,000 and $357,000, respectively, for
the purchase or manufacture of equipment, furnishings and leasehold improvements. In 2016 and 2015, we used $17,000 and
$22,000, respectively, for patent application and other asset costs. In 2016 and 2015, we used $165,000 and $1,022,000,
respectively, for the purchase of marketable securities.
Financing Activities – For the year ended February 29, 2016, we used $155,000 of cash in our financing activities as compared
to using $193,000 for the year ended February 28, 2015. In 2016 and 2015, we used $158,000 and $193,000, respectively, for the
repayments of notes payable. In 2016 we received $3,000 for the exercise of stock options.
Net Decrease in Cash – For the year ended February 29, 2016, our cash balance decreased by $174,000 as compared to a
decrease of $669,000 for the year ended February 28, 2015. During the year ended February 29, 2016, our operations provided
$629,000 of cash, we used $648,000 in our investing activities and used $155,000 in our financing activities.
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 30 day period once annually. As of February 29,
2016, there were no outstanding borrowings under the line of credit.
We had outstanding borrowings under a note payable of $1,320,000 at February 29, 2016. The note is payable over eight years
and accrues interest at 4.15%. The note payable is secured by a mortgage on our land and buildings.
Results of Operations
Ultrasonic Spraying – Sales and Gross Profit:
Sales:
Twelve Months Ended
February 29, February 28,
2016
2015
Change
$
%
Net Sales ..................................................................................
Cost of Goods Sold ..................................................................
Gross Profit ...............................................................................
$ 11,739,000 $ 10,758,000
6,196,000
5,634,000
$ 5,543,000 $ 5,124,000
Gross Profit % ...........................................................................
47%
48%
$ 981,000
9%
562,000 10%
8%
$ 419,000
For the year ended February 29, 2016, our sales increased by $981,000 to $11,739,000 as compared to $10,758,000 for the year
ended February 28, 2015, an increase of 9%. During the year ended February 29, 2016, we experienced an increase in sales of
our WideTrack units, fluxers and related spares, SonoFlux Servo units and spray dryer units. We did, however, see a decrease in
sales of our stent coating units, XYZ units and nozzles and generators.
Gross Profit:
Our gross profit increased $419,000, to $5,543,000 for the year ended February 29, 2016 from $5,124,000 for the year ended
February 28, 2015. Our gross profit margin percentage was 47% for the year ended February 29, 2016 compared to 48% for the
year ended February 28, 2015. The decrease in the current year’s gross profit margin is due to decreases in sales of our higher
gross margin stent coaters, XYZ units and nozzles and generators.
7
2016 Annual Report
Export Sales:
Twelve Months Ended
February 29, February 28,
Change
2016
2015
$
Western Europe ........................................................................
Far East ....................................................................................
Other .........................................................................................
Total Export Sales .....................................................................
$ 2,789,000
2,981,000
807,000
$ 2,069,000
2,147,000
802,000
$ 6,577,000 $ 5,018,000
$ 720,000
834,000
5,000
$ 1,559,000
Percentage of Total Sales .........................................................
56%
47%
%
35%
39%
-
31%
For the year ended February 29, 2016, sales to customers located in European countries increased by $720,000 or 35%, sales to
customers located in Asian countries increased by $834,000 or 39% and sales to other non US-based customers were steady.
Operating Expenses:
Research and product development .......................................
Marketing and selling ...............................................................
General and administrative ......................................................
Research and Product Development:
Twelve Months Ended
February 29, February 28,
Change
2016
2015
$ 1,268,000 $ 1,016,000
$ 2,371,000 $ 2,153,000
$ 1,100,000 $ 1,033,000
$
%
$ 252,000 25%
$ 218,000 10%
6%
$ 67,000
Research and product development costs increased $252,000 to $1,268,000 for the year ended February 29, 2016 as compared
to $1,016,000 for the year ended February 28, 2015. For the year ended February 29, 2016 we experienced increases in
engineering salaries, engineering materials and depreciation.
During the year ended February 29, 2016, we expended approximately $787,000 for engineering personnel as compared to
$589,000 for the year ended February 28, 2015. The increase in salaries is a result of the start of our New Product Development
team, which has recently completed two new products; the VersiCoat and SonoBraze. During the year ended February 29, 2016,
we expended approximately $187,000 for additional research, materials and product development as compared to $172,000
for the year ended February 28, 2015. During the year ended February 29, 2016 we incurred approximately $133,000 for
depreciation expense as compared to $120,000 for the year ended February 28, 2015.
Marketing and Selling:
Marketing and selling costs increased $218,000 to $2,371,000 for the year ended February 29, 2016 as compared to $2,153,000
for the year ended February 28, 2015. For the year ended February 29, 2016, we experienced increases in commission expense,
advertising and trade show expenses and sales salaries. In addition we experienced a decrease in travel and entertainment expense.
During the year ended February 29, 2016, we expended approximately $590,000 for commissions as compared to $502,000 for
the year ended February 28, 2015, an increase of $88,000.
During the year ended February 29, 2016, we expended approximately $228,000 for advertising and trade show expense
compared to $169,000 for the year ended February 28, 2015, an increase of $59,000.
During the year ended February 29, 2016, salary expense was $1,119,000 as compared to $1,061,000 for the year ended
February 28, 2015, an increase of $58,000.
During the year ended February 29, 2016, we expended approximately $113,000 for travel and entertainment as compared
to $157,000 for the year ended February 28, 2015, a decrease of $44,000.
General and Administrative:
General and administrative costs increased $67,000 to $1,100,000 for the year ended February 29, 2016 as compared to $1,033,000,
for the year ended February 28, 2015. For the year ended February 28, 2016, we experienced increases in insurance expense, depre-
ciation expense, and corporate and other miscellaneous expenses. These increases were offset by a decrease in bad debt expense.
8
Operating Income – Ultrasonic Spraying:
Our operating income for the year ended February 29, 2016 was $804,000 as compared to $922,000 for the year ended February
28, 2015, a decrease of $118,000 or 13%. During the current year, our gross profit increased by $419,000 when compared to
the prior year. The increase in gross profit was offset by an increase in Research and Development costs, Marketing and Selling
expenses and General and Administrative expenses, which collectively increased by $537,000 when compared to the prior year.
Rental Real Estate Operations:
For the year ended February 29, 2016, our real estate operations generated $95,000 in rental income from unrelated third
parties as compared to $92,000 for the year ended February 28, 2015. Our real estate operations incurred $108,000 in
operating expenses compared to $114,000 for the prior year period, real estate taxes of $51,000 compared to $49,000 for the
prior year period and $58,000 in interest expense compared to $63,000 for the prior year period. For the year ended February 29,
2016, our real estate operations reported a net loss of $122,000 compared to a net loss of $134,000 for the prior year period.
The reported losses exclude any inter-company rent.
A summary of our real estate operations is as follows:
Twelve Months Ended
February 29, February 28,
2016
2015
Change
$
%
Statements of Operations
Rental Income ..........................................................................
$ 95,000
$ 92,000
$
3,000
3%
Real Estate Taxes .....................................................................
Interest Expense .......................................................................
Other Expenses ........................................................................
51,000
58,000
108,000
49,000
63,000
114,000
4%
2,000
(5,000)
(8)%
(6,000) (5)%
Net Loss From Real Estate Operations ....................................
$ (122,000)
$ (134,000)
$ (12,000) (9)%
Per Square Foot Cost Based on 50,000 sq. feet .....................
$
2.44
$
2.68
$
(0.24) (9)%
Statements of Cash Flows
Net Loss ...................................................................................
Adjustments to reconcile net loss to net cash used in
real estate operations:
Depreciation .............................................................................
Twelve Months Ended
February 29, February 28,
2016
2015
$ (122,000)
$ (134,000)
73,000
69,000
Capital Improvements ..............................................................
Repayment of long term debt ..................................................
-
(138,000)
(72,000)
(132,000)
Net Cash (Used) in Real Estate Operations.............................
$ (187,000)
$ (269,000)
Cash Used Per Square Foot Cost Based on 50,000 sq. feet ..
$
3.74
$
5.38
For the years ended February 29, 2016 and February 28, 2015, net cash outflows related to the industrial park were $187,000 and
$269,000, respectively. These cash outflows are net of rental income and depreciation expense and include the principal payments
on the industrial park’s mortgage and the costs of capital improvements. Prior to purchasing the industrial park in December
2010, our annual rental expense was approximately $136,000 or $7.14 per square foot. If we are able to lease additional vacant
space, it will provide positive cash flow for the industrial park when compared to our prior rental payments of $136,000.
Our rental income was approximately $6.00 per square foot, based on 15,600 square feet leased to third parties for the years
ended February 29, 2016 and February 28, 2015.
9
2016 Annual Report
Interest Income, Interest Expense and Income Taxes:
Interest income increased to $55,000 for the year ended February 29, 2016 as compared to $33,000 for the year ended February
28, 2015. Our present investment policy is to invest excess cash in highly liquid mutual funds. Our holdings are rated at or above
investment grade.
Interest expense decreased to $58,000 for the year ended February 29, 2016 as compared to $65,000 for the year ended
February 28, 2015.
We recorded income tax expense of $195,000 for the year ended February 29, 2016 as compared to $219,000 for the year ended
February 28, 2015. The details of the current year’s tax expense is explained in Note 12 in our financial statements.
Net Income:
For the year ended February 29, 2016, we had net income of $548,000 as compared to $606,000 for the year ended February 28,
2015. The decrease in our net income is due to an increase in operating expenses which was offset by an increase in gross profit.
For the years ended February 29, 2016 and February 28, 2015, we do not believe that our sales revenue or net income has been
adversely affected by the impact of inflation or changing prices.
Other Comprehensive Loss:
Net unrealized loss on marketable securities:
As of February 29, 2016, certain of our marketable securities were in an unrealized loss position. Unrealized losses are principally
due to changes in fair value of the investments held as available-for-sale. Because we have the ability and intent to hold the
securities until maturity, or for the foreseeable future as classified as available-for-sale, we do not deem the decline to be
other-than-temporary.
As of February 29, 2016, our unrealized loss on available-for-sale securities was $70,140.
Off - Balance Sheet Arrangements
We do not have any Off - Balance Sheet Arrangements as of February 29, 2016.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consoli-
dated 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 29, 2016, management believes there
are no critical accounting policies applicable to the Company that are reflective of significant judgments and or uncertainties.
Stock-Based Compensation
The computation of the expense associated with stock-based 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 surround-
ing Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value
equity-based compensation. We currently use a Black-Scholes 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 Black-Scholes 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 stock-based 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
All accounting pronouncements issued but not yet effective have been deemed to be not applicable or the adoption of such
accounting pronouncement is not expected to have a material impact on the financials.
10
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Sono-Tek Corporation
We have audited the accompanying consolidated balance sheets of Sono-Tek Corporation as of February 29, 2016
and February 28, 2015 and the related consolidated statements of operations and comprehensive income, stockholders’
equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of February 29, 2016 and February 28, 2015, and the results of its operations and cash flows
for each of the years then ended, in conformity with generally accepted accounting principles in the United States.
LIGGETT & WEBB, P.A.
Certified Public Accountants
New York, New York 10016
May 25, 2016
11
2016 Annual Report
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
February 29,
2016
February 28,
2015
ASSETS
Current Assets:
Cash and cash equivalents ....................................................................... $ 2,388,355
1,695,689
Marketable securities ................................................................................
1,214,713
Accounts receivable (less allowance of $46,000 and $43,047, respectively) ..
1,945,383
Inventories, net .........................................................................................
109,954
Prepaid expenses and other current assets .............................................
154,914
Deferred tax asset .....................................................................................
7,509,008
Total current assets ........................................................................
Land ...............................................................................................................
Buildings, net .................................................................................................
Equipment, furnishings and leasehold improvements, net ..........................
Intangible assets, net ....................................................................................
250,000
1,939,714
796,788
174,027
$ 2,562,782
1,652,485
1,029,250
2,059,177
94,487
241,000
7,639,181
250,000
2,015,625
661,411
175,412
TOTAL ASSETS ............................................................................................. $ 10,669,537
$ 10,741,629
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable ...................................................................................... $ 475,297
746,036
Accrued expenses ....................................................................................
201,478
Customer deposits ....................................................................................
143,388
Current maturities of long term debt .........................................................
87,660
Income taxes payable ...............................................................................
$
584,963
691,937
462,168
158,184
229,927
Total current liabilities.....................................................................
1,653,859
2,127,179
Deferred tax liability .......................................................................................
Long term debt, less current maturities ........................................................
171,719
1,176,349
150,979
1,319,737
Total Liabilities............................................................................................
3,001,927
3,597,895
Commitments and Contingencies ...............................................................
-
-
Stockholders’ Equity
Common stock, $.01 par value; 25,000,000 shares authorized,
14,955,400 and 14,933,107 issued and outstanding, respectively .......
Additional paid-in capital ...........................................................................
Accumulated deficit ...................................................................................
Accumulated other comprehensive loss ...................................................
149,554
8,812,224
(1,224,028)
(70,140)
149,331
8,766,160
(1,771,757)
-
Total stockholders’ equity ..............................................................................
7,667,610
7,143,734
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY ................................... $ 10,669,537
$ 10,741,629
See notes to consolidated financial statements.
12
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Fiscal Year Ended
February 29,
2016
Net Sales ....................................................................................................... $ 11,833,730
6,195,953
Cost of Goods Sold .......................................................................................
5,637,777
Gross Profit ....................................................................................
Operating Expenses
Research and product development ........................................................
Marketing and selling ................................................................................
General and administrative .......................................................................
Real estate operations expense ................................................................
Total Operating Expenses..............................................................
1,268,010
2,371,064
1,099,783
158,629
4,897,486
February 28,
2015
$ 10,849,475
5,634,365
5,215,110
1,015,614
2,153,407
1,033,373
162,522
4,364,916
Operating Income ..........................................................................................
740,291
850,194
Other Income (Expense):
(58,447)
Interest Expense ............................................................................................
Interest Income ..............................................................................................
54,757
Other Income ................................................................................................. 5,851
742,452
Income before Income Taxes ........................................................................
Income Tax Expense ......................................................................................
194,723
(64,527)
32,641
7,249
825,557
219,424
Net Income .................................................................................................... $ 547,729
$
606,133
Other Comprehensive Loss
Net unrealized loss on marketable securities ...........................................
(70,140)
-
Comprehensive Income ................................................................................ $ 477,589
$
606,133
Basic Earnings Per Share .............................................................................. $
Diluted Earnings Per Share ........................................................................... $
.04
.04
$
$
.04
.04
Weighted Average Shares – Basic ................................................................
14,943,018
14,737,204
Weighted Average Shares – Diluted ..............................................................
15,029,601
14,846,808
See notes to consolidated financial statements.
13
2016 Annual Report
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015
Common Stock
Par Value $.01
Accumulated
Other
Additional
Paid – In Comprehensive Accumulated Stockholders’
Total
Balance – February 28, 2014 ........
Exercise of stock options ..............
Stock based compensation
expense .........................................
Net Income ....................................
Balance – February 28, 2015 ........
Exercise of stock options ..............
Stock based compensation
expense .........................................
Unrealized loss on
marketable securities ....................
Net Income ....................................
Balance – February 29, 2016 ........
Shares
14,708,518
224,589
Amount
$ 147,085
2,246
Capital
$ 8,725,883
(2,246)
-
-
14,933,107
22,293
-
-
$ 149,331
223
42,523
-
$ 8,766,160
2,662
-
-
43,402
Loss
Deficit
Equity
-
-
-
-
-
-
-
$ (2,377,890) $ 6,495,078
-
-
-
606,133
42,523
606,133
$ (1,771,757) $ 7,143,734
2,885
-
-
43,402
-
-
14,955,400
-
-
$ 149,554
-
-
$ 8,812,224
(70,140)
-
$ (70,140)
-
547,729
$ (1,224,028)
(70,140)
547,729
$ 7,667,610
See notes to consolidated financial statements.
14
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
February 29,
2016
February 28,
2015
547,729
$
606,133
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 ..................................................................................
Allowance for doubtful accounts ..........................................................
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 ..............................................................
Patent application and other asset costs ......................................................
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 ...............................................
476,528
43,402
(119,924)
2,953
106,826
(188,416)
233,718
(15,467)
(55,568)
(260,690)
(142,267)
628,824
(465,427)
(164,825)
(17,700)
(647,952)
2,885
(158,184)
(155,299)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS .............................
(174,427)
CASH AND CASH EQUIVALENTS:
Beginning of year ..........................................................................................
2,562,782
End of year .................................................................................................... $ 2,388,355
Supplemental Cash Flow Disclosure:
Interest Paid ................................................................................................... $
58,447
Income Taxes Paid ......................................................................................... $
230,289
See notes to consolidated financial statements.
407,795
42,523
99,535
11,047
-
(180,001)
(483,897)
65,886
155,585
99,322
100,529
924,457
(357,050)
(1,021,691)
(22,352)
(1,401,093)
-
(192,603)
(192,603)
(669,239)
3,232,021
$ 2,562,782
$
$
64,527
127,046
15
2016 Annual Report
SONO-TEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015
NOTE 1: BUSINESS DESCRIPTION
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 world-wide. 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 the years ended February 29, 2016 and February 28, 2015 was $227,825 and $168,090,
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 the years ended February 29, 2016 and February 28, 2015 was
approximately $3,000 and $17,000, respectively.
Available-For-Sale 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 available-for-sale 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 short-term 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 7% of sales during the year ended
February 29, 2016. Four customers accounted for 40% of the outstanding accounts receivables at February 29, 2016.
The Company had one customer, which accounted for 7% of sales during the year ended February 28, 2015. Two
customers accounted for 25% of the outstanding accounts receivables at February 28, 2015.
Consolidation – The accompanying consolidated financial statements of Sono-Tek Corporation, a New York corpo-
ration (the “Company”), include the accounts of the Company and its wholly owned subsidiaries, Sono-Tek Cleaning
Systems Inc. and Sono-Tek Industrial Park, LLC. Sono-Tek Cleaning Systems, Inc., a New Jersey Corporation (“SCS”),
ceased operations during the Fiscal Year Ended February 28, 2002. Sono-Tek Industrial Park, LLC (“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 weighted-average
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.
16
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 straight-line 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 market-based 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 29, 2016
and February 28, 2015, respectively:
Quoted Prices in Active Markets
(Level 1)
February 29, 2016 February 28, 2015
Marketable Securities .........................................................................
$ 1,695,689
$ 1,652,485
Marketable Securities include mutual funds of $1,695,689 and $1,652,485, that are considered to be highly liquid and
easily tradeable as of February 29, 2016 and February 28, 2015, 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 available-for-sale 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 sev-
enteen years for domestic patents and twelve years for foreign patents. The accumulated amortization of patents is
$127,900 and $116,804 at February 29, 2016 and February 28, 2015, 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 first-in, first-out (FIFO)
method for raw materials, subassemblies and work-in-progress and the specific identification method for finished goods.
Land and Buildings – Land and buildings are stated at cost. Buildings are being depreciated by use of the straight-
line method based on an estimated useful life of forty years.
Long-Lived Assets – The Company periodically evaluates the carrying value of long-lived assets, including intangible
assets, when events and circumstances warrant such a review. The carrying value of a long-lived 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 long-lived asset. Fair market value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved.
17
2016 Annual Report
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 – 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 are 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.
NOTE 3: SEGMENT INFORMATION
The Company operates in two segments: ultrasonic spray coating systems, which is the business of developing,
manufacturing, selling, installing and servicing ultrasonic spray coating equipment; and real estate operations, which
is the business of owning and operating the Sono-Tek Industrial Park.
All inter-company transactions are eliminated in consolidation. Segment information is as follows:
Fiscal Year Ended February 29, 2016
Fiscal Year Ended February 28, 2015
Ultrasonic
Spraying
Rental
Real Estate
Operations Eliminations Consolidated
Rental
Real Estate
Operations Eliminations Consolidated
Net Sales .................. $ 11,738,982 $ 291,046 $ 196,298 $ 11,833,730 $ 10,757,825 $ 287,948 $ 196,298 $ 10,849,475
196,298 $ 158,629 $ (196,298) $ 158,629 $ 196,298 $ 162,522 $ (196,298) $ 162,522
Rental Expense ........ $
$
58,364
Interest Expense ...... $
64,527
$ 606,133
669,974 $ (122,245)
Net Income (Loss) ... $
$ 10,741,629
Assets ...................... $ 8,214,873 $ 2,454,664
$ 1,477,921
- $ 1,319,737
Debt .......................... $
$
63,304
$ 547,729 $ 740,309 $ (134,176)
$ 10,669,537 $ 8,227,705 $ 2,513,924
20,542 $ 1,457,379
$ 1,319,737 $
Ultrasonic
Spraying
58,447 $
1,223 $
83 $
)
)
18
NOTE 4: STOCK-BASED COMPENSATION
The Company adopted ASC 718, “Share Based Payments.” which requires companies to expense the value of
employee stock options and similar awards.
The weighted-average fair value of options has been estimated on the date of grant using the Black-Scholes
options-pricing model. The weighted-average Black-Scholes assumptions are as follows:
Expected life ......................................................................................
Risk free interest rate .........................................................................
Expected volatility ..............................................................................
Expected dividend yield ....................................................................
8 years
.91% - 1.03%
18.73% - 23.72%
0%
8 years
.7% - .97%
23.09% - 53.92%
0%
Fiscal Year Ended
February 29, 2016 February 28, 2015
In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes
options-pricing model utilizing certain assumptions for a risk free interest rate, volatility and expected remaining lives
of the awards. The assumptions used in calculating the fair value of share-based payment awards represent manage-
ment’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.
As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation
expense could be materially different in the future. In addition, the Company is required to estimate the expected
forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture
rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the 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 29, 2016 and February 28, 2015, net income and earnings per share reflect the actual
deduction for stock-based compensation expense. The impact of applying ASC 718 approximated $43,402 and
$42,523 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 stock-based compensation
is a non-cash expense item.
NOTE 5: INVENTORIES
Inventories consist of the following:
Raw materials and subassemblies ........................................................
Finished goods .......................................................................................
Work in process ......................................................................................
Total .......................................................................................................
Less: Allowance .....................................................................................
Total Inventories ......................................................................................
February 29,
2016
$ 1,452,566
549,106
118,415
2,120,087
(174,704)
$ 1,945,383
February 28,
2015
$ 1,692,202
441,026
220,577
2,353,805
(294,628)
$ 2,059,177
19
2016 Annual Report
NOTE 6: 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 29,
2016
$ 2,250,000
872,836
857,994
368,572
1,037,830
891,443
6,278,675
(3,542,173)
$ 2,736,502
February 28,
2015
$ 2,250,000
778,336
753,279
308,722
999,758
754,103
5,844,198
(3,167,162)
$ 2,677,036
Depreciation expense for the years ended February 29, 2016 and February 28, 2015 was $465,432 and $396,576,
respectively.
NOTE 7: ACCRUED EXPENSES
Accrued expenses consist of the following:
Accrued compensation ..........................................................................
Estimated warranty costs .......................................................................
Accrued commissions ............................................................................
Professional fees ....................................................................................
Other accrued expenses ........................................................................
February 29,
2016
$ 305,189
38,250
172,461
51,492
178,644
$ 746,036
February 28,
2015
$ 214,071
36,000
207,236
51,765
182,865
$ 691,937
NOTE 8: REVOLVING LINE OF CREDIT
The Company has a $750,000 revolving line of credit at prime which was 3.50% at February 29, 2016 and 3.25% at
February 28, 2015. The line of credit 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 30 day period once annually. If the
Company fails to perform the 30 day 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 36 month term note with payments including interest in 36 equal
installments. As of February 29, 2016 and February 28, 2015, the Company’s outstanding balance was $0, and the
unused credit line was $750,000.
20
NOTE 9: LONG-TERM DEBT
Long-term debt consists of the following:
Equipment loan, bank, collateralized by related production
equipment, payable in monthly installments of principal and
interest of $5,158 through June 2015. Interest rate 2.12%.
48 month term. .......................................................................................
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. . .........................................................................................
February 29,
2016
February 28,
2015
-
$
20,542
1,319,737
1,457,379
Total long term debt ................................................................ 1,319,737
143,388
Due within one year ................................................................
$ 1,176,349
Due after one year ..................................................................
1,477,921
158,184
$ 1,319,737
Long-term debt is payable as follows:
Fiscal Year ending February 28,
2017 ........................................................................................
2018 ........................................................................................
2019 ........................................................................................
2020 ........................................................................................
2021 ........................................................................................
Thereafter ................................................................................
$ 143,388
149,698
156,119
162,817
169,715
538,000
$ 1,319,737
NOTE 10: BANK GUARANTEES
As of February 29, 2016, $72,446 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 2016 and 2017.
NOTE 11: COMMITMENTS AND CONTINGENCIES
The Company does not have any material commitments or contingencies as of February 29, 2016.
21
2016 Annual Report
NOTE 12: 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 pre-tax income as follows:
Expected federal income tax ..................................................................
State tax, net of federal...........................................................................
Research and development tax credits .................................................
Overaccrual of prior year taxes ..............................................................
Deferred tax expense .............................................................................
Permanent timing difference ..................................................................
Income tax ..............................................................................................
The deferred tax asset and liability are comprised of the following:
Inventory .................................................................................................
Allowance for accounts receivable .........................................................
Accrued expenses and other .................................................................
Deferred tax asset - Current ................................................................
February 29,
2016
$ 252,321
39,059
(135,904)
(67,579)
106,826
-
$ 194,723
February 29,
2016
$ 87,000
18,000
50,000
155,000
Research tax credits ...............................................................................
Accrued expenses ..................................................................................
Intangible asset amortization .................................................................
Building and leasehold depreciation ......................................................
102,000
15,000
(39,000)
(250,000)
February 28,
2015
$ 288,945
31,371
(155,110)
-
-
54,218
$ 219,424
February 28,
2015
$ 127,000
17,000
97,000
241,000
51,000
-
(39,000)
(163,000)
Deferred tax liability – Long Term ...........................................................
$ (172,000)
$ (151,000)
At February 29, 2016 and February 28, 2015, the Company has $102,000 and $51,000 of research and development
tax credits, respectively, being carried forward.
NOTE 13: STOCKHOLDERS’ EQUITY
Stock Options – Under the 2013 Stock Incentive Plan, as amended (“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 29,
2016, there were 246,600 options outstanding under the 2013 plan.
Under the 2003 Stock Incentive Plan, as amended (“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 29, 2016, there were 217,500 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 three year period during the term of the option,
and terminating at a stipulated period of time after an employee’s termination of employment.
During Fiscal Year 2016, the Company granted options for 73,500 shares exercisable at prices from $1.07 to $1.17 to
employees of the Company.
22
During Fiscal Year 2015, the Company granted options for 57,600 shares to officers at an exercise price of $1.19 and
options for 10,000 shares exercisable at $1.26 to an employee of the Company.
A summary of the activity of both plans for the years ended February 29, 2016 and February 28, 2015 is as follows:
Stock Options
Outstanding Exercisable
435,714
Weighted Average
Exercise Price $
Outstanding Exercisable
$ 0.82
Fair Value
Vested
$ 0.41
Balance – February 28, 2014 .................
Granted .................................................
Exercised ...............................................
Cancelled ..............................................
Balance – February 28, 2015 .................
Granted .................................................
Exercised ...............................................
Cancelled ..............................................
Balance – February 29, 2016 .................
946,573
67,600
(478,739)
(46,500)
489,434
73,500
(41,334)
(57,500)
464,100
353,934
349,820
$ 0.76
1.20
(0.64)
(1.04)
$ 0.97
1.16
(0.61)
(1.08)
$ 0.91
$ 0.86
$ 0.32
$ 0.83
$ 0.39
The intrinsic value of the Company’s options exercised during the years ended February 29, 2016 and February 28,
2015 was $12,479 and $110,985, respectively.
Information, at date of issuance, regarding stock option grants for the years ended February 29, 2016:
Year ended February 29, 2016:
Exercise price exceeds market price ..................................
Exercise price equals market price .....................................
Exercise price is less than market price..............................
-
73,500
-
Shares
Weighted Weighted
Average
Average
Fair
Exercise
Value
Price
-
$ 1.16
-
-
$ .26
-
The aggregate intrinsic value of the Company’s outstanding options at February 29, 2016 and February 28, 2015
was $176,348 and $191,542, respectively.
The following table summarizes information about stock options outstanding and exercisable at February 29, 2016:
Number
Outstanding
Weighted Average
Remaining Life Exercise
in Years
Price
Number
Exercisable
Range of exercise prices:
$.42 to $.50 ...........................................
$.51 to $1.00 .........................................
$1.01 to $1.40 ......................................
Total Options: ...........................................
24,000
171,500
268,600
464,100
6.38
6.22
8.08
$ 0.47
$ 0.63
$ 1.13
24,000
171,500
154,320
349,820
23
2016 Annual Report
NOTE 14: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
February 29,
2016
February 28,
2015
Numerator for basic and diluted earnings per share .............................
$
547,729
$
606,133
Denominator for basic earnings per share - weighted average ............
14,943,018
14,737,204
Effects of dilutive securities:
Stock options for employees, directors and outside consultants .......
86,583
Denominator for diluted earnings per share ..........................................
15,029,601
Basic Earnings Per Share – Weighted Average .....................................
Diluted Earnings Per Share – Weighted Average ...................................
$
$
0.04
0.04
109,604
14,846,808
$
$
0.04
0.04
NOTE 15: SIGNIFICANT CUSTOMERS AND FOREIGN SALES
Export sales to customers located outside the United States were approximately as follows:
Western Europe ......................................................................................
Far East ..................................................................................................
Other .......................................................................................................
February 29,
2016
$ 2,789,000
2,981,000
807,000
$ 6,577,000
February 28,
2015
$ 2,069,000
2,147,000
802,000
$ 5,018,000
During Fiscal Years 2016 and 2015, sales to foreign customers accounted for approximately $6,577,000 and
$5,018,000, or 56% and 47% respectively, of total revenues.
One customer accounted for 7% of the Company’s sales for Fiscal Year ended February 29, 2016.
NOTE 16: SUBSEQUENT EVENTS
The Company has evaluated subsequent events for disclosure purposes.
Common Stock
Our common stock currently trades on the OTCQX U.S. Premier tier of the OTC Markets 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.
Years Ended
February 29, 2016
LOW
HIGH
February 28, 2015
LOW
HIGH
First Quarter ................................................................. $ 1.16
1.25
Second Quarter ...........................................................
1.19
Third Quarter ................................................................
1.15
Fourth Quarter..............................................................
$ 1.01
1.03
1.08
1.02
$ 1.20
1.29
1.30
1.24
$ 1.04
1.06
1.05
1.05
The above quotations are believed to represent inter-dealer quotations without retail markups, markdowns or commissions and
may not represent actual transactions.
As of February 29, 2016, there were 165 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. The difference between the
shareholders of record and the total shareholders is due to stock being held in street names at our transfer agent.
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.
.
24
Corporate Directory
Directors
Christopher L. Coccio, Ph.D. - Chairman and CEO
R. Stephen Harshbarger - President
Joseph Riemer, Ph.D. - Vice President, Food Business Development
Samuel Schwartz - Chairman Emeritus and former Chairman of the Board, retired
Chairman and CEO of Krystinel Corporation.
Edward J. Handler, Esq. - Compensation and Audit Committees, retired partner from
Kenyon and Kenyon intellectual property law firm, President and COO of The Bronx
Project, Inc., past President of the West Point Society of New York.
Eric Haskell, CPA - Audit Committee, former Executive Vice President and Chief Financial
Officer of SunCom Wireless Holdings, Inc., former Chief Financial Officer of Systems &
Computer Technology Corp.
Philip A. Strasburg, CPA - Chairman of the Audit Committee, Compensation Committee,
Certified Public Accountant in New York State, retired partner from the accounting firm of
Anchin Block and Anchin, LLP.
Donald F. Mowbray, Ph.D. - Chairman of the Compensation Committee, Independent
Consultant, Retired head of General Electric’s Corporate R&D Mechanical Engineering
Laboratory.
Executive Officers
Christopher L. Coccio, Ph.D. - Chairman and CEO
R. Stephen Harshbarger - President
Joseph Riemer, Ph.D. - Vice President, Food Business Development
Stephen J. Bagley, CPA - Chief Financial Officer
Robb Engle - Vice President, Engineering
Corporate Headquarters
2012 Route 9W
Milton, NY 12547 USA
Phone: 845.795.2020
Fax: 845.795.2720
Corporate Website
http://www.sono-tek.com
Corporate E-mail
info@sono-tek.com
2012 Route 9W, Milton, NY USA
T (845)795.2020, F (845)795.2720
Email: info@sono-tek.com
Internet: www.sono-tek.com