2021 Annual Report
The world class
provider of ultrasonic
specialty coating
equipment to
high-tech medical,
semiconductor,
clean energy, and
other advanced
industries globally.
Global Leader in Ultrasonic Coating Systems
FY 2021 Sales: $14.8 Million
The charts above demonstrate the success that Sono-Tek has had in its strategy of diversification of
markets, products and geography. This has led to the development of an expanded line of ultrasonic coating
products and systems that no other company can match, and which creates future growth opportunities.
SEMICONDUCTOR
MEDICAL DEVICE
FUEL CELL
Founded in 1975, Sono-Tek Corporation designs and manufactures ultrasonic coating systems that apply
precise, thin-film coatings to a multitude of products for the microelectronics/electronics, medical,
alternative energy, and industrial markets, including specialized glass applications for lenses and electronic
device surfaces.
Our environmentally-friendly ultrasonic spray systems provide high performance functional coatings, with dramatic
reductions in overspray, savings in raw material, water and energy usage, improved process repeatability, transfer
efficiency, high uniformity and reduced emissions.
Sono-Tek’s founder was the inventor of the ultrasonic nozzle and we remain the leader in the industry.
38
Five-Year Performance Highlights
Fiscal Calendar: March 1st - February 28th
($ in thousands, except employee and per share data)
FY2021
FY2020
FY2019
FY2018
FY2017
Net Sales
Gross Profit
Gross Margin
Selling, General and Administrative Expense
% of Sales
Research and Product Development Expense
% of Sales
Operating Profit (Loss)
Operating Margin
Net Income
Diluted Earnings Per Share
Weighted Average Shares Outstanding - Diluted
$ 14,833
$ 6,997
47.2%
$ 4,012
27.0%
$ 1,645
11.1%
$ 1,340
9.0%
$ 1,121
$ 0.07
15,672
$ 15,355
$ 7,313
47.6%
$ 4,770
31.1%
$ 1,428
9.3%
$ 1,115
7.3%
$ 1,107
$ 0.07
15,359
$ 11,610
$ 5,249
45.2%
$ 3,841
33.1%
$ 1,325
11.4%
82
$
0.7%
162
$
$ 0.01
15,219
$ 11,008
$ 5,296
48.1%
$ 3,635
33.0%
$ 1,280
11.6%
382
$
3.5%
368
$
$ 0.02
15,095
$ 9,635
$ 4,363
45.3%
$ 3,266
33.9%
$ 1,276
13.2%
$ (179)
(1.9)%
96
$
$ 0.01
15,018
Year End Financial Position
Cash, cash equivalents and investments
Total Assets
Total Debt (Long Term)
Stockholders’ Equity
Book Value Per Share
Other Year End Data
Depreciation and Amortization
Capital Expenditures
Number of Employees
$ 8,647
$ 16,423
$ 1,002*
$ 10,951
$ 0.71
$ 7,879
$ 14,743
708
$
$ 9,782
$ 0.64
$ 5,510
$ 12,200
$ 871
$ 8,585
$ 0.56
$ 6,422
$ 11,779
$ 1,027
$ 8,392
$ 0.56
$ 4,899
$ 10,736
$ 1,176
$ 7,923
$ 0.53
$
$
463
344
69
$
$
407
722
76
$
$
332
547
68
$
$
400
189
64
$
$
440
183
58
* $1M Paycheck Protection Program Loan was forgiven in the first quarter of FY2022.
2021 Annual Report
5
Dear Shareholders,
Our strong and cohesive team has
weathered the COVID-19 virus, and we
continued profitable growth in spite of it!
Sono-Tek’s fiscal Year 2021, ended February 28, 2021, was a year that was dominated by COVID-19.
Beyond the human impacts, the pandemic significantly affected most businesses around the world,
including Sono-Tek.
In March 2020, the beginning of fiscal 2021, we prepared for a decline of new sales and potential
delays or cancellations of existing orders. Many adjustments to our operations were required to offset lost
business opportunities due to customer lockdowns or slowdowns, and we were concerned with our own
safety and navigating the federal and New York State requirements throughout the entire fiscal year.
However, looking back at FY2021, it was a year of unexpected successes in many areas of the business.
Overall, Sono-Tek not only weathered the COVID-19 pandemic, but its impact allowed us to uncover
opportunities for new ways to conduct our business with increased efficiency and effectiveness, while
at the same time, expanding our customer base and markets.
As many businesses made a massive shift to a virtual or hybrid work environment, we too made
major changes in our interactions with each other, our customers, and industry partners. Fortunately,
we had already been creating strong digital connections internally and with our customers before the
pandemic. And our LEAN manufacturing program had grown to encompass almost all aspects of our
factory and office work, so we were able to quickly shift to significant amounts of “working from home”
as required throughout the year. This was fortunate because we are an “essential business”,
manufacturing and supplying important medical coating equipment to customers such as cardio
stent suppliers and COVID-19 test kit manufacturers. In addition, our equipment is important to
semiconductor manufacturers and fuel cell manufacturers, both areas considered critical in today’s
infrastructure and climate developments.
We were concerned about the cancellation of trade shows and customer sales visits, as well as how
our service team would assist customers in the installation and start-up of our machines at their factories.
But we, our customers, and many other companies quickly adapted to virtual sales meetings, remote
installations, and of course our own internal virtual meetings. We all discovered the savings in time and
travel expenses, many of which we will continue to employ going forward depending on customer
preferences. As pandemic conditions improve, we plan to increase our onsite workforce attendance,
with some selective hybrid remote work continuing. Safely increasing the onsite interactions of our team
will be a focus, as we believe our culture and strong company connections are important reasons for
our past successes and the creation of our future opportunities. And frankly, we have missed the deep
personal work connections that are so important to all of us. We appreciate the efforts of all our team
members in making FY2021 the surprising success that it has been, which is outlined below and in our
attached 10K report.
6
Sales, Income, and Our Balance Sheet
By quickly changing our focus geographically and by market segment, depending on where
customers were less affected, we were able to make up for a significant amount of lost sales opportunities
due to COVID-19. We finished the year with $14.8M in revenue, down only 3% compared to our record high
sales of last fiscal year. Our operating income of $1.3 million, was nearly the same as the previous year,
because greatly reduced travel and lodging expenses offset the added costs associated with implementing
Covid safety in our factory and offices.
Some of the highlights that drove our sales results this past year include the shipment of major
advanced textile coating equipment to apply nano-coatings, a rapidly growing customer base for our
diagnostic coating machinery and expanding our clean energy coating equipment market to include carbon
capture applications. As our coating capabilities are increasingly recognized to fit many of the demands of
next generation thin films, we expect to see continued successes, including the widening of the reach of our
ultrasonic technology for more applications.
Our balance sheet showed significant improvement from an already strong base as cash and
equivalents increased to $8.6 million from $7.9 million, while our total debt was reduced to essentially
zero as we paid off the remaining mortgage on our industrial park, which we bought to provide space
for future growth.
Additional details of sales by product, market segment, and geography, plus a multi-year financial
comparison are shown in the charts and tables that precede our 10K report.
We expect strong demand for our products as the world recovers from the past year of COVID, and
we project growth over last year in the first quarter of our new fiscal year, ending May 31, 2021. We are
planning for our highest sales year ever this fiscal year as we continue to develop larger and more complex
coating applications for our existing and new customers. For Sono-Tek, we believe that the best is yet to
come as customers require more and more sophisticated and precise coating techniques for their product
development and evolution.
Sincerely,
Christopher L. Coccio, PhD
Chairman and Chief Executive Officer
R. Stephen Harshbarger
President
2021 Annual Report
7
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,
news 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 and could cause actual results to differ materially.
These factors include, among other considerations, general economic and business conditions; political, regulatory, tax,
competitive and technological developments affecting our operations or the demand for our products; the duration and scope
of the COVID-19 pandemic; the extent and duration of the pandemic’s adverse effect on economic and social activity, consumer
confidence, discretionary spending and preferences, labor and healthcare costs, and unemployment rates, any of which may
reduce demand for some of our products and impair the ability of those with whom we do business to satisfy their obligations
to us; our ability to sell and provide our services and products, including as a result of continued pandemic related travel
restrictions, mandatory business closures, and stay-at home or similar orders; any temporary reduction in our workforce,
closures of our offices and facilities and our ability to adequately staff and maintain our operations resulting from the pandemic;
the ability of our customers and suppliers to continue their operations as result of the pandemic, which could result in terminations
of contracts, losses of revenue; the recovery of the Electronics/ Microelectronics and Medical markets following COVID-19
related slowdowns; and further adverse effects to our supply chain; maintenance of increased order backlog, including effects
of any COVID-19 related cancellations; the imposition of tariffs; timely development and market acceptance of new products and
continued customer validation of our coating technologies; adequacy of financing; capacity additions, the ability to enforce
patents; maintenance of operating leverage; maintenance of increased order backlog; consummation of order proposals;
completion of large orders on schedule and on budget; continued sales growth in the medical and alternative energy markets;
successful transition from primarily selling ultrasonic nozzles and components to a more complex business providing complete
machine solutions and higher value subsystems; and realization of quarterly and annual revenues within forecasted range.
We undertake no obligation to update any forward-looking statement.
Overview
Founded in 1975, Sono-Tek 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. We have invested significant resources to enhance our market diversity by leveraging our core
ultrasonic coating technology. As a result, we have increased our portfolio of products, the industries we serve and the countries
in which we sell our products.
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 thin layers of protective materials over a surface such as glass or metals. Our solutions are
environmentally-friendly, 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 believe product superiority is imperative and that it is attained through the extensive experience we have in the coatings
industry, our proprietary manufacturing know-how and skills and our unique work force we have built over the years. Our growth
strategy is to leverage our innovative technologies, proprietary know-how, unique talent and experience, and global reach to
further advance the use of ultrasonic coating technologies for the microscopic coating of surfaces in a broader array of
applications that enable better outcomes for our customers’ products and processes.
We are a global business with approximately 65% of our sales generated from outside the United States and Canada. 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. In addition, we have established testing labs at our distribution partner sites in China, Taiwan, Germany,
Turkey, Korea and Japan, while also recently expanding our first testing lab that is co-located with our manufacturing facilities in
New York. These labs provide significant value for demonstrating to prospective customers the capabilities of our equipment and
enabling us to develop custom solutions to meet their needs.
8
Over the last decade, we have shifted our business from primarily selling our ultrasonic nozzles and components to a more
complex business providing complete machine solutions and higher value subsystems to original equipment manufacturers
(“OEMs”). This strategy has resulted in significant growth of our average unit selling price; with our larger machines often selling
for over $300,000 and system prices sometimes reaching over $1,000,000. As a result of this transition, we have broadened our
addressable market and we believe that we can grow sales on a larger scale. We expect that we will experience wide variations
in both order flow and shipments from quarter to quarter.
Highlights
Highlights for fiscal 2021 include:
• During the unprecedented year of the COVID-19 pandemic, our net sales for fiscal 2021 dipped only slightly
to $14,833,000, down 3% compared with $15,355,000 for fiscal 2020. We achieved this despite numerous
COVID-19 related delays and cancellations from our customers, that we estimate amounted to 20% or
more of lost potential business. We attribute these strong results to the continuing success of our ongoing
growth initiatives.
• Gross profit margin for fiscal 2021 remained strong at 47.2% compared to 47.6% in fiscal 2020; due to the
strength in sales and good cost control.
• Operating margin for fiscal 2021 increased to 9.04% compared to 7.3% in fiscal 2020, due to decreased
costs in sales related travel and trade shows during the COVID-19 pandemic.
• Backlog on February 28, 2021 was up 9.5% compared to the backlog on February 29, 2020. We attribute this
to our ongoing strategy for product line expansion with further customization and automation, which delivers
increased value to our customer, and a higher average selling price to Sono-Tek.
• Operating activities generated an increase of $725,000 in fiscal 2021, as cash, cash equivalents and short-term
investments climbed from $7,879,000 on February 29, 2020 to $8,648,000 on February 28, 2021.
• We repaid our mortgage debt in its entirety during fiscal 2021.
• We applied for forgiveness of our Payroll Protection Program funding in December 2020. Our forgiveness
application was approved in April 2021.
• We have a strong balance sheet with no debt. We believe that this provides us with the financial flexibility to
pursue our business strategy for growth. We believe that our strong, debt free balance sheet will allow us to
aggressively pursue organic or other growth opportunities as they arise.
• The COVID-19 pandemic accelerated sales and broadened our customer base for diagnostic coating ma-
chines, which supports the manufacturing of COVID-19 testing kits, with approximately $770,000 of equipment
sold in fiscal year 2021.
Market and Geographic Diversity
We have invested significant resources to enhance our market diversity. Leveraging our core ultrasonic coating technology, we
expanded 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 geographically diverse company with a presence directly and through distributors and trade representatives, in the
United States and Canada, EMEA (Europe, Middle East and Africa), APAC (Asia Pacific) and Latin America (including Mexico).
In fiscal 2021, approximately 65% of sales originated outside of the United States and Canada. We established an infrastructure
to drive our geographic diversity including a newly equipped application 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 expanded regions in which
we now sell our products, are a strong foundation for our future sales growth and enhanced profitability.
2021 Annual Report
9
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTINUED
Results of Operations
Sales and Gross Profit:
Twelve Months Ended
February 28,
2021
February 29,
2020
Change
$
Net Sales ............................................................................................
$ 14,833,000
$ 15,355,000
$ (522,000)
Cost of Goods Sold ...........................................................................
7,836,000
8,041,000
(205,000)
Gross Profit ........................................................................................
$ 6,997,000
$ 7,314,000
$ (317,000)
Gross Profit % ....................................................................................
47.2%
47.6%
%
(3%)
(3%)
(4%)
The COVID-19 pandemic reached the US in full force only two weeks into our fiscal year, resulting in our application process
development labs coming to a grinding halt, and all trade shows and customer visits being canceled. Fortunately, we had been
creating strong digital connections with our customers before the pandemic, enabling Sono-Tek to quickly shift our customers
from in person interactions to virtual experiences in our lab, remote virtual sales meetings, and virtual machine installations. Many
of our customers canceled or delayed orders during the pandemic, but our growth initiatives offset most of these cancellations,
and we only experienced a 3% dip in sales. Gross profit remained stable at 47.2%.
In fiscal 2021, our sales include approximately $4,100,000 for orders that were delivered to three customers.
Product Sales:
February 28,
2021
Twelve Months Ended
% of
total
February 29,
2020
% of
total
6%
23%
Change
$
%
$ (108,000)
(12%)
620,000
17%
$
906,000
3,599,000
6,866,000
45%
(1,252,000)
(18%)
1,384,000
2,600,000
$ 15,355,000
9%
17%
198,000
20,000
14%
1%
$ (522,000)
(3%)
Fluxing Systems ......................................
$
798,000
Integrated Coating Systems ...................
4,219,000
Multi-Axis Coating Systems ....................
5,614,000
OEM Systems ..........................................
1,582,000
Other ........................................................
2,620,000
TOTAL ......................................................
$ 14,833,000
5%
28%
38%
11%
18%
10
Integrated coating systems showed 17% growth due to a significant shipment of customized machinery to apply nano-coatings in
the textile industry. A 12% sales dip occurred in fluxing systems in fiscal 2021 as many of these customers remained in lockdown
for a significant amount of time due to COVID. Multi-Axis coating systems dropped 18% in fiscal 2021, which was impacted greatly
by a $1.6 million multi-axis robot sold in fiscal 2020. Although we did receive an order for another multi-axis robot of similar value in
fiscal 2021, this is not scheduled to ship until fiscal 2022.
Market Sales:
February 28,
2021
Twelve Months Ended
% of
total
February 29,
2020
% of
total
Change
$
%
Electronics/Microelectronics ...................
$ 5,997,000
Medical .....................................................
3,369,000
Alternative Energy ...................................
2,144,000
Emerging R&D and Other .......................
1,055,000
Industrial ..................................................
2,268,000
TOTAL ...................................................... $ 14,833,000
40%
23%
15%
7%
15%
$ 8,486,000
55%
$ (2,489,000)
(29%)
3,476,000
1,923,000
1,018,000
452,000
$ 15,355,000
23%
12%
7%
3%
(107,000)
(3%)
221,000
37,000
12%
4%
1,816,000
402%
$ (522,000)
(3%)
The Industrial market showed 402% growth, primarily a result of an order for large multi-nozzle coating systems sold to an
overseas textile manufacturer. Alternative Energy customers had several COVID lockdowns throughout the year negatively
affecting fuel cell system sales, however, an increase in sales to the carbon capture market offset this dip and resulted in a
12% overall increase for the Alternative energy market. The Electronics / Microelectronics market dipped 29% due to several of
our PCB fluxing customers in this market halting operations during COVID lockdowns, and a large 6-axis robot system that sold in
fiscal 2020, that did not repeat in fiscal 2021.
Geographic Sales:
U.S. & Canada ...................................................................................
$ 5,155,000
$ 4,506,000
$ 649,000
Twelve Months Ended
February 28,
2021
February 29,
2020
Change
$
%
14%
Asia Pacific (APAC) ............................................................................
4,171,000
4,817,000
(646,000)
(13%)
Europe, Middle East, Asia (EMEA) ...................................................
4,287,000
4,512,000
(225,000)
(5%)
Latin America .....................................................................................
1,220,000
1,520,000
(300,000)
(20%)
TOTAL ................................................................................................
$ 14,833,000
$ 15,355,000
$ (522,000)
(3%)
In fiscal 2021, approximately 65% of sales originated outside of the United States and Canada. This compares with 71% in fiscal
2020. The increased sales to US and Canada are a result of many US companies shifting manufacturing operations back to the
US, due to the operational challenges of manufacturing in foreign countries during the COVID-19 pandemic. Decreased sales to
Latin America of 20% were driven by a drop in PCB fluxer sales during COVID lockdowns in Mexico and Brazil.
2021 Annual Report
11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTINUED
Operating Expenses:
Twelve Months Ended
February 28,
2021
February 29,
2020
Change
$
%
Research and product development ................................................
$ 1,645,000
$ 1,428,000
$ 217,000
15%
Marketing and selling ........................................................................
2,790,000
3,403,000
(613,000)
(18%)
General and administrative ...............................................................
1,222,000
1,367,000
(145,000)
(11%)
Total Operating Expenses .................................................................
$ 5,657,000
$ 6,198,000
$ (541,000)
(9%)
Research and Product Development:
Research and product development costs increased $217,000 to $1,645,000 for fiscal 2021 due to increased salaries and related
costs. In the prior fiscal year, some of our personnel were assigned to specific customer sales orders and the associated research
and development costs were recorded in inventory, as incurred.
Marketing and Selling:
Marketing and selling costs decreased $613,000 to $2,790,000 for fiscal 2021 due to decreases in commissions, travel and trade
show expenses.
During fiscal 2021, we expended approximately $621,000 for commissions as compared with $865,000 for the prior fiscal year,
a decrease of $244,000. The decrease in commission expense is primarily the result of a decrease in international sales being
generated by our external distributors, which are commissioned at a higher rate than our in-house sales team.
During fiscal 2021, we expended approximately $78,000 for advertising and trade show expense compared with $297,000 for the
prior fiscal year, a decrease of $219,000.
During fiscal 2021, we expended approximately $9,000 for travel expense compared with $153,000 for the prior fiscal year, a
decrease of $144,000.
General and Administrative:
General and Administrative costs decreased $145,000 to $1,222,000 for fiscal 2021 due to decreases in stock based
compensation expense, bank fees, bad debt expense and accrued COVID-19 mandated sick time. These decreases were partially
offset by increased health insurance premiums and annual meeting and proxy expenses related to the COVID-19 outbreak.
Operating Income:
Our operating income increased $225,000, to $1,340,000 in fiscal 2021 compared with $1,115,000 for the prior fiscal year.
Decreased gross profit offset by a larger decrease in operating expenses were key factors in the improvement of operating
income in fiscal 2021. Operating margin for fiscal 2021 increased to 9.0% compared with 7.3% in the prior fiscal year. As a
percentage of net sales, operating expenses were down 200 basis points to 38% in fiscal 2021 compared with 40% in fiscal
2020. As COVID-19 conditions improve, many of these costs are expected to increase when sales and marketing related activities
re-open for travel and trade shows.
12
Interest Expense:
Interest expense increased to $40,000 for fiscal 2021 as compared with $33,000 for the prior fiscal year. The current year’s interest
expense of $40,000 includes a mortgage prepayment penalty of $14,000. In December 2020, the Company paid the entire
outstanding principal balance due on its mortgage.
Interest and Dividend Income:
Interest and dividend income decreased $79,000 to $23,000 for fiscal 2021 as compared with $102,000 for the prior fiscal year.
The decrease in interest and dividend income is due to the reallocation of our investments into US Treasury securities and
certificates of deposit. Our present investment policy is to invest excess cash in highly liquid, low risk US Treasury securities
and certificates of deposit. At February 28, 2021, the majority of our holdings are rated at or above investment grade.
Income Tax Expense:
We recorded income tax expense of $227,000 for fiscal 2021 compared with $106,000 for the prior fiscal year. The increase in
income tax expense in fiscal 2021 is due to a decrease in available research and development credits.
Net Income:
Net income increased by $14,000 to $1,121,000 for fiscal 2021 compared with $1,107,000 for the prior fiscal year.
For fiscal 2021 and 2020, we do not believe that our sales revenue or net income has been affected by the impact of inflation or
changing prices.
Impact of COVID-19
In December 2019, the COVID-19 outbreak occurred in China and has since spread to other parts of the world. On March 11,
2020, the World Health Organization declared COVID-19 to be a global pandemic and recommended containment and mitigation
measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak. Along with these
declarations, extraordinary and wide-ranging actions have been taken by international, federal, state, and local public health
and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States
and the world. These actions include quarantines, social distancing and “stay-at-home” orders, travel restrictions, mandatory
business closures and other mandates that have substantially restricted individuals’ daily activities and curtailed or ceased many
businesses’ normal operations.
In response to the pandemic and these actions, we began implementing changes in our business in March 2020 to protect our
employees and customers:
• We implemented social distancing and other health and safety protocols.
• We have flexed the workforce in our manufacturing operations based on business needs, including the
addition of a second shift and the implementation of remote, alternative and flexible work arrangements.
• We have enhanced cleaning and sanitary procedures.
• We temporarily eliminated domestic and international travel.
• We restricted access to our facilities to only employees and essential non-employees with strict protocols.
2021 Annual Report
13
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTINUED
While all of these measures have been necessary and appropriate, they may result in additional costs and may adversely impact
our business and financial performance. As our response to the pandemic evolves, we may incur additional costs and will
potentially experience adverse impacts to our business, each of which may be significant. In addition, an extended period of
remote work arrangements could impair our ability to effectively manage our business, and introduce additional operational risks,
including, but not limited to, cybersecurity risks and increased vulnerability to security breaches, cyber-attacks, computer viruses,
ransomware, or other similar events and intrusions. We may experience, decreases in demand and customer orders for our
products in all sales channels, as well as temporary disruptions and closures of our facilities due to decreased demand and
government mandates.
COVID-19 has also impacted various aspects of the supply chain as our suppliers experience similar business disruptions due to
operating restrictions from government mandates. We continue to monitor procurement of raw materials and components used
in the manufacturing, distribution and sale of our products, but continued disruptions in the supply chain due to COVID-19 may
cause difficulty in sourcing materials or unexpected shortages or delays in delivery of raw materials and components, and may
result in increased costs in our supply chain.
We have implemented plans to reduce spending in certain areas of our business, including reductions or delays in capital
expenditures, reduced trade show participation costs, reduced travel expenditures and may need to take additional actions to
reduce spending in the future.
We are closely monitoring and assessing the impact of the pandemic on our business. The extent of the impact on our results of
operations, cash flow, liquidity, and financial performance, as well as our ability to execute near- and long-term business strategies
and initiatives, will depend on numerous evolving factors and future developments, which are highly uncertain and cannot be
reasonably predicted.
Given the inherent uncertainty surrounding COVID-19, we expect the pandemic may continue to have an adverse impact on our
business in the near term. Should these conditions persist for a prolonged period, the COVID-19 pandemic, including any of the
above factors and others that are currently unknown, may have a material adverse effect on our business, results of operations,
cash flow, liquidity, and financial condition.
Liquidity and Capital Resources
Working Capital – Our working capital increased $1,729,000 to $8,902,000 at February 28, 2021 from $7,173,000 at February 29,
2020. The increase in working capital was primarily the result of the current period’s net income and non-cash charges partially
offset by purchases of equipment and repayment of long-term debt.
We aggregate cash and cash equivalents and marketable securities in managing our balance sheet and liquidity. For purposes of
the following analysis, the total is referred to as “Cash.” At February 28, 2021 and February 29, 2020, our working capital included:
Cash and cash equivalents ..........................................................
$ 4,084,000
February 28,
2021
February 29,
2020
$ 3,660,000
Marketable securities ...................................................................
4,564,000
4,219,000
Total ...............................................................................................
$ 8,648,000
$ 7,879,000
Cash
Increase
$ 424,000
345,000
$ 769,000
14
The following table summarizes the accounts and the major reasons for the $769,000 increase in “Cash”:
Impact on Cash
Reason
Net income, adjusted for non-cash items ....................
$ 1,593,000
To reconcile increase in cash.
Accounts receivable increase .......................................
(828,000)
Timing of cash receipts.
Inventories increase ......................................................
(306,000)
Required to support backlog.
Accounts payable and accrued expenses increase ....
763,000
Timing of disbursements
Customer deposits decrease ........................................
(482,000)
Timing of shipments.
Repayment of long term debt .......................................
(708,000)
Repayment of debt.
Note payable proceeds .................................................
1,002,000
Paycheck Protection Program loan proceeds.
Equipment purchases ...................................................
(344,000)
Equipment and facilities upgrade.
Capital expenditure grant proceeds .............................
100,000
Receipt of grant proceeds.
Other-net ........................................................................
(21,000)
Timing of disbursements.
Net increase in cash ......................................................
$ 769,000
Stockholders’ Equity – Stockholders’ equity increased $1,169,000 from $9,782,000 at February 28, 2020 to $10,951,000 at
February 28, 2021. The increase was a result of the current year’s net income of $1,121,000 and $48,000 in additional equity
related to stock based compensation awards. The details of stock based compensation are explained in Note 4 in our financial
statements.
Operating Activities – We generated $725,000 of cash in our operating activities in fiscal 2021 compared with generating
$3,254,000 in fiscal 2020. The decrease in cash generated by operating activities was mostly the result of increased accounts
receivable, inventories, and decreased customer deposits. These uses of cash were partially offset by increased accounts payable
and accrued expenses.
Investing Activities – In fiscal 2021, cash used in investing activities was $595,000 compared with their using $2,576,000 of cash
in fiscal 2020. Capital spending in fiscal 2021 was $344,000 for the purchase or manufacture of equipment, furnishings and lease-
hold improvements and patent costs. This compares with $722,000 for the purchase of equipment and furnishings in fiscal 2020.
In fiscal 2021 we used $344,000 for the purchase of marketable securities compared with $1,854,000 for the purchase of
marketable securities in fiscal 2020.
In fiscal 2021 we received $100,000 in grant proceeds from the utility which provides our electricity as a result of our completion
of certain energy efficiency related improvements.
Financing Activities – In fiscal years 2021 and 2020, we used $708,000 and $163,000 in cash, respectively, for the principal
payments on our mortgage.
Bank Credit Facilities:
We currently have a revolving credit line of $1,500,000 and a $750,000 equipment purchase facility, both of which are with a
bank. The revolving credit line is collateralized by the Company’s accounts receivable and inventory. The revolving line of credit is
payable on demand and must be retired for a 30-day period, once annually. As of February 28, 2021, there were no outstanding
borrowings under the line of credit.
As of February 28, 2021, $849,000 of the Company’s credit line was being utilized to collateralize letters of credit issued to
customers that have remitted cash deposits to the Company on existing orders. The unused portion of the credit line was
$651,000 as of February 28, 2021. The letters of credit expire at various times in the fiscal year ending February 28, 2022.
2021 Annual Report
15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTINUED
Paycheck Protection Program Loan
During fiscal 2021, we entered into a loan transaction pursuant to which we received proceeds of $1,001,640 (the “PPP Loan”)
under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic
Security Act (“CARES Act”), provides for loans to qualifying companies and is administered by the U.S. Small Business
Administration (the “SBA”).
The PPP Loan was evidenced by a promissory note (the “Note”), between the Company and M&T Bank, (the “Bank”). The Note
had a two-year term, accrued interest at the rate of 1.0% per annum, and was prepayable at any time without payment of any
premium. No payments of principal or interest were due during the six-month period beginning on the date of the Note. Beginning
on the seventh month following the date of the Note, we were required to make 18 monthly payments of principal and interest in
the amount of $56,370.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan
granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for
payment of payroll costs and any payments of mortgage interest, rent, and utilities. However, at least 75 percent of the PPP Loan
proceeds must be used for eligible payroll costs. The terms of any forgiveness may also be subject to further requirements in any
regulations and guidelines the SBA may adopt.
The Company applied for forgiveness of the PPP Loan in December 2020. On April 1, 2021, the Company received notice from
the Bank that the Bank had received confirmation from the SBA that the application for forgiveness of the PPP Loan had been
approved. The loan forgiveness request in the amount of $1,001,640 was applied to the Company’s entire outstanding PPP Loan
balance with the Bank.
Off - Balance Sheet Arrangements
We do not have any Off - Balance Sheet Arrangements as of February 28, 2021.
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, 2021, management believes
that there are no critical accounting policies applicable to the Company that are reflective of significant judgments and or
uncertainties.
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. The Company
uses a recognition threshold and a measurement attribute for financial statement recognition and measurement of tax positions
taken or expected to be taken in a return. For those benefits to be recognized, a tax position must be more likely than not to be
sustained upon examination by taxing authorities. As of February 28, 2021 and February 29, 2020, there were no accruals for
uncertain tax positions.
16
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
surrounding Black-Scholes assumptions such as stock price volatility and expected option lives 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.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of
which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services.
Impact of New Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes.”
The guidance issued in this update simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in
ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period
and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting
for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in
the tax basis of goodwill. The ASU will be effective for the Company on March 1, 2021, with early adoption permitted, and is not
expected to have a significant impact on the Company’s financial statements.
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial
Instruments. Codification Improvements to Topic 326, Financial Instruments – Credit Losses, have been released in November
2018 (2018-19), November 2019 (2019-10 and 2019-11) and a January 2020 Update (2020-02) that provided additional guidance
on this Topic. This guidance replaces the current incurred loss impairment methodology with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit
loss estimates. For SEC filers meeting certain criteria, the amendments in this ASU are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. For SEC filers that meet the criteria of a smaller reporting company
(including this Company) and for non-SEC registrant public companies and other organizations, the amendments in this ASU are
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption will be
permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
The Company is currently in the process of its analysis of the impact of this guidance on its consolidated financial statements and
does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures
and adds additional disclosures. The ASU is effective for annual periods, including interim periods within those annual periods,
beginning after December 15, 2019. Early adoption is permitted. The Company adopted the new standard on March 1, 2020,
and the adoption did not have a material impact on its consolidated financial statements.
Other than Accounting Standards Update (“ASU”) 2019-12, ASU 2016-13 and ASU 2018-13 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.
2021 Annual Report
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Sono-Tek Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Sono-Tek Corporation (the “Company”) as of February 28, 2021,
and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of February 28, 2021, and the results of its operations and its cash flows for the
year ended February 28, 2021, 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 audit. 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 audit 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. As part
of our audit, 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.
Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the criti-
cal audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition
Critical Audit Matter As discussed in Notes 1 and 3 to the financial statements, the Company recognizes revenue when the customer
Description
obtains control of promised goods or services in an amount that reflects the consideration they expect to
receive in exchange for those goods or services. The Company’s product and service offerings are customized
to meet specific customer needs. There is significant judgment exercised by the Company in determining
revenue recognition which includes (i) determination of whether products and services are considered distinct
performance obligations that should be accounted for separately versus together (ii) the pattern of delivery
(i.e. timing of when revenue is recognized) for each distinct performance obligation (iii) identification and
treatment of agreed upon customer terms that may impact the timing and amount of revenue recognized.
How We Addressed To test the accounting we evaluated management’s significant accounting policies related to these customer
the Matter in
Our Audit
agreements for reasonableness included in Note 3. We selected a sample of customer agreements and
performed the following procedures (i) Obtained and read source documents for each selection (ii) tested
management’s identification and treatment of agreed upon terms (iii) assessed the terms in the customer
agreement and evaluated the appropriateness of management’s application of their accounting policies, along
with their use of estimates, in the determination of revenue recognition conclusions (iv) we evaluated the
reasonableness of management’s determination of the performance obligation (v) we tested the mathematical
accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the
financial statements.
We have served as the Company’s auditor since 2020.
East Hanover, New Jersey
May 27, 2021
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Sono-Tek Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Sono-Tek Corporation (the “Company”) as of February 29,
2020, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for
the year 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 29, 2020, and the
results of its operations and its cash flows for the year 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 audit 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.
We have served as the Company’s auditor since 2012.
New York, NY
May 29, 2020
2021 Annual Report
19
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets:
February 28,
2021
February 29,
2020
Cash and cash equivalents ....................................................................
Marketable securities .............................................................................
Accounts receivable (less allowance of $56,123 and $71,000,
respectively) .......................................................................................
Inventories, net ......................................................................................
Prepaid expenses and other current assets ............................................
Total current assets ......................................................................
$ 4,084,078
4,563,470
1,757,802
2,611,106
151,316
13,167,772
Land ...............................................................................................................
Buildings, net ..................................................................................................
Equipment, furnishings and leasehold improvements, net ................................
Intangible assets, net ......................................................................................
Deferred tax asset ...........................................................................................
250,000
1,575,135
1,075,190
95,456
259,838
$ 3,659,551
4,219,240
929,701
2,381,891
153,698
11,344,081
250,000
1,654,061
1,212,578
106,291
176,314
TOTAL ASSETS ...............................................................................................
$ 16,423,391
$ 14,743,325
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable ..................................................................................
Accrued expenses .................................................................................
Customer deposits ................................................................................
Current maturities of long term debt .......................................................
Income taxes payable ............................................................................
$ 1,294,483
1,750,916
1,166,541
—
53,567
$
668,721
1,613,409
1,648,690
169,716
70,621
Total current liabilities...................................................................
4,265,507
4,171,157
Deferred tax liability .........................................................................................
Long term debt, less current maturities ............................................................
205,562
1,001,640
251,761
538,000
Total Liabilities .......................................................................................
5,472,709
4,960,918
Commitments and Contingencies (Note 10) .....................................................
—
—
Stockholders’ Equity
Common stock, $.01 par value; 25,000,000 shares authorized,
15,452,656 and 15,348,180 issued and outstanding, respectively ......
Additional paid-in capital ........................................................................
Accumulated earnings ...........................................................................
154,527
9,064,994
1,731,161
153,482
9,018,406
610,519
Total stockholders’ equity ................................................................................
10,950,682
9,782,407
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY .........................................
$ 16,423,391
$ 14,743,325
20
See accompanying notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended
February 28,
2021
February 29,
2020
Net Sales ........................................................................................................
Cost of Goods Sold .........................................................................................
Gross Profit ...........................................................................................
$ 14,832,877
7,835,837
6,997,040
Operating Expenses .........................................................................................
Research and product development .......................................................
Marketing and selling .............................................................................
General and administrative .....................................................................
Total Operating Expenses .............................................................
1,644,598
2,789,880
1,222,101
5,656,579
$ 15,354,619
8,041,378
7,313,241
1,427,543
3,403,133
1,367,073
6,197,749
Operating Income ............................................................................................
1,340,461
1,115,492
Other Income (Expense): .................................................................................
Interest Expense ..............................................................................................
Interest and Dividend Income ..........................................................................
Other Income ..................................................................................................
Income before Income Taxes ...........................................................................
(39,843)
22,558
24,691
1,347,867
(33,038)
101,592
29,401
1,213,447
Income Tax Expense ........................................................................................
227,225
106,005
Net Income .....................................................................................................
$ 1,120,642
$ 1,107,442
Basic Earnings Per Share ................................................................................
Diluted Earnings Per Share ..............................................................................
$
$
.07
.07
$
$
.07
.07
Weighted Average Shares – Basic ...................................................................
15,428,411
15,302,367
Weighted Average Shares – Diluted .................................................................
15,672,253
15,359,088
See accompanying notes to consolidated financial statements.
2021 Annual Report
21
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED FEBRUARY 28, 2021 AND FEBRUARY 29, 2020
Common Stock
Par Value $.01
Shares
Amount
Additional
Paid – In
Capital
Accumulated
(Deficit)
Earnings
Total
Stockholders’
Equity
Balance – February 28, 2019 ....................... 15,197,563
Stock based compensation expense .............
Exercise of stock options .............................
Net Income ..................................................
Balance – February 29, 2020 ....................... 15,348,180
150,617
$ 151,976
1,506
$ 8,929,607
90,305
(1,506)
$ (496,923)
$ 153,482
$ 9,018,406
1,107,442
$ 610,519
Stock based compensation expense .............
Exercise of stock options .............................
Net Income ..................................................
Balance – February 28, 2021 ....................... 15,452,656
104,476
1,045
47,633
(1,045)
$ 154,527
$ 9,064,994
1,120,642
$ 1,731,161
$ 8,584,660
90,305
—
1,107,442
$ 9,782,407
47,633
—
1,120,642
$ 10,950,682
See accompanying notes to consolidated financial statements.
22
Fiscal Year Ended
February 28,
2021
February 29,
2020
$ 1,120,642
$ 1,107,442
SONO-TEK 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 ......................................................
Bad debt 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 .................
Patent costs paid .........................................................................................
Capital expenditure grant proceeds ...............................................................
Sale (purchase) of marketable securities, net ................................................
Net Cash (Used In) Investing Activities .........................................
463,076
47,633
—
91,000
(129,723)
(828,100)
(305,790)
2,382
763,269
(482,149)
(17,054)
725,186
(344,353)
(6,000)
100,000
(344,230)
(594,583)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - bank ..............................................................
Repayment of long-term debt .......................................................................
Net Cash Provided By (Used In) Financing Activities .....................
1,001,640
(707,716)
293,924
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................................
424,527
406,731
90,305
25,000
(77,098)
36,707
443,190
(646,777)
241,307
1,063,730
499,132
64,349
3,254,018
(722,241)
—
—
(1,853,534)
(2,575,775)
—
(162,815)
(162,815)
515,428
CASH AND CASH EQUIVALENTS:
Beginning of year .........................................................................................
End of year ..................................................................................................
3,659,551
$ 4,084,078
3,144,123
$ 3,659,551
Supplemental Cash Flow Disclosure:
Interest Paid .................................................................................................
Income Taxes Paid .......................................................................................
$
39,843
$ 374,004
$
$
33,038
4,948
See accompanying notes to consolidated financial statements.
2021 Annual Report
23
SONO-TEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2021 AND FEBRUARY 29, 2020
NOTE 1: BUSINESS DESCRIPTION
Sono-Tek Corporation (the “Company”, “Sono-Tek”, “We” or “Our”) was incorporated in New York on March 21, 1975. We are 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 custom-engineered ultrasonic coating systems and also provide
patented nozzles and generators for manufacturers’ equipment.
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 2021 and fiscal 2020 was $78,206 and $297,297, respectively.
Accounts Receivable, net – In the normal course of business, the Company extends credit to customers. Accounts receivable, less
the allowance for doubtful accounts, reflect the net realizable value of receivables and approximate fair value. 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.
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.
Consolidation – The accompanying consolidated financial statements of the Company include the accounts of the Company and its
wholly owned subsidiary, Sono-Tek Industrial Park, LLC (“SIP”) in conformity with generally accepted accounting principles in the
United States (“GAAP”). SIP operates as a real estate holding company for the Company’s real estate operations. All intercompany
accounts and transactions have been eliminated in consolidation.
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 under the treasury stock method.
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 applies Accounting Standards Codification (“ASC”) 820, Fair Value Measurement
(“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework.
ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the
Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date.
24
The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would
use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity.
Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that
market participants would use in pricing the asset or liability and are to be developed based on the best information available in the
circumstances.
The carrying amounts of financial instruments reported in the accompanying consolidated financial statements for current assets and
current liabilities approximate the fair value because of the immediate or short-term maturities of the financial instruments.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input
that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement
are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar
underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly
quoted intervals.
Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques
when little or no market data exists for the assets or liabilities.
The fair values of financial assets of the Company were determined using the following categories at February 28, 2021 and February 29,
2020, respectively:
Level 1
Level 2
Level 3
Total
Marketable Securities – February 28, 2021 .....................................................
$ 4,261,927
$ 301,543
Marketable Securities – February 29, 2020 .....................................................
$ 3,565,629
$ 653,611
$
$
—
$ 4,563,470
—
$ 4,219,240
Marketable Securities include certificates of deposit and US Treasury securities, totaling $4,563,470 and $4,219,240 that are considered
to be highly liquid and easily tradeable as of February 28, 2021 and February 29, 2020, respectively. US Treasury securities are valued
using inputs observable in active markets for identical securities and are therefore classified as Level 1 and certificates of deposit are
classified as Level 2 within the Company’s fair value hierarchy. The Company’s marketable securities are considered to be trading
securities as defined under ASC 320 “Investments – Debt and Equity Securities.”
Grant Proceeds – The Company was awarded a $100,000 Wired Innovations Center grant in June 2019 from the utility that provides
its electricity service. Proceeds of the grant were conditioned upon the Company’s successful completion of certain energy efficiency
related improvements. In addition, the grant was subject to certain other requirements and was provided on a reimbursement basis only.
The Company expended approximately $580,000 related to these improvements during the fiscal year ended February 29, 2020. During
the second quarter of fiscal 2021, the Company received the $100,000 grant in its entirety.
2021 Annual Report
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
The Company has concluded that this grant is not within the scope of ASC 606, as it does not meet the definition of a contract with a
“customer”. The Company has further concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition also does not
apply, as the Company is a business entity and the grant is from a public utility. Grants and related receivables are recognized when there
is reasonable assurance that the grant will be received, and all attaching conditions will be complied with. The Company has applied
the grant proceeds against the cost of the capitalized improvements applicable to the grant, reducing the carrying value and the related
depreciation expense going forward.
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. The Company
uses a recognition threshold and a measurement attribute for financial statement recognition and measurement of tax positions taken or
expected to be taken in a return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon
examination by taxing authorities. As of February 28, 2021 and February 29, 2020, there were no accruals for uncertain tax positions.
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 $181,922 and $171,210 at February 28, 2021
and February 29, 2020, 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 net realizable value. 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. Management
compares the cost of inventory with the net realizable value and, if applicable, an allowance is made for writing down the inventory to its
net realizable value, if lower than cost. On an ongoing basis, inventory is reviewed for potential write-down for estimated obsolescence
or unmarketable inventory based upon forecasts for future demand and market conditions.
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. No impairment losses were
identified or recorded in the twelve months ended February 28, 2021 and February 29, 2020 on the Company’s long-lived assets.
Management Estimates – The preparation of the consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
26
New Accounting Pronouncements – In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the
Accounting for Income Taxes.” The guidance issued in this update simplifies the accounting for income taxes by eliminating certain
exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income
taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects
of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a
step-up in the tax basis of goodwill. The ASU became effective for the Company on March 1, 2021, with early adoption permitted, and is
not expected to have a significant impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial
Instruments. Codification Improvements to Topic 326, Financial Instruments – Credit Losses, have been released in November 2018
(2018-19), November 2019 (2019-10 and 2019-11) and a January 2020 Update (2020-02) that provided additional guidance on this
Topic. This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses
and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For SEC filers
meeting certain criteria, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. For SEC filers that meet the criteria of a smaller reporting company (including this Company) and for non-SEC
registrant public companies and other organizations, the amendments in this ASU are effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2022. Early adoption will be permitted for all organizations for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. The Company is currently in the process of its analysis of the
impact of this guidance on its consolidated financial statements and does not expect the adoption of this guidance to have a material
impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure
Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional
disclosures. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15,
2019. Early adoption is permitted. The Company adopted the new standard on March 1, 2020, and the adoption did not have a material
impact on its consolidated financial statements.
Other than Accounting Standards Update (“ASU”) 2019-12, ASU 2016-13 and ASU 2018-13 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.
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.
Revenue Recognition – The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the
core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services.
Shipping and Handling Costs – Shipping and handling costs are included in cost of sales in the accompanying consolidated statements
of operations.
2021 Annual Report
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Stock-Based Compensation – The Company currently uses a Black-Scholes option pricing model to calculate the fair value of its stock
options. The Company primarily uses historical data to determine the assumptions to be used in the Black-Scholes model and has 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 expense on a straight line basis over the requite service period, based on the terms of the award in net
income. The Company accounts for forfeitures as they occur. Although every effort is made to ensure the accuracy of the Company’s
estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in
recording stock option expense that may materially impact the Company’s financial statements for each respective reporting period.
Uncertainties – Since early 2020, when the World Health Organization established the transmissible and pathogenic coronavirus a global
pandemic, there have been business slowdowns. The outbreak of such a communicable disease has resulted in a widespread health
crisis which has adversely affected general commercial activity and the economies and financial markets of many countries, including
the United States. As the outbreak of the disease has continued through fiscal 2021 and into fiscal 2022, the measures taken by the
governments of countries affected has adversely affected the Company’s business, financial condition, and results of operations. The
pandemic had a slight adverse impact on sales and the demand for products in fiscal 2021, resulting in sales that were less than
expected at the beginning of fiscal 2021. The Company expects the pandemic to continue to have an adverse impact during fiscal 2022.
NOTE 3: REVENUE RECOGNITION
A majority of the Company’s sales revenue is derived primarily from short term contracts with customers, which, on average, are in
effect for less than twelve months. Sales revenue from manufactured equipment transferred at a single point in time accounts for a
majority of the Company’s revenue.
Sales revenue is recognized when control of the Company’s manufactured equipment is transferred to its customers in an amount
that reflects the consideration the Company expects to receive based upon the agreed transaction price. The Company’s performance
obligations are satisfied when its customers take control of the purchased equipment, which is based on the contract terms. 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.
The Company does not capitalize any sales commission costs related to the acquisition of a contract. All commissions related to a
performance obligation that are satisfied at a point in time are expensed when the customer takes control of the purchased equipment.
The Company applies the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining
performance obligations that have original expected durations of one-year or less. They apply the transition practical expedient in
paragraph ASC 606-10-65-1(f)(3) and does not disclose the amount of the transaction price allocated to the remaining performance
obligations and an explanation of when we expect to recognize that amount as revenue.
At February 28, 2021, the Company had received $1,167,000 in cash deposits, and had issued Letters of Credit in the amount of
$849,000 to secure these cash deposits. At February 28, 2021, the Company was utilizing $849,000 of its available credit line to
collateralize these letters of credit.
28
At February 29, 2020, the Company had received $1,649,000 in cash deposits for customer orders. During the year ended February 28,
2021 the Company recognized $1,567,000 of these deposits as revenue.
At February 28, 2019, the Company had received $1,150,000 in cash deposits for customer orders. During the year ended February 29,
2020 the Company recognized $1,108,000 of these deposits as revenue.
The Company’s sales revenue, by product line is as follows:
Twelve Months Ended
February 28,
2021
% of total
February 29,
2020
% of total
Fluxing Systems .....................................................................................
$
798,000
Integrated Coating Systems ....................................................................
4,219,000
Multi-Axis Coating Systems ....................................................................
5,614,000
OEM Systems .........................................................................................
1,582,000
Other ......................................................................................................
2,620,000
TOTAL ....................................................................................................
$ 14,833,000
5%
28%
38%
11%
18%
$
906,000
3,599,000
6,866,000
1,384,000
2,600,000
$ 15,355,000
6%
23%
45%
9%
17%
NOTE 4: STOCK-BASED COMPENSATION
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, 2021, there were 460,959 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, 2021, there were 47,500 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 2021, the Company granted options to acquire 60,500 shares to employees exercisable at prices ranging from $3.70 to
$4.45 and options to acquire 20,000 shares to the non-employee members of the board of directors with an exercise price of $3.70. The
options granted to employees and directors vest over three years and expire in ten years. The options granted by the Company during
fiscal 2021 had a combined weighted average grant date fair value of $2.20 per share.
2021 Annual Report
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
During fiscal 2020, the Company granted options to acquire 17,500 shares to employees exercisable at prices ranging from $2.10
to $2.65, options to acquire 20,000 shares to the non-employee members of the board of directors with an exercise price of $2.65
and options for 200,000 shares to an officer and director exercisable at prices of ranging from $2.45 to $2.65. The options granted
to employees and directors vest over three years and expire in ten years. The options granted to the officer vested upon grant and expire
in ten years. The options granted by the Company during fiscal 2020 had a combined weighted average grant date fair value of $0.34
per share.
A summary of the activity of both plans for fiscal 2021 and fiscal 2020 is as follows:
Stock Options
Outstanding Exercisable
Exercise Price $
Remaining
Outstanding Exercisable Term - Years
Weighted Average
Balance - February 28, 2019 ........................................................
588,000
171,000
$ 1.10
$ 0.85
4.70
Granted ........................................................................................
237,500
Exercised .....................................................................................
(231,333)
Cancelled ......................................................................................
(2,500)
Balance - February 29, 2020 ........................................................
591,667
339,250
Granted ........................................................................................
80,500
Exercised ......................................................................................
(161,208)
Cancelled ......................................................................................
(2,500)
Balance - February 28, 2021 ........................................................
508,459
333,500
2.55
(0.88)
(1.17)
$ 1.77
$ 4.05
(1.05)
(2.55)
$ 2.35
$ 2.03
7.59
$ 2.17
6.99
The aggregate intrinsic value of the Company’s vested and exercisable options at February 28, 2021 was $692,490.
For the years ended February 28, 2021 and February 29, 2020, the Company recognized $47,633 and $90,305 in stock based
compensation expense for the years then ended, respectively. Such amounts are included in general and administrative expenses on
the statement of operations. Total compensation expense related to non-vested options not yet recognized as of February 28, 2021
was $185,000 and will be recognized on a straight-line basis through January 2024. The amount of future stock option compensation
expense could be affected by any future option grants or by any forfeitures. During the year ended February 28, 2021, the Company
had net settlement exercises of stock options, whereby, the optionee did not pay cash for the options but instead received the number
of shares equal to the difference between the exercise price and the market price on the date of exercise. Net settlement exercises during
the year ended February 28, 2021 resulted in 104,476 shares issued and 56,732 options cancelled in the settlement of shares issued.
30
Determining the appropriate fair value of the stock-based awards requires the input of subjective assumptions, including the fair value
of the Company’s common stock, and for stock options, the expected life of the option, and the expected stock price volatility. The
Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the
fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of
management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation
expense could be materially different for future awards.
The expected term of the options is estimated based on the Company’s historical exercise rate. The expected life of awards that vest
immediately use the contractual maturity since they are vested when issued. For stock price volatility, the Company uses its expected
volatility of the price of the Company’s common stock based on historical activity. The risk-free interest rate is based on U.S. Treasury
notes with a term approximating the expected life of the option at the grant-date.
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:
Fiscal Year Ended
Expected life .................................................................................................
5 - 8 years
February 28,
2021
February 29,
2020
1 - 8 years
Risk free interest rate ......................................................................................
0.46% - 0.78%
1.58% - 2.05%
Expected volatility ........................................................................................... 48.88% - 58.63%
27.46% - 32.24%
Expected dividend yield ...................................................................................
0%
0%
For the years ended February 28, 2021 and February 29, 2020, net income and earnings per share reflect the actual deduction for
stock-based compensation expense. The impact of applying ASC 718 was $47,633 and $90,305 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 ...................................................................
$ 1,081,591
Finished goods ................................................................................................
786,785
Work in process ..............................................................................................
1,027,010
February 28,
2021
February 29,
2020
$ 967,089
752,999
855,083
Total ...............................................................................................................
2,895,386
2,575,171
Less: Allowance ..............................................................................................
(284,280)
Net inventories ................................................................................................
$ 2,611,106
(193,280)
$ 2,381,891
2021 Annual Report
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NOTE 6: BUILDINGS, EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS
Equipment, furnishings and leasehold improvements consist of the following:
February 28,
2021
Buildings .........................................................................................................
$ 2,250,000
Laboratory equipment .....................................................................................
1,399,826
Machinery and equipment ...............................................................................
1,548,415
Leasehold improvements ................................................................................
642,671
Tradeshow and demonstration equipment ........................................................
1,137,346
Furniture and fixtures .......................................................................................
1,156,495
Totals ..............................................................................................................
8,134,753
Less: Accumulated depreciation ......................................................................
(5,484,428)
$ 2,650,325
February 29,
2020
$ 2,250,000
1,418,903
1,400,419
632,021
1,139,693
1,088,502
7,929,538
(5,062,899)
$ 2,866,639
Depreciation expense for the years ended February 28, 2021 and February 29, 2020 was $427,650 and $390,082, respectively.
NOTE 7: ACCRUED EXPENSES
Accrued expenses consist of the following:
Accrued compensation ...................................................................................
$ 568,213
Estimated warranty costs ................................................................................
Accrued commissions ....................................................................................
Professional fees.............................................................................................
Other accrued expenses ..................................................................................
565,700
127,342
100,559
389,102
February 28,
2021
February 29,
2020
$ 585,875
339,275
332,745
74,492
281,022
$ 1,750,916
$ 1,613,409
32
NOTE 8: REVOLVING LINE OF CREDIT
The Company has a $1,500,000 revolving line of credit which accrues interest at the prime rate which was 3.25% at February 28, 2021
and 4.75% at February 29, 2020. The revolving credit line is collateralized by the Company’s accounts receivable and inventory. The
revolving credit line 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 28, 2021, $849,000 of the Company’s credit line was being utilized to collateralize letters of credit issued to customers
that have remitted cash deposits to the Company on existing orders. The letters of credit expire at various times in the fiscal year ending
February 28, 2022. As of February 28, 2021, there were no outstanding borrowings under the line of credit and the unused portion of the
credit line was $651,000 as of February 28, 2021.
NOTE 9: LONG-TERM DEBT
Long-term 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 with
an interest rate of 4.15% and a 10-year term. .........................................................
$
—
$ 707,716
February 28,
2021
February 29,
2020
Note Payable, bank, unsecured, Paycheck Protection Program funding, initially
scheduled to be payable in monthly installments of principal and interest of
$56,370 through April 2022. Interest rate 1%. 2-year term. Under the terms of the
CARE Act, forgiveness for all or a portion of the loan may be granted based upon
use of the loan proceeds for eligible payroll and related payroll costs and other
qualified expenses. The Company has applied for forgiveness of this obligation.
Under the Paycheck Protection Program Flexibility Act, payments of principal and
interest shall be deferred until the date that the Small Business Administration remits
the forgiveness amount to the Company’s lender or determines that some or all
of the PPP loan is not eligible for forgiveness. If all or a portion of the loan is not
forgiven, the unforgiven balance and accrued interest shall be payable during the
remainder of the term of the loan. This loan was forgiven in its entirety by the
SBA in April 2021. . .........................................................................................
1,001,640
—
Total long-term debt...............................................................................
1,001,640
Due within one year ...............................................................................
—
Due after one year .................................................................................
$ 1,001,640
707,716
169,716
$ 538,000
2021 Annual Report
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NOTE 10: COMMITMENTS AND CONTINGENCIES
Other than the letters of credit discussed in Notes 3 and 8, the Company did not have any material commitments or contingencies as of
February 28, 2021.
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 21% to pre-tax income as follows:
February 28,
2021
Expected federal income tax ............................................................................
$ 283,052
State tax, net of federal ....................................................................................
27,102
Research and development tax credits .............................................................
(105,320)
Permanent differences .....................................................................................
Other ..............................................................................................................
12,719
9,672
Income tax expense ........................................................................................
$ 227,225
February 29,
2020
$ 254,898
19,758
(213,521)
29,632
15,238
$ 106,005
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and projections for future taxable income over periods in which the
deferred tax assets are deductible. Management believes it is more likely than not that the Company will realize the benefits of these
deductible differences.
Management does not believe that there are significant uncertain tax positions in 2021. There are no interest and penalties related to
uncertain tax positions in 2021.
The deferred tax asset and liability are comprised of the following:
February 28,
2021
February 29,
2020
Deferred tax asset
Inventory ........................................................................................................
$ 66,000
$ 41,000
Allowance for accounts receivable ...................................................................
13,000
Accrued expenses and other ...........................................................................
181,000
Research tax credits ........................................................................................
—
15,000
94,000
27,000
Deferred tax asset – Long Term ....................................................................
$ 260,000
$ 177,000
Deferred tax liability
Building and leasehold depreciation .................................................................
(206,000)
Deferred tax liability – Long Term ..................................................................
$ (206,000)
(252,000)
$ (252,000)
34
NOTE 12: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
Numerator for basic and diluted earnings per share ..........................................
$ 1,120,642
February 28,
2021
February 29,
2020
$ 1,107,442
Denominator for basic earnings per share - weighted average ..........................
15,428,411
15,302,367
Effects of dilutive securities:
Stock options for employees, directors and outside consultants .......................
243,842
56,721
Denominator for diluted earnings per share ......................................................
15,672,253
15,359,088
Basic Earnings Per Share – Weighted Average .................................................
$
0.07
Diluted Earnings Per Share – Weighted Average ...............................................
$
0.07
$
$
0.07
0.07
NOTE 13: CUSTOMER CONCENTRATIONS AND FOREIGN SALES
Export sales to customers located outside the United States and Canada were approximately as follows:
Asia Pacific (APAC)
Europe, Middle East, Asia (EMEA)
Latin America
February 28,
2021
4,171,000
4,287,000
1,220,000
$ 9,678,000
February 29,
2020
4,817,000
4,512,000
1,520,000
$ 10,849,000
During fiscal 2021 and fiscal 2020, sales to foreign customers accounted for approximately $9,678,000 and $10,849,000, or 65%
and 71% respectively, of total revenues.
The Company had three customers which accounted for 28% of sales during fiscal 2021. Two customers accounted for 64% of the
outstanding accounts receivables at February 28, 2021.
The Company had three customers which accounted for 30% of sales during fiscal 2020. Three customers accounted for 67% of the
outstanding accounts receivables at February 29, 2020.
2021 Annual Report
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NOTE 14: SUBSEQUENT EVENTS
Paycheck Protection Program Loan
During fiscal 2021, the Company entered into a loan transaction pursuant to which the Company received proceeds of $1,001,640
(the “PPP Loan”) under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and
Economic Security Act (“CARES Act”), provides for loans to qualifying companies and is administered by the U.S. Small Business
Administration (the “SBA”).
The PPP Loan was evidenced by a promissory note (the “Note”), between the Company and M&T Bank (the “Bank”). The Note had
a two-year term, accrued interest at the rate of 1.0% per annum, and was prepayable at any time without payment of any premium.
No payments of principal or interest were due during the six-month period beginning on the date of the Note (the “Deferral Period”).
Beginning on the seventh month following the date of the Note, the Company was required to make 18 monthly payments of principal
and interest in the amount of $56,370.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under
the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll
costs and any payments of mortgage interest, rent, and utilities. However, at least 75 percent of the PPP Loan proceeds must be used
for eligible payroll costs. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the
SBA may adopt.
The Company applied for forgiveness of the PPP Loan in December 2020. On April 1, 2021, the Company received notice from the Bank
that the Bank had received confirmation from the SBA that the application for forgiveness of the PPP Loan had been approved. The loan
forgiveness request in the amount of $1,001,640 was applied to the Company’s entire outstanding PPP Loan balance with the Bank.
36
Shareholder Information
Corporate Headquarters
Sono-Tek Corporation
Sono-Tek Industrial Park
2012 Route 9W
Milton, NY 12547 USA
845-795-2020
www.sono-tek.com
2021 Annual Meeting
The Annual Meeting of Shareholders will be held
at 10:00AM ET on August 19th, 2021 at Sono-Tek
Corporation headquarters.
Investor Relations
Investors, stockbrokers, security analysts and
others seeking information should contact:
Stephen J. Bagley, CPA
Chief Financial Officer
Sono-Tek Corporation
info@sono-tek.com
Stephanie Prince
PCG Advisory, Inc.
sprince@pcgadvisroy.com
Transfer Agent
For services such as reporting a change of address,
replacement of lost stock certificates and changes
in registered ownership, or for inquiries about your
account, contact:
American Stock Transfer Company
6201 15th Ave.
Brooklyn NY 11219
www.amstock.com
Corporate Counsel
David M. Henkoff, Esq
Eilenberg & Krause LLP
11 East 44th Street
New York, NY 10017
www.eeklaw.com
Independent Accountants
Friedman LLP
100 Eagle Rock Avenue, Suite 200
East Hannover, NJ 07936
Executive Leadership
Christopher L. Coccio, PhD
Chairman and Chief Executive Officer
R. Stephen Harshbarger
President and Chief Operating Officer
Stephen J. Bagley, CPA
Chief Financial Officer
Robb Engle
Executive Vice President, Engineering
Bennett Bruntil
Vice President, Sales and Marketing
Chris Cichetti
Vice President, Applications Engineering
Board of Directors
Dr. Christopher L. Coccio
Chairman of the Board & Chief Executive Officer
R. Stephen Harshbarger
President and Chief Operating Officer
Dr. Joseph Riemer 2
Consultant, Retired President and Vice President,
Food Business Development, Sono-Tek Corporation
Philip Strasburg, CPA 1*, 2
Former Partner, Anchin Block and Anchin, LLP
Carol O’Donnell 1
Chief Executive Officer of Protege Partners, LLC
Dr. Donald Mowbray 2*
Independent Science Consultant; Retired
Director, Mechanical Engineering Laboratory,
GE R&D Center
Eric Haskell, CPA 1
Retired, Executive Vice President and Chief
Financial Officer, SunCom Wireless Holdings, Inc.
1 Audit Committee
2 Compensation Committee
* Committee Chairman
2021 Annual Report
39
OTCQX: SOTK
2012 Route 9W ● Milton, NY 12547 ● 845.795.2020 ● info@sono-tek.com ● www.sono-tek.com