Making an impact on our world
2
Sono-Tek Corporation (Nasdaq: SOTK)
Sono-Tek Corporation (Nasdaq: SOTK) is a leading global ultrasonic coating equipment provider of engineering and manufacturing coating
equipment solutions for applying precision nano to micron thickness uniform thin films. Our equipment serves primarily the medical
device, microelectronics/electronics, and alternative energy sectors. Products that are coated with Sono-Tek equipment are making
an impact on our lives every day, from lifesaving medical devices to green hydrogen production to protect and preserve our environment.
3
Left page: A WideTrack
wide area nozzle array
coating system used in
solar cell manufacturing.
Right page: Interior view
of a NovoCoat multi-
axis system, a pilot scale
customizable coating
solution suitable for a
myriad of applications.
4
We are pleased to report that Sono-Tek’s fiscal year 2024, which ended on February 29, 2024, was a record-breaking year. Our company experienced unprecedented success,
with renewed market activity, increased orders, and a backlog reaching the highest levels in our history. Our strategic focus on three major and expanding market segments—
electronics and semiconductors, clean energy technologies, and medical device coatings—has proven fruitful and is expected to power us through the foreseeable future.
The semiconductor manufacturing and clean energy coating applications sectors, now bolstered by substantial government funding and incentives, continue to accelerate
these already strong segments for us.
Our business is benefiting from three concurrent societal demands: Clean/Green Energy is being driven by robust governmental actions and investments, while the
global transition towards sustainable energy sources such as wind, hydrogen, and solar is accelerating. Our thin film coating systems play a crucial role in various green
technologies, including advanced solar energy, carbon capture, and green hydrogen generation. While the long-term public support for this transition remains uncertain,
current market conditions present significant business opportunities for our systems, many of which will continue commercially regardless.
The next area of societal demand is Medical Technology, covering everything from implantable devices to diagnostic tools. These technologies require functional and
protective thin-film coatings for applications such as lubricity, anti-restenosis, blood testing, and COVID-19 diagnostics. As the global population ages and developing
countries seek similar healthcare advancements, we anticipate sustained growth in this sector, reinforcing Sono-Tek’s long-term prospects.
The other major driver for our future business is the continued demand for faster and faster Semiconductors to serve and support artificial intelligence, cryptocurrency,
server farms, and advanced business and entertainment applications. We are fortunate to be working with both the current generation of chip manufacturers as well as
critical involvement as part of the supply chain for the fastest chips ever produced, contributing to the next phase of Moore’s law evolution.
Beyond these primary sectors, there is much more growth potential for Sono-Tek’s future as the demand for increased precision coatings continues and the reduction of
hazardous waste in manufacturing is prioritized. Our dedicated, professional team in Milton, New York, along with over thirty global distributors, stands ready to meet these
challenges and capitalize on the opportunities ahead.
We thank you for your continued support and look forward to sharing further successes in the future.
Sincerely,
To Our Shareholders
Chris Coccio
Steve Harshbarger
Executive Chair
CEO & President
5
ALTERNATIVE ENERGY
MEDICAL DEVICES
Balloon mounted catheter
MICROELECTRONICS
FlexiCoat platform full line coating solution for the alternative energy sector.
FlexiCoat system with pre- and post-load stations (left) and
SPT200 with wafer handler module (right). Both systems are
designed for coating semiconductor wafers with photoresist.
Perovskite solar cell
Hydrogen production
Medical lab-on-a-chip
diagnostic device
Automated wafer handling system for high volume
photoresist coatings onto semiconductor wafers.
MediCoat system for coating drug eluting balloon
catheters with anti-restenosis drug polymer solutions.
6
$3.0
$3.5
$3.8
$5.3
$8.5
$9.1
0
2
4
6
8
10
2019 2020 2021 2022 2023 2024
FISCAL YEAR
$11.6
$15.3
$14.8
$17.1
$15.1
$19.7
0
5
10
15
20
25
2019 2020 2021 2022 2023 2024
FISCAL YEAR
45%
48%
47%
50%
51%
50%
0%
10%
20%
30%
40%
50%
60%
2019 2020 2021 2022 2023 2024
FISCAL YEAR
As the ASPs of our systems have increased,
the volume of lower value ASP system sales
remains steady, but makes up a smaller share
of our total sales. Higher ASP systems are driv
ing overall growth, reaching $1M+ per order.
AVERAGE SELLING PRICE
(ASP) PROGRESSION
Financial Highlights
Backlog at Fiscal Year End
$ in Millions
Revenue
$ in Millions
69%
56%
62%
43%
42%
42%
47%
36%
22%
29%
21%
25%
21%
30%
35%
34%
9%
14%
17%
32%
36%
27%
19%
29%
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
FY2017
FY2018
FY2019
FY2020
FY2021
FY2022
FY2023
FY2024
TOTAL SALES
AVERAGE SELL PRICE (ASP) PROGRESSION
% OF TOTAL SALES BY SELL PRICE INCREMENTS
FOR FISCAL YEARS 2017-2024
ORDERS $0- 74,999
ORDERS $75,000 -150,000
ORDERS >$150,000
Gross Margin
7
$5.5
$7.9
$8.7
$10.7
$11.4
$11.8
0
2
4
6
8
10
12
14
2019 2020 2021 2022 2023 2024
FISCAL YEAR
$8.6
$9.8
$11.0
$13.7
$14.6
$16.3
0
2
4
6
8
10
12
14
16
18
2019 2020 2021 2022 2023 2024
FISCAL YEAR
($ in thousands, except employee and per share data)
FY2024
FY2023
FY2022
FY2021
FY2020
Net Sales
$ 19,700
$ 15,058
$ 17,133
$ 14,833
$ 15,355
Gross Profit
$ 9,845
$ 7,652
$ 8,613
$ 6,997
$ 7,313
Gross Margin
50.0%
50.8%
50.3%
47.2%
47.6%
Selling, General and Administrative Expense
$ 5,776
$ 4,819
$ 4,994
$ 4,012
$ 4,770
% of Sales
29.3
32
29.1
27.0
31.1
Research and Product Development Expense
$ 2,886
$ 2,150
$ 1,730
$ 1,645
$ 1,428
% of Sales
14.7
14.3
10.1
11.1
9.3
Operating Income
$ 1,182
$
683
$ 1,889
$ 1,340
$ 1,115
Operating Margin
6%
4.5%
11.0%
9.0%
7.3%
Net Income
$ 1,441
$
636
$ 2,543
$ 1,121
$ 1,107
Diluted Earnings Per Share
$
0.09
$ 0.04
$
0.16
$
0.07
$
0.07
Weighted Average Shares Outstanding - Diluted
15,774
15,769
15,623
15,672
15,359
Year End Financial Position
Cash, Cash Equivalents and Marketable Securities $ 11,847
$ 11,445
$ 10,709
$ 8,648
$ 7,879
Total Assets
$ 23,132
$ 20,175
$ 17,626
$ 16,423
$ 14,743
Total Debt (Long Term)
$
0
$
0
$
0
$ 1,002*
$
708
Stockholders’ Equity
$ 16,279
$ 14,634
$ 13,741
$ 10,951
$ 9,782
Book Value Per Share
$
1.03
$
0.93
$
0.88
$
0.71
$
0.64
Other Year End Data
Depreciation and Amortization
$
597
$
511
$
436
$
463
$
407
Capital Expenditures
$
795
$
556
$
327
$
344
$
722
Number of Full-Time Employees
82
73
67
69
76
Stockholders’ Equity
$ in Millions
Cash, Cash Equivalents &
Marketable Securities
$ in Millions
FIVE YEAR PERFORMANCE HIGHLIGHTS
Fiscal Calendar: March 1st - February 28th
* PPP loan, forgiven in FY2022
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Delivering Precision Coating Solutions
Our vibrant and dynamic company culture is fueled by a passionate team of engineers and technical experts.
We take pride in collaborating to develop cutting-edge thin film coating processes for some of the most advanced
high-tech products globally. Our employees thrive on their love for technology and the fulfillment of making a
tangible impact on the world. Fostering a collaborative atmosphere across all departments is an important focus
of our business to create a unified team working toward excellence in all aspects of our customers’ experience.
This shared enthusiasm and dedication create an environment where innovation and performance flourish.
PASSION FOR THE PROCESS
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for High-tech Product Development & Manufacturing
Left: A Sono-Tek engineering tech putting the final touches on a wide area bridge nozzle array with Impact spray shaping assemblies.
Above: Scanning Electron Microscope (SEM) photos of a perovskite solar (inset) coating application from a research article highlighting Sono-Tek coating equipment
Published in: Advanced Science News | Title: Spray-Coated Lead-Free Cs2AgBiBr6 Double Perovskite Solar Cells with High Open-Circuit Voltage
Authors: Nathan Daem, Jennifer Dewalque, Felix Lang, Anthony Maho, Gilles Spronck, Catherine Henrist, Pierre Colson, Samuel D. Stranks, and Rudi Cloots
Example of
a Perovskite
solar cell
Sono-Tek’s extensive application engineering expertise enables us to deliver cutting-edge process development capabilities for next-generation thin
film coating requirements. Our global laboratory facilities provide comprehensive support to our partners, guiding them through every step of their
coating process development. This journey often begins with our testing and process development services and can progress to contract coating,
ultimately leading to the acquisition of our large-scale coating solutions. The result is not only equipment sales but strong customer partnerships
with lasting industry connections, as well as introduction to new markets for Sono-Tek. Leveraging our ultrasonic coating expertise, we are able to
help bring our customers’ products to market effectively, at the highest level of quality. These new coating development revenue streams are in the
early stages, but they are rapidly gaining momentum and delivering significant value to our customers.
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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; inflationary and supply chain
pressures; the recovery of the Electronics/Microelectronics and Medical markets;
maintenance of increased order backlog; 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; 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 the forecasted range of sales guidance.
We undertake no obligation to update any forward-looking statement.
Highlights
Highlights for fiscal 2024 include:
•
Net sales for fiscal 2024 increased 31% to $19.7 million from $15.1 million,
driven by strong shipments to the Alternative/Clean Energy, Industrial and
Medical Markets.
•
The Alternative/Clean Energy Market grew by 96%, an increase of $2.94 million,
in part due to a $766,000 shipment of a production scale system to a customer
in the solar market; with three additional systems valued at $730,000 each to be
manufactured for the same customer remaining in backlog and all scheduled to
ship in FY2025.
•
Gross profit margin for fiscal 2024 decreased to 50% compared to 50.8% in fiscal
2023. Decreased profit margin was a result of product mix and a Q4 FY2024
realignment of our organizational framework as an outcome of completion of
several successful R&D endeavors, which shifted some costs from R&D to cost of
goods sold (COGS).
•
Operating income for fiscal 2024 increased 73% to $1.2 million compared to
$683,000 in fiscal 2023, due to the current period’s increase in gross profit offset
by an increase in operating expenses.
•
Despite record sales, equipment related backlog at February 29, 2024 reached
a historical fiscal year end high of $9.1 million compared to the backlog at
February 28, 2023 of $8.5 million, an increase of 7%. The increase is due to
continued strong orders in the second, third and fourth quarters of fiscal 2024
from the clean energy sector.
•
Net income was $1.4 million compared to $636k in the prior fiscal year. The
increase in net income in fiscal year 2024 is a result of an increase in operating
income and interest and dividend income partially offset by an increase in
operating expenses, an increase in income tax expense and the creation of a
$138k reserve related to certain sales tax expenses.
•
As of February 29, 2024, we had no outstanding debt. Cash, cash equivalents
and marketable securities increased $400,000 to $11.8 million at February 29,
2024 compared to $11.4 million on February 28, 2023.
•
Interest income, dividend income and unrealized gain on marketable securities
increased to $562,000 reflecting the high interest rate environment during
fiscal 2024.
Market and Geographic Diversity
We have invested significant resources to enhance our market diversity. By leveraging
our core ultrasonic coating technology, we have 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/clean
energy, industrial markets, and emerging research and development and other.
We are a geographically diverse company with a presence either directly or 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 2024, approximately 45% of sales originated outside of the United States
and Canada.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
11
We have an established infrastructure of application process development
laboratories located at our distributor sites in Japan, China, Germany, Taiwan,
Korea and our home office in New York. These laboratories are equipped with
Sono-Tek systems and technical personnel to conduct customer demonstrations
and process development for new coating applications that our customers bring
to us. Our engineering, service and sales teams all continue to grow as we expand
our addressable markets and enhance our product line to include larger more
sophisticated machinery and systems with increased capabilities.
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.
Results of Operations
Sales and Gross Profit:
Fiscal Year Ended
February 29, February 28,
Change
2024
2023
$
%
Net Sales.................................
$ 19,700,000
$ 15,058,000
$ 4,642,000
31%
Cost of Goods Sold................
9,855,000
7,406,000
2,449,000
33%
Gross Profit.............................
$ 9,845,000
$ 7,652,000
$ 2,193,000
29%
Gross Profit %.........................
50.0%
50.8%
Gross profit increased $2,193,000, or 29% to $9,845,000 for fiscal 2024 compared
with $7,652,000 in fiscal 2023. Gross profit margin decreased to 50.0% for fiscal 2024,
compared to 50.8% for fiscal 2023. Overall, the gross profit margin on our products
remained relatively consistent when compared to fiscal 2023.
In fiscal 2024 the decrease in gross profit margin is due to increased indirect salaries,
an increase in transportation expenses, increased installation costs and increased
warranty costs. In fiscal 2023, our warranty costs were lower than expected. Warranty
costs fluctuate year to year and are a function of product mix. In addition, our gross
profit margin decreased due to the reallocation and recharacterization of specific labor
expenses from the engineering department to cost of goods sold.
In light of the successful culmination of several innovative R&D endeavors, we have
strategically realigned our operational structure. Historically, certain salary expenditures
associated with these initiatives were classified under the R&D category during
the developmental phase. However, following the recent successful completion of
several of these development projects, we have transitioned some of these expenses
to the manufacturing labor category. This transition necessitated a change in our
organizational framework, where a select group of individuals now fall under the
purview of the manufacturing organization rather than the engineering team. Effective
December 1, 2023, coinciding with the commencement of the fourth quarter of fiscal
2024, we shifted the cost allocation associated with these individuals to Cost of
Goods Sold. This realignment of labor allocation carries no discernible impact on our
overarching financial performance; however, it does yield noteworthy adjustments to
our cost structure. Notably, while our R&D expenses experienced a modest reduction,
our direct labor costs underwent a commensurate increase, resulting in an approximate
2% decline in gross margin for the fourth quarter of fiscal 2024. This trend is
anticipated to continue, with a similar annual impact anticipated for fiscal 2025.
Product Sales:
Twelve Months Ended
February 29, % of
February 28, % of
Change
2024
Total
2023
Total
$
%
Fluxing Systems....... $
724,000
4%
$ 1,179,000
8%
$ (455,000)
(39%)
Integrated Coating
Systems................. 2,889,000
14%
1,114,000
7%
1,775,000
159%
Multi-Axis Coating
Systems................. 10,075,000 51%
6,785,000
45%
3,290,000
48%
OEM Systems........... 1,533,000
8%
2,144,000 14%
(611,000)
(28%)
Other.......................... 4,479,000 23%
3,836,000
26%
643,000
17%
TOTAL....................... $ 19,700,000
$ 15,058,000
$ 4,642,000
31%
Total sales for the fiscal 2024 grew by 31%, propelled by heightened demand for our
Multi-Axis Coating systems which are commonly used in the clean energy sector.
Integrated Coating System sales accelerated by 159%, or $1.8M, to $2.9M due to
continued success with our newly developed float glass coating platform and a
newly completed custom-built system tailored for a key strategic partner within the
solar energy market.
12
Following uncharacteristically high revenue for Printed Circuit Board “PCB” Fluxing
systems for our fiscal year ended February 28, 2023, PCB Fluxing sales dipped by 39%
for fiscal 2024. Also, sales to our OEM Printed Circuit Board customers that integrate
our ultrasonic nozzles into their own spray fluxers declined, causing OEM sales to
decrease by 28%. We believe the slowdown in sales to the PCB spray fluxer market has
returned us to what is closer to our historical revenue norms. The dip in OEM sales was
largely mitigated by an increase in spare parts and service-related revenue, which is a
growing revenue stream, categorized in the ”Other” product category.
Market Sales:
Twelve Months Ended
February 29, % of
February 28, % of
Change
2024
Total
2023
Total
$
%
Electronics/
Microelectronics.... $ 5,602,000
29%
$ 5,509,000 37%
$
93,000
2%
Medical..................... 4,180,000
21%
3,702,000 25%
478,000
13%
Alternative Energy.... 5,997,000 30%
3,060,000 20%
2,937,000
96%
Emerging R&D and
Other.......................
315,000
2%
347,000
2%
(32,000)
(9%)
Industrial................... 3,606,000 18%
2,440,000 16%
1,166,000
48%
TOTAL....................... $ 19,700,000
$ 15,058,000
$ 4,642,000
31%
Sales to the Alternative/Clean Energy market recorded growth of 96% in fiscal 2024,
which were positively impacted by a growing number of our customers transitioning
from our R&D systems to production scale systems that carry much higher average
selling prices.
Electronics market revenue experienced a modest uptick in fiscal year 2024. This
growth was strongly influenced by three significant orders totaling $497,000, from the
semiconductor market. However, this positive momentum was partially tempered by
a $455,000 decrease in sales from our PCB spray fluxers.
Medical sales rebounded strongly in the second half of Fiscal 2024 and ended with
13% growth for fiscal 2024.
Industrial sales remain very strong, showing growth of 48% for fiscal 2024, influenced
by shipment of two next-gen float glass coating systems totaling approximately
$700,000, and the last two machines of a multi-system order to a US based customer
for $432,000.
Geographic Sales:
Fiscal Year Ended
February 29, February 28,
Change
2024
2023
$
%
U.S. & Canada.........................
$ 10,878,000
$ 6,804,000
$ 4,074,000
60%
Asia Pacific (APAC)................
3,268,000
3,260,000
8,000
0%
Europe, Middle East,
Asia (EMEA).........................
4,333,000
3,448,000
885,000
26%
Latin America.........................
1,221,000
1,546,000
(325,000)
(21%)
TOTAL.....................................
$ 19,700,000
$ 15,058,000
$ 4,642,000
31%
In fiscal 2024, approximately 55% of our sales were to US and Canadian customers.
This is compared to 45% in fiscal 2023.
We continue to record strong sales from the U.S. and Canada, growing 60% for fiscal
2024. This achievement can be attributed to various factors, including proactive
governmental initiatives such as the CHIPS ACT and the Inflation Reduction Act.
Additionally, the ongoing trend of onshoring for high-technology products has
significantly bolstered our sales performance in these regions.
Asia sales remained flat for fiscal 2024. While robust sales from the clean energy sector
were shown from India, South Korea and Singapore, China sales continue a downward
trajectory amidst the uncertain economic landscape prevailing in the region.
In Latin America, we encountered a discernible decline of 21%, representing a reduction
of $325,000. This decrease can be largely attributed to the sluggish performance in the
spray fluxer segment, a market segment commonly associated with our customer base
in this region.
In fiscal 2024, EMEA sales experienced a notable surge, marking a 26% increase
equivalent to $885,000. This upward trajectory was driven by robust sales in Ireland,
where we secured orders and shipments for two unique machines catering to separate
customers within the medical sector. These systems are designed for the specialized
coating of unique implantable devices, reflecting our commitment to innovation in thin
film coatings on next gen healthcare devices. Furthermore, Germany had continued
sales growth of our electrolysis membrane coating systems, impacted by government
initiatives aimed at fostering expansion of the clean energy sector.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
13
Operating Expenses:
Fiscal Year Ended
February 29, February 28,
Change
2024
2023
$
%
Research and product
development........................
$ 2,886,000
$ 2,149,000
$ 737,000
34%
Marketing and selling............
3,696,000
3,170,000
526,000
17%
General and administrative...
2,080,000
1,650,000
430,000
26%
Total Operating Expenses.....
$ 8,662,000
$ 6,969,000
$ 1,693,000
24%
Research and Product Development:
Research and product development costs increased $737,000 to $2,886,000 for fiscal
2024 due to increased salaries and related costs and an increase in research and
development materials and supplies, which are used in the focused growth initiatives
we continue to implement.
Marketing and Selling:
Marketing and selling costs increased $526,000 to $3,696,000 for fiscal 2024 due
to increased salaries and increased travel and trade show expenses.
During fiscal 2024, we expended approximately $505,000 for travel and trade show
expenses compared with $398,000 for the prior fiscal year, an increase of $107,000.
The increased travel and trade show expenses are a result of the global lifting of
COVID-19 restrictions aligning closely with pre-pandemic levels.
General and Administrative:
General and Administrative (G&A) costs increased $430,000 to $2,080,000 for fiscal
2024 due to an increase in salaries, professional fees and corporate expenses. These
increases were partially offset by a decrease in stock-based compensation expense.
Effective January 1, 2024, Steve Harshbarger became our Chief Executive Officer and
President, having previously served as Chief Operating Officer and President prior to
such date. We have implemented adjustments to the allocation of certain expenses in
fiscal 2024 associated with this transition. Specifically, we reclassified the expenses
related to Mr. Harshbarger’s compensation in connection with this positional change.
Prior to January 1, 2024, we categorized Mr. Harshbarger’s salary under sales expenses
due to his instrumental involvement in nurturing strategic accounts. In connection
with Mr. Harshbarger’s assumption of the principal executive officer role, the costs
associated with his compensation have been reallocated to the G&A category ensuring
a more precise representation of resource allocation in our financial statements.
In the fourth quarter of fiscal 2024, we were notified by the State of California that
we were required to collect sales tax on our shipments to customers in California.
According to California, we have both physical and economic nexus in the state and are
required to collect sales tax. We have taken the position that we do not have physical
nexus, but that we are subject to the economic nexus filing requirements. The California
economic nexus requirements have a look back period that began
on April 1, 2019.
We are in the process of reviewing our sales to California for the period beginning April
1, 2019. For taxable sales, we are in the process of trying to collect any sales tax due
from our customers. As of February 29, 2024, on the basis of a preliminary analysis of
our sales to our California customers since April 1, 2019, we have recorded an accrual
in the amount of $138,000 for the estimated sales tax, penalties and interest that we
may be required to remit to the State of California.
Operating Income:
Our operating income increased $499,000 or 73%, to $1,182,000 in fiscal 2024
compared with $683,000 for the prior fiscal year. In fiscal 2024, the increase in
operating margin is a result of an increase in revenue and gross profit offset by an
increase in operating expenses. Operating margin for fiscal 2024 increased to 6%
compared with 5% in the prior fiscal year. As a percentage of net sales, operating
expenses decreased 200 basis points to 44% in fiscal 2024 compared with 46% in
fiscal 2023.
14
Interest and Dividend Income:
Interest and dividend income increased $390,000 to $530,000 for fiscal 2024 as
compared with $140,000 for the prior fiscal year. The increase in interest and dividend
income is due to the reallocation of our investments into US Treasury securities and
certificates of deposit combined with the increase in current interest rates. Our
present investment policy is to invest excess cash in highly liquid, low risk US Treasury
securities and certificates of deposit. At February 29, 2024, the majority of our holdings
are rated at or above investment grade.
Income Tax Expense:
We recorded income tax expense of $303,000 for fiscal 2024 compared with $154,000
for the prior fiscal year. The increase in income tax expense in fiscal 2024 is due to the
increase in income before income taxes offset by the application of available research
and development tax credits.
Net Income:
Net income increased $805,000 or 127%, to $1,441,000 for fiscal 2024 compared with
$636,000 for the prior fiscal year. The increase in net income in fiscal 2024 is a result
of an increase in operating income and interest and dividend income partially offset by
an increase in operating expenses and an increase income tax expense.
Liquidity and Capital Resources
Working Capital – Our working capital increased $1,006,000 to $12,123,000 at February
29, 2024 from $11,117,000 at February 28, 2023. The increase in working capital was
primarily the result of the current year’s net income and non-cash charges partially
offset by purchases of equipment.
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 29, 2024 and February 28, 2023, our working capital included:
February 29,
February 28,
Cash
2024
2023
Increase
Cash and cash equivalents........ $ 2,135,000
$ 3,355,000
$ (1,220,000)
Marketable securities................. 9,712,000
8,090,000
1,622,000
Total............................................. $ 11,847,000
$ 11,445,000
$
402,000
The following table summarizes the accounts and the major reasons for the $402,000
increase in “Cash”:
Impact
on Cash
Reason
Net income, adjusted for
non-cash items
$ 1,915,000
To reconcile increase in cash.
Accounts receivable decrease
163,000
Decrease due to timing of receipts.
Inventories increase
(2,027,000)
Additional inventory purchases and
increase in work in process due to
customer requirements and supply
chain delays in receipt of required
components.
Customer deposits increase
582,000
Received for new orders.
Accounts payable
239,000
Timing of disbursements.
Accrued expenses
312,000
Timing of disbursements.
Prepaid and Other Assets
decrease
46,000
Decreased prepaid expenses.
Income taxes payable decrease
(33,000)
Timing of disbursements.
Equipment purchases
(795,000)
Equipment and facilities upgrade.
Net increase in cash
$ 402,000
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
15
Stockholders’ Equity – Stockholders’ equity increased $1,645,000 from
$14,634,000 at February 28, 2023 to $16,279,000 at February 29, 2024. The
increase was a result of the current year’s net income of $1,441,000 and $204,000
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 $1,164,000 of cash in our operating activities in
fiscal 2024 compared with generating $1,325,000 in fiscal 2023. The decrease in cash
generated by operating activities was the result of an increase in inventories. This use
of cash was partially offset by increases in customer deposits, increases in accounts
payable and accrued expenses and decreases in accounts receivable and prepaid
expenses.
In fiscal 2024, we used $2,027,000 of cash compared with using $875,000 in fiscal
2023 for the purchase of inventories, a 132% increase. Approximately half of this
increase aligns with Sono-Tek’s 31% revenue growth, necessitating additional
inventory to fulfill order demand efficiently. Of the remaining half of the inventory
increase, approximately $730,000, stems from finished goods and work-in-progress
items associated with three substantial orders associated with high-volume production
systems. These systems boast high average selling prices and lengthy lead times,
with all three scheduled for shipment in fiscal year 2025.
In addition, approximately $220,000 of finished goods comprise buy-ahead modules
designed to mitigate supply chain challenges. It’s anticipated that this figure will
decrease to $110,000 by Q3 FY2025, reflecting improved supply chain conditions.
Investing Activities – In fiscal 2024, we used $2,384,000 in our investing activities
compared with using $2,811,000 of cash in fiscal 2023. Capital spending in fiscal
2024 was $795,000 for the purchase or manufacture of equipment, furnishings and
leasehold improvements and patent costs. This compares with $556,000 for the
purchase of equipment and furnishings in fiscal 2023.
In fiscal 2024, we used $1,589,000 of cash compared with using $2,255,000 for the
purchase of marketable securities in fiscal 2023.
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 29, 2024, there were no outstanding borrowings under the line of credit.
As of February 29, 2024, $72,000 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 $1,428,000
as of February 29, 2024. The letters of credit expire in fiscal year 2024.
Backlog
We typically disclose our equipment-related backlog at the close of each fiscal quarter.
However, we have not previously included our services-related backlog, encompassing
repair parts, contract coating, paid applications development time in our laboratories,
and purchase orders for planned paid installation commitments, in our reported
backlog figures. While historically the services-related backlog has represented an
insignificant portion of our total backlog in dollar terms, our strategic focus is aimed
at growing this aspect of our business to become significant in the future.
Accordingly, beginning with our fiscal 2024 year-end figures included in this discussion,
we will incorporate service-related backlog into our reported total backlog number and
present it separately. Despite its current size, we believe that service-related back
log holds potential for considerable growth. At the end of fiscal year 2024, our total
backlog amounted to $9,277,168, comprised of $9,079,422 in equipment backlog and
$197,746 in services-related backlog.
Off - Balance Sheet Arrangements
We do not have any Off - Balance Sheet Arrangements as of February 29, 2024.
Critical Accounting Estimates
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.
Management’s estimates and judgements are continually evaluated and are based on
historical experience and expectations regarding future events that are believed to be
reasonable under the specific circumstances.
16
Critical accounting estimates are defined as those that are reflective of significant
judgments and uncertainties and may potentially result in materially different results
under different assumptions and conditions. As of February 29, 2024, management
believes that there are no critical accounting policies applicable to the Company that
are reflective of significant judgments and or uncertainties.
Accounting for 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. Based on management’s estimate, 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. Management evaluates the valuation allowance
based on current estimates and historical experience. We use a recognition threshold
and a measurement attribute for financial statement recognition and measurement 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 29, 2024 and February 28, 2023, there were no uncertain tax
provisions.
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,
expected option lives, and expected option forfeiture rates, to value equity-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 in net income.
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.
Judgement is required when determining at what point in time control of the Company’s
manufactured equipment is transferred to its customers. Management’s judgement is
based on each customer contract and the transfer of control of the equipment to the
customer. The sales revenue to be recorded is based on each contract.
Impact of New Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax
Disclosures. This ASU requires greater disaggregation of information about a reporting
entity’s effective tax rate reconciliation as well as information on income taxes paid.
This ASU applies to all entities subject to income taxes and is intended to help investors
better understand an entity’s exposure to potential changes in jurisdictional tax
legislation and assess income tax information that affects cash flow forecasts and
capital allocation decisions. This ASU is effective for annual periods beginning after
December 15, 2024, with early adoption permitted. The Company is currently evaluating
the impact the adoption of this ASU will have on its consolidated financial statements
and related disclosures.
Other than ASU 2023-09 discussed above, accounting pronouncements issued but not
yet effective have been deemed to be not applicable or the adoption of such accounting
pronouncements is not expected to have a material impact on the financial statements
of the Company.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Sono-Tek Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sono-Tek Corporation (the “Company”) as of February 29, 2024 and February 28, 2023, the related
consolidated statements of income, stockholders’ equity and cash flows for each of the two years in the period ended February 29, 2024, 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 29,
2024 and February 28, 2023, and the results of its operations and its cash flows for each of the two years in the period ended February 29, 2024, 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 audits 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 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters 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 our especially challenging, subjective, or complex
judgments. We determined that there are no critical audit matters.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2020.
East Hanover, NJ
May 23, 2024
18
SONO-TEK CORPORATION
February 29,
February 28,
2024
2023
ASSETS
Current Assets:
Cash and cash equivalents...................................................................................
$ 2,134,786
$ 3,354,601
Marketable securities............................................................................................
9,711,351
8,090,000
Accounts receivable (less allowance of $12,225)...............................................
1,470,711
1,633,866
Inventories..............................................................................................................
5,221,980
3,242,909
Prepaid expenses and other current assets.........................................................
207,738
254,046
Total current assets.......................................................................................
18,746,566
16,575,422
Land ..............................................................................................................................
250,000
250,000
Buildings, equipment, furnishings and leasehold improvements, net........................
2,832,156
2,624,996
Intangible assets, net....................................................................................................
47,566
57,202
Deferred tax asset.........................................................................................................
1,255,977
667,098
TOTAL ASSETS..............................................................................................................
$ 23,132,265
$ 20,174,718
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable..................................................................................................
$ 1,049,742
$
810,863
Accrued expenses..................................................................................................
1,739,478
1,427,446
Customer deposits.................................................................................................
3,419,706
2,838,165
Income taxes payable............................................................................................
414,807
381,421
Total current liabilities....................................................................................
6,623,733
5,457,895
Deferred tax liability.......................................................................................................
229,534
82,865
Total Liabilities.......................................................................................................
6,853,267
5,540,760
Commitments and Contingencies (Note 12)
Stockholders’ Equity
Common stock, $.01 par value; 25,000,000 shares authorized,
15,750,880 and 15,742,073 issued and outstanding as of
February 29, 2024, and February 28, 2023, respectively...................................
157,509
157,421
Additional paid-in capital.......................................................................................
9,770,387
9,566,898
Accumulated earnings...........................................................................................
6,351,102
4,909,639
Total stockholders’ equity.............................................................................................
16,278,998
14,633,958
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY...................................................
$ 23,132,265
$ 20,174,718
CONSOLIDATED BALANCE SHEETS
See accompanying
notes to consolidated
financial statements.
19
SONO-TEK CORPORATION
Fiscal Year Ended
February 29,
February 28,
2024
2023
Net Sales.................................................................................................................
$ 19,699,886
$ 15,058,203
Cost of Goods Sold.......................................................................................................
9,855,311
7,406,196
Gross Profit............................................................................................................
9,844,575
7,652,007
Operating Expenses
Research and product development.....................................................................
2,885,773
2,149,525
Marketing and selling............................................................................................
3,695,870
3,169,730
General and administrative...................................................................................
2,080,447
1,649,761
Total Operating Expenses..............................................................................
8,662,090
6,969,016
Operating Income..........................................................................................................
1,182,485
682,991
Other Income (Expense):
Interest and Dividend Income ......................................................................................
529,735
140,042
Net unrealized gain/(loss) on marketable securities..................................................
32,360
(33,119)
Income before Income Taxes ......................................................................................
1,744,580
789,914
Income Tax Expense.....................................................................................................
303,117
154,009
Net Income ....................................................................................................................
$ 1,441,463
$
635,905
Basic Earnings Per Share..............................................................................................
$
0.09
$
0.04
Diluted Earnings Per Share ..........................................................................................
$
0.09
$
0.04
Weighted Average Shares – Basic...............................................................................
15,743,763
15,735,451
Weighted Average Shares – Diluted ............................................................................
15,774,007
15,769,499
CONSOLIDATED STATEMENTS OF INCOME
See accompanying
notes to consolidated
financial statements.
20
SONO-TEK CORPORATION
YEARS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023
Common Stock
Par Value $.01
Additional
Total
Paid – In
Accumulated
Stockholders’
Shares
Amount
Capital
Earnings
Equity
Balance - February 28, 2022....................... 15,729,175
$ 157,292
$ 9,310,287
$ 4,273,734
$ 13,741,313
Stock based compensation expense.........
256,740
256,740
Cashless exercise of stock options............
12,898
129
(129)
—
Net Income.................................................
635,905
635,905
Balance - February 28, 2023....................... 15,742,073
$ 157,421
$ 9,566,898
$ 4,909,639
$ 14,633,958
Stock based compensation expense.........
203,577
203,577
Cashless exercise of stock options............
8,807
88
(88)
—
Net Income.................................................
1,441,463
1,441,463
Balance - February 29, 2024....................... 15,750,880
$ 157,509
$ 9,770,387
$ 6,351,102
$ 16,278,998
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
See accompanying
notes to consolidated
financial statements.
21
SONO-TEK CORPORATION
Fiscal Year Ended
February 29,
February 28,
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .....................................................................................................
$ 1,441,463
$ 635,905
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ...............................................................
597,166
510,868
Stock based compensation expense......................................................
203,577
256,740
Accounts receivable reserve ..................................................................
—
(43,898)
Inventory reserve .....................................................................................
47,875
4,864
Unrealized (gain) loss on marketable securities....................................
(32,360)
33,119
Deferred tax asset, net.............................................................................
(442,210)
(512,337)
(Increase) Decrease in:
Accounts receivable ................................................................................
163,155
(497,463)
Inventories ...............................................................................................
(2,026,946)
(874,531)
Prepaid expenses and other assets........................................................
46,308
69,258
(Decrease) Increase in:
Accounts payable.....................................................................................
238,879
126,352
Accrued expenses....................................................................................
312,032
(376,582)
Customer deposits ..................................................................................
581,541
1,670,197
Income taxes payable .............................................................................
33,386
322,547
Net Cash Provided by Operating Activities ............................................
1,163,866
1,325,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, furnishings and leasehold improvements............
(794,690)
(555,867)
Sale of marketable securities.........................................................................
20,237,051
14,329,159
Purchase of marketable securities, net.........................................................
(21,826,042)
(16,584,288)
Net Cash Used In Investing Activities.....................................................
(2,383,681)
(2,810,996)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS.......................................
(1,219,815)
(1,485,957)
CASH AND CASH EQUIVALENTS:
Beginning of year ............................................................................................
3,354,601
4,840,558
End of year ......................................................................................................
$ 2,134,786
$ 3,354,601
Supplemental Cash Flow Disclosure:
Interest Paid.....................................................................................................
$
—
$
—
Income Taxes Paid .........................................................................................
$
712,092
$ 363,590
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying
notes to consolidated
financial statements.
22
SONO-TEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023
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 add functional
properties, protect or strengthen 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 incorporating our patented technology, in
combination with strong applications engineering knowledge, to assist our customers
in achieving their desired coating solutions.
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 2024 and fiscal 2023
was $371,000 and $297,500, respectively.
Accounts Receivable, net - In the normal course of business, the Company extends credit
to customers. Accounts receivable, less an allowance for credit losses, 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. At February 29, 2024, the Company had $1,819,000 of cash
in excess of the FDIC insured limit.
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 Com
pany’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. 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.
23
The fair values of financial assets of the Company were determined using the following
categories at February 29, 2024 and February 28, 2023, respectively:
Level 1
Level 2
Level 3
Total
Marketable Securities –
February 29, 2024................
$ 9,711,351
$
—
$ —
$ 9,711,351
Marketable Securities –
February 28, 2023................
$ 7,361,000
$ 729,000
$ —
$ 8,090,000
Marketable Securities include certificates of deposit and US Treasury securities, totaling
$9,711,351 and $8,090,000 that are considered to be highly liquid and easily tradeable
as of February 29, 2024 and February 28, 2023, 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.”
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 29,
2024 and February 28, 2023, there were no uncertain tax positions.
Intangible Assets - Include costs of patent applications which are deferred and charged to
operations over seventeen 17 years for domestic patents and twelve 12 years for foreign
patents, which is considered the useful life. Amortization expense for the years ended
February 29, 2024 and February 28, 2023 was $16,434 and $18,814, respectively. The
accumulated amortization of patents is $212,861 and $202,681 at February 29, 2024 and
February 28, 2023, respectively. Annual amortization expense of such intangible assets is
expected to be approximately $16,000 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.
At February 29, 2024 and February 28, 2023, the Company had Land, stated at cost of
$250,000.
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
for the years ended February 29, 2024 and February 28, 2023 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.
24
New Accounting Pronouncements – 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 has adopted ASU 2016-13 as updated and the adoption of this guidance
did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted - In December 2023, the FASB
issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU requires greater
disaggregation of information about a reporting entity’s effective tax rate reconciliation
as well as information on income taxes paid. This ASU applies to all entities subject to
income taxes and is intended to help investors better understand an entity’s exposure to
potential changes in jurisdictional tax legislation and assess income tax information that
affects cash flow forecasts and capital allocation decisions. This ASU is effective for
annual periods beginning after December 15, 2024, with early adoption permitted. This
ASU should be applied on a prospective basis although retrospective application is
permitted. The Company is currently evaluating the impact the adoption of this ASU
will have on its consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):
Improvements to Reportable Segment Disclosures. The amendments in this ASU require
disclosures, on an annual and interim basis, of significant segment expenses that are
regularly provided to the chief operating officer decision maker (“CODM”), as well as the
aggregate amount of other segment items included in the reported measure of segment
profit or loss. The ASU requires that a public entity disclose the title and position of
the CODM and an explanation of how the CODM uses the reported measure(s) of
segment profit or loss in assessing segment performance and deciding how to allocate
resources. Public entities will be required to provide all annual disclosures currently
required by Topic 280 in interim periods, and entities with a single reportable segment
are required to provide all the disclosures required by the amendments in this ASU
and existing segment disclosures in Topic 280. This ASU is effective for fiscal years be
ginning after December 15, 2023, and interim periods within fiscal years beginning
after December 15, 2024, with early adoption permitted. The amendments in this
ASU should be applied retrospectively to all prior periods presented in the financial
statements. The Company is currently evaluating the impact of this standard on its
consolidated financial statements and related disclosures, and does not expect the
standard will have a material impact on the Company’s consolidated financial statements
and related disclosures.
Product Warranty - Expected future product warranty expense is recorded when revenue is
recognized for product sales.
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.
During fiscal 2024 and fiscal 2023, the Company spent approximately $2,886,000 and
$2,149,000, respectively, on research and development activities related to new products
and services and the ongoing improvement of existing products and services.
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. To determine revenue
recognition for arrangements that the Company determines are within the scope of
ASC 606, the Company performs the following five steps:
• Identification of the contract, or contracts, with a customer
• Identification of the performance obligations in the contract
• .Determination of the transaction price
• .Allocation of the transaction price to the performance obligations in the contract
• .Recognition of revenue when, or as, performance obligations are satisfied
Stock-Based Compensation - The Company currently uses a Black-Scholes option pricing
model to calculate the fair value of its stock options. The fair value of each option is
estimated on the date of grant based on the Black-Scholes options-pricing model utilizing
certain assumptions for a risk free interest rate; volatility; and expected lives of the
awards. The Company primarily uses historical data to determine the assumptions to be
used in the Black-Scholes model. The assumptions used in calculating the fair value of
share-based payment awards represent management’s best estimates, but these esti
mates involve inherent uncertainties and the application of management judgment.
ASC 718 requires the recognition of the fair value of stock compensation expense to be
recognized over the vesting term of such award. The Company accounts for forfeitures as
they occur.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
25
NOTE 3: REVENUE RECOGNITION
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,
in accordance with 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
transaction 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
and revenue is recognized.
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.
At February 29, 2024, the Company had received $3,420,000 in cash deposits,
representing contract liabilities, and had issued Letters of Credit in the amount of
$72,000 to secure these cash deposits. At February 29, 2024, the Company was
utilizing $72,000 of its available credit line to collateralize these letters of credit.
At February 28, 2023, the Company had received $2,838,000 in cash deposits,
representing contract liabilities, and had issued Letters of Credit in the amount of
$145,000 to secure these cash deposits. At February 28, 2023, the Company was
utilizing $145,000 of its available credit line to collateralize these letters of credit.
The Company’s sales revenue, by product line is as follows:
Twelve Months Ended
February 29,
% of
February 28,
% of
2024
total
2023
total
Fluxing Systems.......................
$
724,000
4%
$ 1,179,000
8%
Integrated Coating Systems....
2,889,000
14%
1,114,000
7%
Multi-Axis Coating Systems....
10,075,000
51%
6,785,000
45%
OEM Systems...........................
1,533,000
8%
2,144,000
14%
Other..........................................
4,479,000
23%
3,836,000
26%
TOTAL.......................................
$ 19,700,000
$ 15,058,000
NOTE 4: STOCK-BASED COMPENSATION
Stock Options – In May 2023, the Company’s Board of Directors authorized the creation
of the 2023 Stock Incentive Plan (the “2023 Plan”) pursuant to which the Company may
grant up to 2,500,000 options or shares to officers, directors, employees and consultants
of the Company and its subsidiaries. The Company’s shareholders approved the adoption
of the 2023 Plan in August 2023. The 2023 Plan replaced the 2013 Stock Incentive Plan
(the “2013 Plan”) under which no additional options or shares could be granted after June
2023. There are currently 65,793 and 229,749 options outstanding, respectively, under the
2023 Plan and the 2013 Plan.
Under the 2023 Stock Incentive Plan, as amended (the “2023 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 2023 Plan options expire ten years after the date of grant.
During fiscal 2024, the Company granted options to acquire 54,813 shares to employees
exercisable at prices ranging from $4.79 to $5.60 and options to acquire 18,380 shares
to the non-employee members of the board of directors with an exercise price of $4.79.
The options granted to employees and directors vest over three years and expire in ten
years. The options granted by the Company during fiscal 2024 had a combined weighted
average grant date fair value of $3.11 per share.
During fiscal 2023, the Company granted options to acquire 28,239 shares to employees
exercisable at prices ranging from $5.45 to $5.96 and options to acquire 16,500 shares
to the non-employee members of the board of directors with an exercise price of $5.50.
The options granted to employees and directors vest over three years and expire in ten
years. The options granted by the Company during fiscal 2023 had a combined weighted
average grant date fair value of $3.44 per share.
26
A summary of the activity for both plans, for fiscal 2024 and fiscal 2023 is as follows:
Weighted Average
Stock Options
Exercise Price $
Remaining
Outstanding Exercisable
Outstanding
Exercisable Term - Years
Balance - February 28, 2022.... 253,710
61,690
$ 4.46
$ 3.53
8.94
Granted.....................................
44,739
5.71
Exercised................................... (16,973)
(1.77)
Cancelled.................................. (30,717)
(4.66)
Balance - February 28, 2023.... 250,759
133,609
$ 4.84
$ 4.62
8.52
Granted.....................................
73,193
$ 5.02
Exercised................................... (19,701)
(3.62)
Cancelled..................................
(8,709)
(4.20)
Balance - February 29, 2024.... 295,542
181,376
$ 4.99
$ 4.89
8.04
The aggregate intrinsic value of the Company’s vested and exercisable options at
February 29, 2024 was $167,709.
For the years ended February 29, 2024 and February 28, 2023 the Company recognized
$203,577 and $256,740 in stock based compensation expense, respectively. Such
amounts are included in general and administrative expenses on the consolidated
statements of income. Total compensation expense related to non-vested options
not yet recognized as of February 29, 2024 was $298,000 and will be recognized
over the next three years based on vesting date. 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 29, 2024, 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 29, 2024 resulted in 8,807 shares of common stock issued.
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.
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
February 29,
February 28,
2024
2023
Expected life............................................................
5 - 8 years
5 - 8 years
Risk free interest rate.............................................. 2.82% - 4.39%
2.82% – 4.02%
Expected volatility................................................... 55.02% - 62.48%
55.02% - 62.01%
Expected dividend yield..........................................
0%
0%
NOTE 5: INVENTORIES
Inventories consist of the following:
February 29,
February 28,
2024
2023
Raw materials and subassemblies.......................
$ 2,270,567
$ 1,868,689
Finished goods........................................................
1,785,952
613,915
Work in process.......................................................
1,165,461
760,305
Total.........................................................................
$ 5,221,980
$ 3,242,909
The Company maintains an allowance for slow-moving inventory for raw materials and
finished goods. The recorded allowances at February 29, 2024 and February 28, 2023,
totaled $380,400 and $332,525, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27
NOTE 6: BUILDINGS, EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS
Buildings, equipment, furnishings and leasehold improvements consist of the following:
February 29,
February 28,
2024
2023
Buildings..................................................................
$ 2,250,000
$ 2,250,000
Laboratory equipment............................................
1,733,911
1,647,951
Machinery and equipment.....................................
1,891,345
1,807,817
Leasehold improvements.......................................
924,356
789,044
Trade show and demonstration equipment.........
1,151,899
1,137,346
Furniture and fixtures..............................................
1,771,084
1,302,545
Totals.......................................................................
9,722,595
8,934,703
Less: Accumulated depreciation...........................
(6,890,439)
(6,309,707)
$ 2,832,156
$ 2,624,996
Depreciation expense for the years ended February 29, 2024 and February 28, 2023 was
$580,732 and $492,055, respectively.
NOTE 7: ACCRUED EXPENSES
Accrued expenses consist of the following:
February 29,
February 28,
2024
2023
Accrued compensation..........................................
$ 579,757
$ 352,619
Estimated warranty costs......................................
524,875
500,650
Accrued sales tax....................................................
152,547
—
Accrued commissions............................................
133,771
157,927
Professional fees....................................................
74,826
100,921
Other accrued expenses.........................................
273,702
315,329
Total accrued expenses.........................................
$ 1,739,478
$ 1,427,446
NOTE 8: REVOLVING LINE OF CREDIT
The Company has a $1,500,000 revolving line of credit at prime which was 8.50%
at February 29, 2024 and 7.75% at February 28, 2023. 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 29, 2024, $72,000 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 in April 2024. As of February
29, 2024, there were no outstanding borrowings under the line of credit and the unused
portion of the credit line was $1,428,000.
As of February 28, 2023, $145,000 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 expired in May and July 2023.
As of February 28, 2023, there were no outstanding borrowings under the line of credit
and the unused portion of the credit line was $1,355,000.
28
NOTE 9: 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 29,
February 28,
2024
2023
Expected federal income tax..................................
$ 366,362
$ 165,882
State tax, net of federal...........................................
52,510
37,204
Research and development tax credits.................
(161,525)
(127,329)
Permanent differences...........................................
45,770
78,252
Income tax expense................................................
$ 303,117
$ 154,009
Components of the current and deferred tax expense are as follows:
February 29,
February 28,
2024
2023
Current:
Federal.....................................................................
$ 716,003
$ 438,263
State.........................................................................
123,743
83,525
Total current income tax........................................
839,746
521,788
Deferred:
Federal.....................................................................
(471,396)
(321,458)
State.........................................................................
(65,233)
(46,321)
Total deferred income tax......................................
(536,629)
(367,779)
Income tax expense................................................
$ 303,117
$ 154,009
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 deduct
ible. 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.
The incorporation of the new tax laws for 2023, requires the Company to capitalize for
income tax purposes research and development expenses incurred during the year and
for such expenses to be amortized over a five year period. As a result, a deferred tax asset
“Capitalized R&D expenses – IRC Section 174” has been recorded.
The Company does not have any uncertain tax positions in 2024. There are no interest
and penalties related to uncertain tax positions in 2024. As of February 29, 2024, open
years related to the federal and state jurisdictions are 2023, 2022 and 2021.
The deferred tax asset and liability are comprised of the following:
February 29,
February 28,
2024
2023
Deferred tax asset
Allowance for inventory..........................................
$
91,000
$ 76,000
Allowance for accounts receivable.......................
3,000
3,000
Capitalized R&D expenses – IRC Section 174......
985,000
441,000
Accrued expenses and other.................................
177,000
147,000
Deferred tax asset – Long Term.........................
$ 1,256,000
$ 667,000
Deferred tax liability
Building and leasehold depreciation.....................
(230,000)
(83,000)
Deferred tax liability – Long Term.......................
$ (230,000)
$ (83,000)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
29
NOTE 10: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
February 29,
February 28,
2024
2023
Numerator for basic and diluted earnings
per share................................................................
$ 1,441,463
$
635,905
Denominator for basic earnings per share -
weighted average..................................................
15,743,763
15,735,451
Effects of dilutive securities:
Stock options for employees, directors and
outside consultants..............................................
30,244
34,048
Denominator for diluted earnings per share.........
15,774,007
15,769,499
Basic Earnings Per Share – Weighted Average......
$
0.09
$
0.04
Diluted Earnings Per Share – Weighted Average...
$
0.09
$
0.04
NOTE 11: CUSTOMER CONCENTRATIONS AND FOREIGN SALES
Export sales to customers located outside the United States and Canada were
approximately as follows:
February 29,
February 28,
2024
2023
Asia Pacific (APAC).................................................
3,268,000
3,260,000
Europe, Middle East, Asia (EMEA).........................
4,333,000
3,448,000
Latin America..........................................................
1,221,000
1,546,000
$ 8,822,000
$ 8,254,000
During fiscal 2024 and fiscal 2023, sales to foreign customers accounted for
approximately $8,822,000 and $8,254,000, or 45% and 55% respectively, of
total revenues.
For the fiscal years ended February 29, 2024 and February 28, 2023, no single
customer accounted for more than 10% of the Company’s revenues.
Two customers accounted for 26% of the outstanding accounts receivables
February 29, 2024.
Two customers accounted for 28% of the outstanding accounts receivables at
February 28, 2023.
The Company had two customers which accounted for 14% of sales during fiscal
2023. Four customers accounted for 44% of the outstanding accounts receivables at
February 28, 2023.
NOTE 12: 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 29, 2024.
The Company is subject, from time to time, to claims by third parties under various
legal disputes. The defense of such claims, or any adverse outcome relating to any
such claims, could have a material adverse effect on the Company’s liquidity, financial
condition, and cash flows. As of February 29, 2024, the Company did not have any
pending legal actions.
30
35
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
2024 Annual Meeting
The Annual Meeting of Shareholders will be
held at 10:00AM ET on August 22, 2024 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
PCG Advisory, Inc.
Kirin Smith
ksmith@pcgadvisory.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:
Equiniti Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
www.equiniti.com
Corporate Counsel
Eilenberg & Krause LLP
335 Madison Avenue, 9th Floor
New York, NY 10017
www.eeklaw.com
Independent Accountants
Marcum LLP
100 Eagle Rock Avenue, Suite 200
East Hanover, NJ 07936
Executive Leadership
Dr. Christopher L. Coccio
Executive Chairman of the Board
R. Stephen Harshbarger
CEO & President
Stephen J. Bagley, CPA
Chief Financial Officer
Chris Cichetti
Vice President,
Sales & Application Engineering
Maria Kuha
Vice President, Manufacturing Operations,
Procurement & Logistics
Board of Directors
Dr. Christopher L. Coccio
Executive Chairman of the Board
R. Stephen Harshbarger
CEO & President
Dr. Joseph Riemer 2, 3*
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, 3
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.
Dr. Adeniyi Lawal
Chairman of the Chemical Engineering
and Material Sciences Department,
Stevens Institute of Technology
1 Audit Committee
2 Compensation Committee
3 Nominations Committee
* Committee Chairman
NASDAQ: SOTK
2012 Route 9W
Milton, New York 12547
Email: info@sono-tek.com