UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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SONO-TEK CORPORATION
INDEX
SONO-TEK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| November 30, 2024 (Unaudited) | February 29, 2024 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Accounts receivable (less allowance of $ | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Land | ||||||||
| Buildings, equipment, furnishings and leasehold improvements, net | ||||||||
| Intangible assets, net | ||||||||
| Deferred tax asset | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Customer deposits | ||||||||
| Income taxes payable | ||||||||
| Total current liabilities | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding as of November 30, 2024 and February 29, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated earnings | ||||||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
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SONO-TEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Nine Months Ended November 30, | Three Months Ended November 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Research and product development costs | ||||||||||||||||
| Marketing and selling expenses | ||||||||||||||||
| General and administrative costs | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating Income | ||||||||||||||||
| Interest and Dividend Income | ||||||||||||||||
| Net unrealized gain/(loss) on marketable securities | ( | ) | ||||||||||||||
| Income Before Income Taxes | ||||||||||||||||
| Income Tax Expense | ||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||
| Basic Earnings Per Share | $ | $ | $ | $ | ||||||||||||
| Diluted Earnings Per Share | $ | $ | $ | $ | ||||||||||||
| Weighted Average Shares - Basic | ||||||||||||||||
| Weighted Average Shares - Diluted | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
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SONO-TEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three and Nine Months Ended November 30, 2024
| Common Stock Par Value $.01 | Additional Paid – In | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
| Balance, February 29, 2024 | $ | $ | $ | $ | ||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||
| Net Income | ||||||||||||||||||||
| Balance, May 31, 2024 (unaudited) | $ | $ | $ | $ | ||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||
| Cashless exercise of stock options | ( | ) | ||||||||||||||||||
| Net Income | ||||||||||||||||||||
| Balance, August 31, 2024 (unaudited) | $ | $ | $ | $ | ||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||
| Net income | ||||||||||||||||||||
| Balance, November 30, 2024 (unaudited) | $ | $ | $ | $ | ||||||||||||||||
Three and Nine Months Ended November 30, 2023
| Common Stock Par Value $.01 | Additional Paid – In | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
| Balance, February 28, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||
| Net income | ||||||||||||||||||||
| Balance, May 31, 2023 (unaudited) | $ | $ | $ | $ | ||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||
| Cashless exercise of stock options | ( | ) | ||||||||||||||||||
| Net income | ||||||||||||||||||||
| Balance, August 31, 2023 (unaudited) | $ | $ | $ | $ | ||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||
| Cashless exercise of stock options | ( | ) | ||||||||||||||||||
| Net income | ||||||||||||||||||||
| Balance, November 30, 2023 (unaudited) | $ | $ | $ | $ | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
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SONO-TEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended November 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation expense | ||||||||
| Inventory reserve | ||||||||
| Unrealized (gain) on marketable securities | ( | ) | ( | ) | ||||
| Deferred tax expense | ( | ) | ( | ) | ||||
| Decrease (Increase) in: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| (Decrease) Increase in: | ||||||||
| Accounts payable | ||||||||
| 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 | ( | ) | ( | ) | ||||
| Sale of marketable securities | ||||||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Net Cash Provided by (Used in) Investing Activities | ( | ) | ||||||
| NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS | ||||||||
| Beginning of period | ||||||||
| End of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW DISCLOSURE: | ||||||||
| Interest paid | $ | $ | ||||||
| Income Taxes Paid | $ | $ | ||||||
| NON-CASH INVESTING TRANSACTIONS: | ||||||||
| Purchases of equipment included in Accounts payable on the balance sheet | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
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SONO-TEK CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 2024 and 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.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information with the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended February 29, 2024 (“fiscal year 2024”) contained in the Company’s 2024 Annual Report on Form 10-K filed with the SEC on May 23, 2024. The Company’s current fiscal year ends on February 28, 2025 (“fiscal 2025”).
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
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 November 30, 2024, $
Consolidation - The accompanying unaudited condensed 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.
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 unaudited condensed 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:
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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 November 30, 2024 and February 29, 2024, respectively:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Marketable Securities – November 30, 2024 | $ | $ | $ | $ | ||||||||||||
| Marketable Securities – February 29, 2024 | $ | $ | $ | $ | ||||||||||||
Marketable Securities include mutual funds, certificates of deposit and US Treasury securities
totaling $
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 November 30, 2024 and February
29, 2024, there were
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 November 30, 2024 and February 29, 2024, the Company had land stated at cost of $
At November 30, 2024 and February 29, 2024, the Company had buildings, equipment, furnishings
and leasehold improvements totaling, $
Management Estimates - The preparation of the unaudited condensed 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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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 beginning 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 the product is sold.
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 |
NOTE 3: REVENUE RECOGNITION
A majority of the Company’s sales revenue is derived primarily from short term contracts with customers which are primarily 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.
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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 November 30, 2024, the Company had received approximately $
At February 29, 2024, the Company had received approximately $
The Company’s sales revenue by product line is as follows:
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||||||||||||||||||
| 2024 | % of total | 2023 | % of total | 2024 | % of total | 2023 | % of total | |||||||||||||||||||||||||
| Fluxing Systems | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Integrated Coating Systems | ||||||||||||||||||||||||||||||||
| Multi-Axis Coating Systems | ||||||||||||||||||||||||||||||||
| OEM Systems | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| TOTAL | $ | $ | $ | $ | ||||||||||||||||||||||||||||
NOTE 4: INVENTORIES
Inventories consist of the following:
| November 30, | February 29, | |||||||
| 2024 | 2024 | |||||||
| Raw materials and subassemblies | $ | $ | ||||||
| Finished goods | ||||||||
| Work in process | ||||||||
| Net inventories | $ | $ | ||||||
The Company maintains an allowance for slow moving inventory for raw materials and finished
goods. The recorded allowances at November 30, 2024 and February 29, 2024, totaled $
Stock Options - Until June 2023, options were available to be granted to officers, directors, consultants and employees of the Company and its subsidiaries to purchase up to shares of the Company's common stock, under the Company’s 2013 Stock Incentive Plan (the "2013 Plan"). Under the 2013 Plan options expire ten years after the date of grant. As of November 30, 2024, there were options outstanding under the 2013 Plan, of which are vested. No additional options may be granted under the 2013 Plan.
In August 2023, the Company’s shareholders approved the Company’s 2023 Stock Incentive Plan (the “2023 Plan”) under which options may be granted to officers, directors, consultants and employees of the Company and its subsidiaries. As of November 30, 2024, there were options outstanding under the 2023 Plan, of which are vested.
The Company accounts for stock based compensation under ASC 718, “Share Based Payments.” which requires companies to expense the value of employee stock options and similar awards.
During the nine months ended November 30, 2024, the Company granted options to acquire shares to employees exercisable at prices ranging from $ to $ and options to acquire shares to non-employee members of the board of directors with an exercise price of $. The options granted to employees and directors vest over three years and expire ten years from the date of grant. The options granted during the first nine months of fiscal 2025 had a combined weighted average grant date fair value of $ per share.
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| Nine Months Ended November 30, 2024 | |||
| Expected Life | - years | ||
| Risk free interest rate | - | ||
| Expected volatility | - | ||
| Expected dividend yield |
For the three and nine months ended November 30, 2024 and 2023, net income and earnings per share reflect the actual deduction for stock-based compensation expense. For the three months ended November 30, 2024 and 2023, the Company recognized approximately $ and $ of stock based compensation expense, respectively. For the nine months ended November 30, 2024 and 2023, the Company recognized approximately $ and $ of stock based compensation expense, respectively. Such amounts are included in general and administrative expenses on the unaudited condensed consolidated statements of income. Total compensation expense related to non-vested options not yet recognized as of November 30, 2024 was $ 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.
The aggregate intrinsic value of the Company’s vested and exercisable options at November 30, 2024 was approximately $.
| Nine Months Ended November 30, | Three Months Ended November 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator for basic and diluted earnings per share | $ | $ | $ | $ | ||||||||||||
| Denominator for basic earnings per share – weighted average | ||||||||||||||||
| Effects of dilutive securities | ||||||||||||||||
| Stock options for employees and directors | ||||||||||||||||
| Denominator for diluted earnings per share | ||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||
NOTE 7: REVOLVING LINE OF CREDIT
The Company has a $
As of November 30, 2024, $38,640 of the Company’s credit line was being utilized
to collateralize Letters of Credit issued by the Company. As of November 30, 2024, there were no outstanding borrowings under the line
of credit and the unused portion of the credit line was $
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The Company has a $
NOTE 8: CUSTOMER CONCENTRATIONS AND FOREIGN SALES
Export sales to customers located outside the United States and Canada were approximately as follows:
| Nine Months Ended November 30, | Three Months Ended November 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Asia Pacific (APAC) | $ | $ | $ | $ | ||||||||||||
| Europe, Middle East, Asia (EMEA) | ||||||||||||||||
| Latin America | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
In the first nine months of fiscal 2025 and fiscal 2024, sales to foreign customers accounted
for approximately $
During the third quarter of fiscal 2025 and fiscal 2024, sales to foreign customers accounted
for approximately $
The Company had one customer which accounted for
The Company had no customers which accounted for
NOTE 9: COMMITMENTS AND CONTINGENCIES
The Company did not have any material commitments or contingencies as of November 30, 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 November 30, 2024, the Company did not have any pending legal actions.
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ITEM 2 – 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; inflationary and supply chain pressures; the recovery of the Electronics/Microelectronics and Medical markets; rebound of sales to the industrial market in the fourth quarter of fiscal year 2025; continued depletion of excess inventory created by our OEM Partners; continued positive impact of recent distributor changes on the Printed Circuit Board revenues; 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 which are sold at higher average selling prices; and realization of quarterly and annual revenues within the forecasted range of sales guidance.
We undertake no obligation to update any forward-looking statement.
Overview
Founded in 1975, Sono-Tek Corporation is a global leader in designing and manufacturing ultrasonic coating systems that are shaping industries and driving innovation worldwide. Our ultrasonic coating systems are used to apply thin films onto parts used in diverse industries, including microelectronics, alternative energy, medical devices, advanced industrial manufacturing, and research and development sectors worldwide. Sono-Tek’s move into the clean energy sector is showing transformative results in next-gen solar cells, fuel cells, green hydrogen generation, and carbon capture applications as we shape a sustainable future.
Our product line is rapidly evolving, transitioning from R&D to high-volume production machines with significantly higher average selling prices, showcasing our market leadership and adaptability. Over the last decade, we have shifted our business from primarily selling ultrasonic nozzles and components to 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. Consequently, we have broadened our addressable market and believe 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.
Our comprehensive suite of thin film coating solutions and application consulting services, provided by our expert applications engineers to guide our customers in developing the complete coating process, ensures unparalleled results for our clients and helps some of the world’s most promising companies achieve technological breakthroughs and bring them to market. In anticipation of customer demands, our significant focus on R&D efforts allows us to keep pace with industry trends while continuously innovating. The company strategically delivers its products through a network of direct sales personnel, carefully chosen independent distributors, and experienced sales representatives located in North America, Latin America, Europe, and Asia, ensuring efficient market reach across diverse sectors around the globe. Approximately 39% of our sales were generated outside the United States and Canada in the first nine months of fiscal year 2025.
We continue to expand our sales capabilities by increasing the size of our direct sales force and 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 expanding our first testing lab co-located with our manufacturing facilities in New York. These labs provide significant value for demonstrating the capabilities of our equipment to prospective customers and enable us to develop custom solutions to meet their needs.
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Our growth strategy is focused on leveraging our innovative technologies, proprietary know-how, unique talent and experience, and global reach to develop thin-film coating technologies that enable better outcomes for our customers’ products and processes.
Third Quarter Fiscal 2025 Highlights (compared with the third quarter of fiscal 2024 unless otherwise noted) We refer to the three-month periods ended November 30, 2024 and 2023 as the third quarter of fiscal 2025 and fiscal 2024, respectively.
| • | Net sales decreased by 9% or $499,000 to $5,191,000 when compared to last year’s record quarterly results of $5,690,000 and up sequentially from $5,162,000 in the second quarter of fiscal 2025. The decrease in sales in the current period is due to lower sales in the Industrial and Medical markets and reduced revenue from the US and EMEA regions when compared to the prior year period. | |
| • | Sales to the Alternative/Clean Energy market grew 42% to $3,000,000 and included a $1,120,000 production line system for Electrolyzer Coating. The increase was offset by decreases in all other markets. | |
| • | Asia Pacific (APAC) sales increased by 64%, influenced by strong sales to South Korea, which included three separate systems with a combined value of $248,000 and a $300,000 system shipped to India for the clean energy sector. | |
| • | Gross Profit decreased 20% or $583,000 to $2,343,000. The gross profit percentage decreased by 600 basis points to 45% compared to an all-time high of 51% in the third quarter of fiscal 2024. The decrease in gross profit is primarily due to product mix, an increased percentage of international sales that carry distributor discounted pricing and the reclass of specific labor expenses from the engineering department to cost of goods sold. | |
| • | Operating Income decreased 73% or $523,000, to $198,000 and income before taxes decreased $576,000, from $890,000 to $314,000 primarily due to the current periods decrease in gross profit. | |
| • | Operating expenses decreased 3% or $60,000 to $2,146,000, primarily driven by a 19% decrease in Research & Development expenditures. | |
| • | Combined equipment and service-related backlog on November 30, 2024 remained strong at $10,564,000, which is a slight decrease of $107,000 when compared to the combined backlog of $10,671,000 at November 30, 2023. |
Nine Month Fiscal 2025 Highlights (compared with the first nine months of fiscal 2024 unless otherwise noted) We refer to the nine-month periods ended November 30, 2024 and 2023 as the first nine-months of fiscal 2025 and fiscal 2024, respectively.
| • | Net Sales for the first nine months of fiscal 2025 increased by 3% or $451,000 to $15,383,000, driven by increased sales of multi-axis sales coating systems and integrated coating systems, primarily to the clean energy market. | |
| • | Sales to the Alternative Energy market increased by 63%, or $3,000,000 to $7,700,000 compared with $4,735,000 in the prior year period. The increase in revenue is due to several high volume, high ASP “Average Selling Price” systems being delivered for advanced solar and electrolysis related applications. | |
| • | Gross Profit decreased 3% or $190,000 to $7,314,000. The Gross profit percentage decreased by 200 basis points to 48% compared with 50% in the prior year period. The decrease in gross profit is due to product mix and the reallocation and recharacterization of specific labor expenses from the engineering department to cost of goods sold. | |
| • | Operating Income decreased 40%, or $473,000 to $722,000 and income before taxes decreased $486,000 or 30% to $1,120,000 due to the decrease in gross profit combined with an increase in operating expenses. | |
| • | Geographically, revenue increased in the US/Canada, Asia and EMEA by 5%, 11% and 9%, respectively. | |
| • | As of November 30, 2024, the Company had no outstanding debt and had cash, cash equivalents and marketable securities totaling $12,681,000. |
12
RESULTS OF OPERATIONS
Sales:
Product Sales
| Three Months Ended November 30, | Change | Nine Months Ended November 30, | Change | |||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | |||||||||||||||||||||||||
| Fluxing Systems | $ | 71,000 | $ | 62,000 | 9,000 | 15% | $ | 324,000 | $ | 503,000 | (179,000 | ) | (36% | ) | ||||||||||||||||||
| Integrated Coating Systems | 81,000 | 1,418,000 | (1,337,000 | ) | (94% | ) | 2,850,000 | 2,579,000 | 271,000 | 11% | ||||||||||||||||||||||
| Multi-Axis Coating Systems | 3,563,000 | 2,962,000 | 601,000 | 20% | 8,158,000 | 7,648,000 | 510,000 | 7% | ||||||||||||||||||||||||
| OEM Systems | 259,000 | 268,000 | (9,000 | ) | (3% | ) | 796,000 | 1,078,000 | (282,000 | ) | (26% | ) | ||||||||||||||||||||
| Other | 1,217,000 | 980,000 | 237,000 | 24% | 3,255,000 | 3,124,000 | 131,000 | 4% | ||||||||||||||||||||||||
| TOTAL | $ | 5,191,000 | $ | 5,690,000 | (499,000 | ) | (9% | ) | $ | 15,383,000 | $ | 14,932,000 | 451,000 | 3% | ||||||||||||||||||
Total sales for the first nine months of fiscal year 2025 grew by 3%, and total sales for the third quarter of fiscal 2025 decreased by 9%. The increase in revenue for the first nine months of fiscal 2025 is the result of an 11% increase in Integrated Coating Systems revenue and a 7% increase in Multi Axis Coating Systems revenue. For the third quarter of fiscal 2025, sales of our Integrated Coating Systems decreased by 94%, but this decrease was partially offset by a 20% increase in Multi Axis Coating Systems revenue.
OEM Systems revenue for the third quarter and first nine months of fiscal year 2025 decreased by 3% and 26%, respectively. The decrease is primarily due to OEM partners previously building up excess inventory to combat supply chain concerns. There are indications that this excess inventory created by OEM Partners has been cleared during the third quarter of fiscal 2025.
Fluxing Systems revenue for the third quarter of fiscal 2025 increased 15% and decreased 36% for the first nine months of fiscal 2025. The first nine-month dip was influenced by softening activity from the Printed Circuit Board Sector, however due to significant positive momentum resulting from recent distributor changes, we anticipate that this revenue stream will have continued growth for the remainder of the fiscal year.
The Other revenue category increased by 24% in the third quarter of fiscal 2025 and 4% for the first nine months of fiscal 2025. This category comprises spare parts sales and service-related activities, with the latter experiencing particularly strong performance in the third quarter of fiscal 2025, highlighting service-related revenue as an important contributor to growth.
Market Sales
| Three Months Ended November 30, | Change | Nine Months Ended November 30, | Change | |||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | |||||||||||||||||||||||||
| Electronics/Microelectronics | $ | 1,016,000 | $ | 1,374,000 | (358,000 | ) | (26% | ) | $ | 4,060,000 | $ | 3,724,000 | 336,000 | 9% | ||||||||||||||||||
| Medical | 897,000 | 1,340,000 | (443,000 | ) | (33% | ) | 2,156,000 | 3,452,000 | (1,296,000 | ) | (38% | ) | ||||||||||||||||||||
| Alternative Energy | 2,959,000 | 2,083,000 | 876,000 | 42% | 7,740,000 | 4,735,000 | 3,005,000 | 63% | ||||||||||||||||||||||||
| Emerging R&D and Other | 17,000 | 152,000 | (135,000 | ) | (89% | ) | 57,000 | 315,000 | (258,000 | ) | (82% | ) | ||||||||||||||||||||
| Industrial | 302,000 | 741,000 | (439,000 | ) | (59% | ) | 1,370,000 | 2,706,000 | (1,336,000 | ) | (49% | ) | ||||||||||||||||||||
| TOTAL | $ | 5,191,000 | $ | 5,690,000 | (499,000 | ) | (9% | ) | $ | 15,383,000 | $ | 14,932,000 | 451,000 | 3% | ||||||||||||||||||
Sales to the Alternative/Clean Energy market recorded growth of 42% in the third quarter of fiscal 2025, and 63% for the first nine months of fiscal 2025, 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 increased for the first nine months of fiscal 2025, influenced by the introduction of newly developed products in the semiconductor market.
Medical sales revenue decreased in the third quarter of fiscal 2025 and the first nine months of fiscal 2025 due to decreased medical sales in China, resulting from a weak Chinese economy, increased competition in mainland China, and a strong push for China based companies to buy “Made in China” products. Sales to China have declined to a level where they no longer represent a significant portion of our overall revenue. As such, any further decreases in sales to this region are not expected to have a material impact on our financial performance.
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Industrial sales declined by 59% and 49%, respectively, for the third quarter of fiscal 2025 and the first nine months of fiscal 2025. The reduction in industrial sales was strongly impacted by approximately $930,000 of sales to the float glass industry in the first nine months of fiscal 2024 that did not repeat in fiscal 2025. The businesses of our primary American based customers in this market have contracted due to China-based competition entering the market with inexpensive glass.
Geographic Sales
| Three Months Ended November 30, | Change | Nine Months Ended November 30, | Change | |||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | |||||||||||||||||||||||||
| U.S. & Canada | $ | 2,823,000 | $ | 3,421,000 | (598,000 | ) | (17% | ) | $ | 9,409,000 | $ | 8,988,000 | 421,000 | 5% | ||||||||||||||||||
| Asia Pacific (APAC) | 1,114,000 | 681,000 | 433,000 | 64% | 1,994,000 | 1,790,000 | 204,000 | 11% | ||||||||||||||||||||||||
| Europe, Middle East, Asia (EMEA) | 957,000 | 1,476,000 | (519,000 | ) | (35% | ) | 3,338,000 | 3,057,000 | 281,000 | 9% | ||||||||||||||||||||||
| Latin America | 297,000 | 112,000 | 185,000 | 165% | 642,000 | 1,097,000 | (455,000 | ) | (41% | ) | ||||||||||||||||||||||
| TOTAL | $ | 5,191,000 | $ | 5,690,000 | (499,000 | ) | (9% | ) | $ | 15,383,000 | $ | 14,932,000 | 451,000 | 3% | ||||||||||||||||||
In the first nine months of fiscal 2025, approximately 39% of sales originated outside of the United States and Canada compared with 40% in the first nine months of fiscal 2024.
In the third quarter of fiscal 2025, approximately 46% of sales originated outside of the United States and Canada compared with 40% in the third quarter of fiscal 2024.
We continue to record strong sales from the U.S. and Canada compared to past years, with the first nine-month revenue up 5% or $421,000. U.S. government initiatives such as the CHIPS ACT and the Inflation Reduction Act have influenced these strong sales, as well as the continuing trend of onshoring for high technology products
Asia sales increased 64% and 11% respectively, for the third quarter of fiscal 2025 and first nine months of fiscal 2025. While China sales continue to decline, growth for the first nine months of fiscal 2025 continues from South Korea, India, Taiwan and Japan.
Latin America sales in the third quarter of fiscal 2025 increased by $185,000, or 165% primarily due to an orthopedic medical device coating system that shipped for $133,000. Sales for the first nine months of fiscal 2025 decreased by $455,000, or 41% due to a $465,000 float glass line that was shipped in fiscal 2024 that did not repeat in fiscal 2025.
Gross Profit:
| Three Months Ended November 30, | Change | Nine Months Ended November 30, | Change | |||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | |||||||||||||||||||||||||
| Net Sales | $ | 5,191,000 | $ | 5,690,000 | (499,000 | ) | (9% | ) | $ | 15,383,000 | $ | 14,932,000 | 451,000 | 3% | ||||||||||||||||||
| Cost of Goods Sold | 2,848,000 | 2,764,000 | (84,000 | ) | (3% | ) | 8,069,000 | 7,428,000 | (641,000 | ) | (9% | ) | ||||||||||||||||||||
| Gross Profit | $ | 2,343,000 | $ | 2,926,000 | (583,000 | ) | (20% | ) | $ | 7,314,000 | $ | 7,504,000 | (190,000 | ) | (3% | ) | ||||||||||||||||
| Gross Profit % | 45% | 51% | 48% | 50% | ||||||||||||||||||||||||||||
For the third quarter of fiscal 2025, gross profit decreased $583,000, or 20%, compared with the third quarter of fiscal 2024. For the third quarter of fiscal 2025, the gross profit margin was 45% compared with 51% for the prior year period. The decrease in the gross profit margin was influenced by product mix, increased International Sales that most commonly have distributor discounts, and the reallocation and recharacterization of specific labor expenses from the engineering department to cost of goods sold that started in the fourth quarter of fiscal year 2024 as an outcome of the completion of several successful R&D endeavors.
Gross profit decreased $190,000, or 3%, to $7,314,000 for the first nine months of fiscal 2025 compared with $7,504,000 in the first nine months of fiscal 2024. The gross profit margin was 48% compared with 50% for the prior year period. The decrease in the gross profit margin was influenced by product mix and the reallocation and recharacterization of specific labor expenses from the engineering department to cost of goods sold that started in the fourth quarter of fiscal year 2024 as an outcome of completion of several successful R&D endeavors.
14
Operating Expenses:
| Three Months Ended November 30, | Change | Nine Months Ended November 30, | Change | |||||||||||||||||||||||||||||
| 2024 | 2023 | $ | % | 2024 | 2023 | $ | % | |||||||||||||||||||||||||
| Research and product development | $ | 628,000 | $ | 776,000 | (148,000 | ) | (19% | ) | $ | 2,055,000 | $ | 2,222,000 | (167,000 | ) | (8% | ) | ||||||||||||||||
| Marketing and selling | 929,000 | 955,000 | (26,000 | ) | (3% | ) | 2,815,000 | 2,700,000 | 115,000 | 4% | ||||||||||||||||||||||
| General and administrative | 589,000 | 474,000 | 115,000 | 24% | 1,722,000 | 1,387,000 | 335,000 | 24% | ||||||||||||||||||||||||
| Total Operating Expenses | $ | 2,146,000 | $ | 2,205,000 | $ | (59,000 | ) | (3% | ) | $ | 6,592,000 | $ | 6,309,000 | $ | 283,000 | 4% | ||||||||||||||||
Research and Product Development:
Research and product development costs decreased in the third quarter and the first nine months of fiscal 2025 due to a decrease in salary associated with the departure of a senior engineer, a decrease in research and development materials and the reallocation and recharacterization of specific labor expenses from the engineering department to cost of goods sold that started in the fourth quarter of fiscal year 2024. The reallocation of the labor expenses is an outcome of the completion of several successful R&D endeavors.
Marketing and Selling:
Marketing and selling expenses decreased slightly in the third quarter of fiscal 2025 due to a decrease in salary expense which was partially offset by an increase in commissions.
Marketing and selling expenses increased in the first nine months of fiscal 2025 due to increased commissions and increased travel and trade show expenses. In the third quarter of fiscal 2025, we expended approximately $222,000 for commissions as compared with $178,000 for the prior year period, an increase of $44,000. In the first nine months of fiscal 2025, we expended approximately $628,000 for commissions as compared with $464,000 for the prior year period, an increase of $164,000. The increase in commission expense is primarily the result of an increase in sales being generated by our external distributors, which are commissioned at a higher rate than our in-house sales team.
The decrease in salary expense is due to the reallocation of our Chief Executive Officer, Steve Harshbarger’s salary to the General and Administrative category as described more fully below under the heading “General and Administrative”.
General and Administrative:
General and administrative expenses increased in both the third quarter and first nine months of fiscal 2025 due to increased salaries, legal and audit fees, corporate expenses and stock based compensation. These increases were partially offset by the reversal of the sales tax accrual described more fully below.
The increase in stock based compensation expense in the third quarter of fiscal 2025 is due to option awards that were issued in the second quarter of fiscal 2025. Option awards are expensed over three years based on vesting.
Effective January 1, 2024, Steve Harshbarger became our Chief Executive Officer, having previously served as President prior to such date. On becoming Chief Executive Officer, we reclassified the expenses related to Mr. Harshbarger's compensation in connection with this positional change. Prior to January 1, 2024, we classified Mr. Harshbarger’s salary under sales expenses because of Mr. Harshbarger’s instrumental role in that area. For the first nine months of fiscal year 2025, the total reallocated amount of Mr. Harshbarger’s salary was approximately $194,000.
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. For taxable sales, we collected approximately $86,000 of delinquent sales tax from our customers in the first nine months of fiscal 2025. As of February 29, 2024, on the basis of a preliminary analysis of our sales to our California customers since April 1, 2019, we recorded an accrual in the amount of $138,000 for the estimated sales tax, penalties and interest that we may have been required to remit to the State of California.
In the second quarter of fiscal 2025, we filed all necessary sales tax returns with the State of California. Our net expense for sales tax and interest amounted to $72,000. In the second quarter of fiscal 2025, we reversed the remaining accrual of $66,000. This reversal is recorded in general and administrative expenses.
15
Operating Income:
In the third quarter of fiscal 2025, operating income decreased $523,000, or 73%, to $198,000 compared with $721,000 for the third quarter of fiscal 2024. Operating margin for the third quarter of fiscal 2025 was 4% compared with 13% in the prior year period. The current period’s decrease in operating income is a result of a decrease in revenue and gross profit partially offset by a decrease in operating expenses.
In the first nine months of fiscal 2025, operating income decreased $473,000, or 40%, to $722,000 compared with $1,195,000 for the first nine months of fiscal 2024. Operating margin for the first nine months of fiscal 2025 was 5% compared with 8% in the prior year period. In the first nine months of fiscal 2025, the decrease in operating income is a result of a decrease in gross profit combined with an increase in operating expenses.
Interest, Dividend Income and Unrealized Gain/(Loss):
Interest and dividend income decreased by $18,000 to $132,000 in the third quarter of fiscal 2025 as compared with $150,000 for the third quarter of fiscal 2024, reflecting a minor reduction in interest rates earned on our cash balances in the third quarter of fiscal 2025. In the first nine months of fiscal 2025, interest and dividend income decreased by $21,000 to $359,000 as compared with $380,000 for the first nine months of fiscal 2024. Our present investment policy is to invest excess cash in highly liquid, low risk US Treasury securities. At November 30, 2024, the majority of our holdings are rated at or above investment grade.
Net unrealized gain decreased to a $15,000 net unrealized loss in the third quarter of fiscal 2025 compared to a gain of $20,000 in the prior year period. In the first nine months of fiscal 2025, net unrealized gain increased $8,000 to $39,000 compared with $31,000 in the prior year period.
Income Tax Expense:
We recorded income tax expense of $40,000 for the third quarter of fiscal 2025 compared with $200,000 for the third quarter of fiscal 2024. For the first nine months of fiscal 2025 we recorded income tax expense of $174,000 compared with $321,000 for the first nine months of fiscal 2024.
The decrease in income tax expense in the third quarter fiscal 2025 is due to the decrease in income before income taxes partially offset by an increase in permanent timing differences and then the further reduction of taxes due to the application of available research and development tax credits from the current quarter’s increase in research and development expenditures. The deferred tax asset increased approximately $255,000, to $1,511,000 at November 30, 2024 from $1,256,000 at February 29, 2024. Additionally, the deferred tax liability increased approximately $87,000, to $317,000 at November 30, 2024 from $230,000 at February 29, 2024. The net increase in the deferred tax asset and liability was approximately $168,000 for the first nine months of fiscal 2025. This increase is primarily due to an increase in capitalized research and development expenses for tax purposes, partially offset by a decrease in other deferred tax assets and an increase in deferred tax liabilities related to timing differences for depreciation.
Net Income:
Net income decreased by $416,000 or 60% to $274,000 for the third quarter of fiscal 2025 compared with $690,000 for the third quarter of fiscal 2024. The decrease in net income during the third quarter is primarily the result of a decrease in revenue and gross profit combined with decreases in operating expenses and income tax expense.
Net income decreased by $339,000 or 26% to $946,000 for the first nine months of fiscal 2025 compared with $1,285,000 for the first nine months of fiscal 2024. The decrease in net income in the first nine months of fiscal 2025 is primarily the result of a decrease in gross profit combined with decreases in operating expenses and income tax expense.
Liquidity and Capital Resources
Working Capital – Our working capital increased $1,079,000 to $13,202,000 at November 30, 2024 from $12,123,000 at February 29, 2024. The increase in working capital was mostly the result of the current period’s net income and noncash charges partially offset by purchases of equipment.
16
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 November 30, 2024 and February 29, 2024, our working capital included:
| November 30, 2024 | February 29, 2024 | Cash Increase (Decrease) | ||||||||||
| Cash and cash equivalents | $ | 8,099,000 | $ | 2,135,000 | $ | 5,964,000 | ||||||
| Marketable securities | 4,582,000 | 9,712,000 | (5,130,000 | ) | ||||||||
| Total | $ | 12,681,000 | $ | 11,847,000 | $ | 834,000 | ||||||
The following table summarizes the accounts and the major reasons for the $834,000 increase in “Cash”:
| Impact on Cash | Reason | |||||
| Net income, adjusted for non-cash items | $ | 1,515,000 | To reconcile increase in cash. | |||
| Accounts receivable increase | (809,000 | ) | Timing of cash receipts. | |||
| Inventories decrease | 452,000 | Decrease in work in progress and finished goods for customer orders. | ||||
| Customer deposits decrease | (56,000 | ) | Completion of customer orders. | |||
| Accounts payable increase | 67,000 | Timing of disbursements. | ||||
| Accrued expenses increase | 186,000 | Timing of disbursements. | ||||
| Prepaid and Other Assets decrease | 84,000 | Decreased prepaid expenses. | ||||
| Income taxes payable decrease | (202,000 | ) | Timing of disbursements. | |||
| Equipment purchases | (403,000 | ) | Equipment and facilities upgrade. | |||
| Net increase in cash | $ | 834,000 | ||||
Stockholders’ Equity – Stockholders’ Equity increased $1,122,000 from $16,279,000 at February 29, 2024 to $17,401,000 at November 30, 2024. The increase is a result of the current period’s net income of $946,000 and $176,000 in additional equity related to stock-based compensation awards.
Operating Activities – We generated $1,199,000 of cash in our operating activities in the first nine months of fiscal 2025 compared with $1,442,000 of cash in the first nine months of fiscal 2024, a decrease of $243,000. The decrease was mostly the result of increases in accounts receivable, a decrease in income taxes payable offset by decreases in inventories and customer deposits. The increase in accounts receivable is due to a number of large sales occurring in the last month of the quarter.
Investing Activities– Our investing activities provided $4,765,000 of cash in the first nine months of fiscal 2025 compared with using $1,815,000 in the first nine months of 2024. For the first nine months of fiscal years 2025 and 2024, we used $403,000 and $327,000, respectively, for the purchase or manufacture of equipment, furnishings and leasehold improvements.
In the first nine months of fiscal 2025, we liquidated approximately $5,318,000 of our treasury bill investments. At November 30, 2024, approximately $3,583,000 of the liquidated balance is recorded as cash on our balance sheet and is invested in cash equivalents.
Net Changes in Cash and Cash Equivalents – In the first nine months of fiscal 2025, our cash balance increased by $5,964,000 as compared to a decrease of $373,000 in the first nine months of 2024. In the first nine months of fiscal 2025, our operating activities generated $1,199,000 of cash, our marketable securities provided $5,168,000 of cash and we used $403,000 for the purchase or manufacture of equipment, furnishings and leasehold improvements.
Critical Accounting Estimates
The discussion and analysis of the Company’s financial condition and results of operations are based upon the 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.
17
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.
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. The Company believes that critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies see Note 2 to the Company’s consolidated financial statements included in Form 10-K for the year ended February 29, 2024.
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. 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. 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 November 30, 2024 and November 30, 2023, there were no uncertain tax provisions.
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 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 beginning 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.
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.
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Other than ASU 2023-07 and 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.
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
The Company does not issue or invest in financial instruments or derivatives for trading or speculative purposes. Substantially all of the operations of the Company are conducted in the United States, and, as such, are not subject to material foreign currency exchange rate risk. All of our sales transactions are completed in US dollars.
Although the Company's assets included $8,099,000 in cash and $4,582,000 in marketable securities, the market rate risk associated with changing interest rates in the United States is not material.
ITEM 4 – Controls and Procedures
The Company has established and maintains “disclosure controls and procedures” (as those terms are defined in Rules 13a –15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”). R. Stephen Harshbarger, Chief Executive Officer (principal executive) and Stephen J. Bagley, Chief Financial Officer (principal accounting officer) of the Company, have evaluated the Company’s disclosure controls and procedures as of November 30, 2024. Based on this evaluation, they have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to Management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding timely disclosure.
In addition, there were no changes in the Company’s internal controls over financial reporting during the third fiscal quarter of fiscal year 2025 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.
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PART II - OTHER INFORMATION
Item 1 – Legal Proceedings
None
Item 1A – Risk Factors
There are no material changes from risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended February 29, 2024.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
None
Item 5. Other Information
| (a) | None |
| (b) | There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors. |
| (c) | During the quarter ended November 30, 2024, |
Item 6 – Exhibits and Reports
31.1 – 31.2 – Rule 13a - 14(a)/15d – 14(a) Certification
32.1 – 32.2 – Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
101 – The financial information from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2023 formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
104 – Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: January 13, 2025
| SONO-TEK CORPORATION | ||
| (Registrant) | ||
| By: | /s/ R. Stephen Harshbarger | |
| R. Stephen Harshbarger | ||
| Chief Executive Officer | ||
| By: | /s/ Stephen J. Bagley | |
| Stephen J. Bagley | ||
| Chief Financial Officer |
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