Sono-Tek Announces Fiscal Year 2024 Results with Record-Breaking Revenue and Record YOY Backlog – Record net sales for fiscal year 2024 increased 31% – -Backlog Increased to Year-over-Year Record High – -Conference Call Thursday, May 23, 2024 at 9:30am EST – MILTON, NY, May 23, 2024 – Sono-Tek Corporation (NASDAQ: SOTK), the leading developer and manufacturer of ultrasonic coating systems, today reported financial results for its fourth quarter and fiscal year 2024, ended February 29, 2024 ("fiscal year 202 ...

Sono-Tek Corporation is the leading developer and manufacturer of ultrasonic coating systems for applying precise, thin film coatings to protect, strengthen or smooth surfaces on parts and components for the microelectronics/electronics, alternative energy, medical and industrial markets, including specialized glass applications in construction and automotive. MILTON, N.Y., May 20, 2024 (GLOBE NEWSWIRE) -- Sono-Tek Corporation (NASDAQ: SOTK), the leading developer and manufacturer of ultrasonic coating syst ...

Conference Call Dial-in Information To participate, please call 1-844-481-2752 at least 10 minutes prior to the start of the call and ask to join the Sono-Tek call. Webcast Information A simultaneous webcast of the call may be accessed through the Company's website, Events & Presentations | Sono-Tek, or at https://event.choruscall.com/mediaframe/webcast.html?webcastid=Msi7H3Uz MILTON, N.Y., May 20, 2024 (GLOBE NEWSWIRE) -- Sono-Tek Corporation (NASDAQ: SOTK), the leading developer and manufacturer of ultras ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: November 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-16035 (Exact name of registrant as specified in its charter) New York 14-1568099 (State or other jurisdiction of (IRS Employer incorporation or organization) Identificatio ...

Financial Data and Key Metrics - Net sales increased 50% YoY to $5.64 million in Q2 FY2024, up from $3.6 million in Q1 FY2024 [23] - Gross profit increased 48% YoY to $2.8 million, with a gross profit margin of 49.7%, slightly down from 50.4% in the prior year due to product mix [24] - Operating expenses increased 30% YoY to $2.2 million, driven by higher R&D, marketing, and administrative costs [25][26][27] - Operating income surged 218% YoY to $566,000, with operating margins improving to 10% from 5% in the prior year [28] - Net income was $541,000 or $0.03 per share, up from $162,000 or $0.01 per share in Q2 FY2023 [29] - Cash, cash equivalents, and marketable securities stood at $12.3 million as of August 31, 2023, with no debt on the balance sheet [30] Business Line Performance - Multi-axis coating systems sales grew 96% YoY to $2.9 million, driven by demand in clean energy and medical device markets [34] - Integrated coating systems sales doubled to $853,000, supported by the new Float Glass Coating platform [36] - Fluxing systems sales dipped due to tough comparisons with the previous year's strong sales of the SonoFlux X2 platform [37] - OEM sales were lower as partners built up excess inventory, but spare parts and service revenue grew 64% [38] - Service and spare parts revenue from large systems could reach 10%-15% of total order value, contributing to high-margin recurring revenue [39] Market Performance - Clean energy market sales grew 161% YoY, driven by large orders for carbon capture, green hydrogen, and fuel cell applications [40] - Medical device sales rebounded strongly with 117% growth, driven by large multinational companies adopting specialty implantable device coating systems [41] - Industrial sales grew 104% due to new generation systems, including a large float glass coating machine delivered to Latin America [41] - U.S. and Canada sales increased 94% YoY, benefiting from onshoring trends and government initiatives like the CHIPS Act and Inflation Reduction Act [42] - Asia-Pacific sales decreased 35%, primarily due to lower sales in China, though other regions in Asia remained strong [43] Strategic Direction and Industry Competition - The company's strategic shift to larger, complex systems has broadened its addressable market and increased average selling prices, with systems now commonly selling for over $300,000 and reaching up to $1 million or more [14][15] - Investments in R&D totaled $1.4 million in the first half of FY2024, up from $1 million in the year-ago period, supporting product expansion and market growth [20] - Headcount increased by approximately 10%, mainly in engineering, R&D, and sales, to support growth and expansion [20] - The company expects at least 25% YoY sales growth for FY2024, driven by shipments of delayed and new orders [22] Management Commentary on Operating Environment and Future Outlook - Management highlighted the early success of the strategy to shift to larger, more complex systems, with multiple and repeat orders driving growth [21] - The company is confident in its outlook, expecting to return to its pre-COVID growth path, supported by strong demand in clean energy, medical devices, and industrial markets [22] - The backlog reached a record high of $10.7 million, up 26% from six months ago, reflecting increasing order activity, particularly in the clean energy sector [16][44][47] Other Important Information - The company's proprietary ultrasonic coating technology remains central to its systems, with ongoing R&D efforts driving innovation and market expansion [19] - Customer deposits reached $3.4 million, reflecting the receipt of several large new orders, with deposits typically 50% or greater for orders over several hundred thousand dollars [48] Q&A Session Summary Question: EBITDA Comparison - EBITDA for Q2 FY2024 was approximately $994,000, calculated by adding back depreciation and amortization to income before taxes [72] Question: Quarterly Earnings Calls - Management is considering transitioning to quarterly earnings calls, as the current semi-annual format may not fully reflect the company's growth and counter-cyclical performance [73][75] Question: Gross Margin Outlook - Gross margins are expected to improve as the company optimizes costs for new products like the NovoCoat platform and benefits from operational leverage [78][82] Question: Capacity Utilization - The company has sufficient capacity to grow revenue to $25-$30 million within its existing facility, with potential to expand to $40-$45 million by relocating tenants [83][84] Question: Clean Energy and Medical Markets - Growth in clean energy and medical markets was driven by both delayed shipments and new orders, with a 50/50 split between the two [124] - Clean energy growth was primarily in fuel cells, carbon capture, and green hydrogen, while medical growth came from complex implantable device systems [125][128] Question: Backlog Composition - The backlog is heavily weighted towards the clean energy sector, with significant orders like the $2.19 million system and other high-value projects [135][138] - The backlog is split approximately 50/50 between shipments expected in FY2024 and FY2025 [140] Question: Solar Market Potential - The solar market has significant potential, with the company expecting revenue to exceed historical highs of $2-$3 million due to the shift to high-volume production systems [147][148]

Part I - Financial Information [Item 1 – Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201%20%E2%80%93%20Condensed%20Consolidated%20Financial%20Statements) This section presents Sono-Tek Corporation's unaudited condensed consolidated financial statements, showing increased assets, revenues, and net income [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Sono-Tek's total assets grew to **$21.65 million** by August 31, 2023, driven by marketable securities and inventories, with stockholders' equity also increasing Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | August 31, 2023 (Unaudited, in thousands) | February 28, 2023 (in thousands) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $3,454 | $3,355 | | Marketable securities | $8,862 | $8,090 | | Inventories | $4,008 | $3,243 | | Total current assets | $17,890 | $16,575 | | **Total Assets** | **$21,645** | **$20,175** | | **Liabilities & Equity** | | | | Customer deposits | $3,394 | $2,838 | | Total current liabilities | $6,322 | $5,458 | | Total liabilities | $6,322 | $5,541 | | Total stockholders' equity | $15,323 | $14,634 | | **Total Liabilities and Stockholders' Equity** | **$21,645** | **$20,175** | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net sales for the three months ended August 31, 2023, surged **50%** to **$5.64 million**, significantly boosting net income, while six-month sales grew **18%** to **$9.24 million** Income Statement Summary - Three Months Ended August 31 | Metric | 2023 (USD) | 2022 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $5,639,117 | $3,763,329 | +50% | | Gross Profit | $2,800,568 | $1,895,613 | +48% | | Operating Income | $565,858 | $177,578 | +219% | | Net Income | $541,273 | $162,123 | +234% | | Diluted EPS | $0.03 | $0.01 | +200% | Income Statement Summary - Six Months Ended August 31 | Metric | 2023 (USD) | 2022 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $9,242,135 | $7,814,864 | +18% | | Gross Profit | $4,577,800 | $4,002,626 | +14% | | Operating Income | $474,242 | $558,103 | -15% | | Net Income | $594,679 | $467,759 | +27% | | Diluted EPS | $0.04 | $0.03 | +33% | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly increased to **$1.11 million** for the six months ended August 31, 2023, despite **$1.01 million** used in investing activities, resulting in a **$99,656** cash increase Cash Flow Summary - Six Months Ended August 31 | Activity | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $1,106,784 | $223,629 | | Net Cash (Used in) Investing Activities | ($1,007,128) | ($755,130) | | Net Increase (Decrease) in Cash | $99,656 | ($531,501) | | Cash and Cash Equivalents, End of Period | $3,454,257 | $4,309,057 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, revenue recognition, inventory, and sales concentrations, highlighting Multi-Axis Coating Systems as the largest revenue driver and **40%** foreign sales - Multi-Axis Coating Systems constituted the largest portion of sales, accounting for **51% of total revenue** for the six months ended August 31, 2023[44](index=44&type=chunk) - Inventories increased to **$4.01 million** at August 31, 2023, from **$3.24 million** at February 28, 2023, primarily due to increases in finished goods and work in process[45](index=45&type=chunk) - For the first half of fiscal 2024, sales to foreign customers were approximately **$3.68 million**, representing **40% of total revenues**, a decrease from **54%** in the same period of fiscal 2023[53](index=53&type=chunk) - One customer accounted for **14% of total sales** during the first half of fiscal 2024, and three customers accounted for **39% of outstanding accounts receivable** at August 31, 2023[54](index=54&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=14&type=section&id=Item%202%20-%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, highlighting a **50%** Q2 FY2024 net sales increase, a record **$10.7 million** backlog, and increased R&D and sales investments to support growth - Net sales for Q2 FY2024 increased by **50% to $5.6 million**, driven by strong shipments to alternative/clean energy, medical, and industrial markets[66](index=66&type=chunk) - Backlog reached a record high of **$10.7 million** as of August 31, 2023, a **26% increase** from February 28, 2023, primarily due to growing orders from the clean energy sector[66](index=66&type=chunk) - The company has shifted its business from selling components to providing complete machine solutions, with some systems selling for over **$1,000,000**[64](index=64&type=chunk) [Results of Operations](index=16&type=section&id=Results%20of%20Operations) Q2 FY2024 sales grew **50%** to **$5.64 million**, driven by Multi-Axis and Integrated Coating systems, while gross profit margin slightly decreased and operating expenses rose **19%** due to R&D and marketing investments Sales by Product Line - Six Months Ended August 31 | Product Line | 2023 Sales (USD) | 2022 Sales (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Multi-Axis Coating Systems | $4,686,000 | $3,470,000 | +35% | | Integrated Coating Systems | $1,162,000 | $594,000 | +96% | | Spare Parts, Services and Other | $2,144,000 | $1,728,000 | +24% | | Fluxing Systems | $440,000 | $707,000 | -38% | | OEM Systems | $810,000 | $1,316,000 | -38% | Sales by Market - Six Months Ended August 31 | Market | 2023 Sales (USD) | 2022 Sales (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Alternative/Clean Energy | $2,652,000 | $1,306,000 | +103% | | Industrial | $1,965,000 | $806,000 | +144% | | Electronics/Microelectronics | $2,351,000 | $3,010,000 | -22% | | Medical | $2,111,000 | $2,473,000 | -15% | - R&D costs for the first half of FY2024 increased by **41% to $1.45 million**, and the number of full-time R&D employees increased by approximately **40%** over the past twelve months[76](index=76&type=chunk)[78](index=78&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital increased to **$11.57 million** by August 31, 2023, with total cash and marketable securities at **$12.3 million**, and operating cash flow significantly improved to **$1.11 million** Cash and Marketable Securities (in thousands) | Category | August 31, 2023 (in thousands) | February 28, 2023 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $3,454 | $3,355 | | Marketable securities | $8,862 | $8,090 | | **Total** | **$12,316** | **$11,445** | - Cash from operating activities was **$1,107,000** in the first half of fiscal 2024, compared to **$224,000** in the same period of fiscal 2023[93](index=93&type=chunk) - Stockholders' Equity increased by **$689,000** to **$15,323,000** at August 31, 2023, primarily due to net income of **$594,000**[92](index=92&type=chunk) [Critical Accounting Policies](index=20&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies, including Income Taxes and Stock-Based Compensation, require significant judgment and estimates, particularly for deferred tax assets and Black-Scholes model inputs - The company's critical accounting policies involve significant judgment and include Accounting for Income Taxes and Stock-Based Compensation[98](index=98&type=chunk) - The company uses the Black-Scholes option pricing model to calculate the fair value of stock options, which requires estimates for stock price volatility and option lives[100](index=100&type=chunk) [Item 3 – Quantitative and Qualitative Disclosures about Market Risk](index=21&type=section&id=Item%203%20%E2%80%93%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces no material foreign currency exchange rate risk due to US dollar transactions and considers interest rate risk on cash and marketable securities immaterial - The company does not believe it is subject to material foreign currency exchange rate risk because all sales transactions are conducted in US dollars[102](index=102&type=chunk) - Market rate risk from changing interest rates on the company's **$3.45 million** in cash and **$8.86 million** in marketable securities is not considered material[103](index=103&type=chunk) [Item 4 – Controls and Procedures](index=22&type=section&id=Item%204%20%E2%80%93%20Controls%20and%20Procedures) The CEO and CFO confirmed the effectiveness of disclosure controls and procedures as of August 31, 2023, with no material changes to internal controls during Q2 FY2024 - Based on an evaluation as of August 31, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[104](index=104&type=chunk) - No changes in internal controls over financial reporting occurred during the second fiscal quarter of 2024 that materially affected, or are likely to materially affect, these controls[105](index=105&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings requiring disclosure for the period - The company had no legal proceedings to report[108](index=108&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) There are no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended February 28, 2023 - There are no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended February 28, 2023[108](index=108&type=chunk)

For the quarterly period ended: May 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-16035 (Exact name of registrant as specified in its charter) (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) New York 14-156809 ...

Financial Data and Key Metrics Changes - Total sales for fiscal 2023 decreased by 12% to $15.1 million, primarily due to delayed shipments from supply chain challenges [53][68] - Net income was $636,000 or $0.04 per share, down from $2.5 million or $0.16 per share in the prior fiscal year [64] - Cash, cash equivalents, and marketable securities increased to $11.4 million, up approximately $700,000 from the previous year [65] Business Line Data and Key Metrics Changes - Revenue from multi-axis coating systems declined by 32% to $6.8 million due to supply chain issues [69] - Fluxing sales increased by 71% to $1.2 million, driven by the adoption of the SonoFlux X2 platform [69] - Sales in the other product category grew by 29% to $3.8 million, mainly from high-value spare parts for existing machines [69] Market Data and Key Metrics Changes - Sales in the alternative energy, electronics, and medical markets decreased by 17%, 23%, and 15% respectively, due to reliance on multi-axis coating systems affected by supply chain delays [70] - Approximately 45% of sales originated in the U.S. and Canada, up from 32% in fiscal 2022, influenced by U.S. government investments in green energy [71] - APAC revenue decreased by 39%, attributed to reduced sales to China and the strong U.S. dollar making products more expensive in Japan and South Korea [71] Company Strategy and Development Direction - The company is focusing on moving into production and leveraging federal funding in clean energy, alongside enhancing pre and post-processing capabilities [11][58] - There is a strategic shift towards offering complete solutions rather than just components, broadening the addressable market [57] - The company aims to increase in-house production of components from 25% to 40% by year-end, with a long-term goal of 60% [61][150] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about revenue growth in fiscal 2024, anticipating a bubble of shipments from the backlog due to resolved supply chain issues [9][76] - The urgency from customers in the clean energy sector transitioning from R&D to high-volume production is noted as a significant driver for future orders [94] - Management does not foresee a return to previous lower shipment levels, expecting sustained growth due to increased demand in the clean energy sector [106] Other Important Information - The backlog increased by 60% to $8.5 million at fiscal year-end, reflecting delayed shipments of large orders [51][90] - Customer deposits more than doubled to $2.8 million, indicating strong order intake during fiscal 2023 [90] - The company plans to present at the LD Micro Conference in June 2023, marking its first attendance at this event [52] Q&A Session Summary Question: What is the nature of the current orders and their impact on revenue visibility? - Management confirmed that the terminology of multiphase programs indicates larger orders with higher average selling prices, enhancing revenue visibility [80][82] Question: How does the backlog relate to future revenue expectations? - The backlog of $8.5 million is expected to contribute significantly to fiscal 2024 revenue, with management anticipating strong order intake to replenish the backlog [129][126] Question: Are supply chain issues expected to normalize? - Management indicated that while supply chain challenges impacted fiscal 2023, they expect a revenue bubble in fiscal 2024, with continued growth driven by high ASP production systems [85][106] Question: What is the outlook for operating expenses in 2024? - Operating expenses are expected to remain steady, with continued emphasis on R&D and managing inflation in salaries [110][111] Question: Will inventory levels trend down in the future? - Management suggested that inventory levels may stabilize at a higher norm due to ongoing supply chain considerations [143]

Part I [Business](index=4&type=section&id=Item%201.%20Business) Sono-Tek Corporation is a global leader in designing and manufacturing ultrasonic coating systems for various industries, with **55% of fiscal 2023 sales** from outside the U.S. and Canada - Sono-Tek designs and manufactures ultrasonic coating systems for applying precise, thin film coatings across several key industries: microelectronics/electronics, alternative energy, medical, industrial, and R&D[10](index=10&type=chunk)[20](index=20&type=chunk) - The company's strategy focuses on advancing ultrasonic coating technologies, growing globally, increasing earnings through lean manufacturing, and developing new solutions to solve customer problems[25](index=25&type=chunk)[27](index=27&type=chunk) - In fiscal 2023, international sales (outside the U.S. and Canada) accounted for **55% of total net sales**. The company's two largest customers represented **14% of net sales**[24](index=24&type=chunk)[34](index=34&type=chunk) Research and Development Expenses | Fiscal Year | R&D Expense | % of Sales | | :--- | :--- | :--- | | 2023 | $2,149,000 | 14.3% | | 2022 | $1,730,000 | 10.1% | - As of February 28, 2023, the company employed **73 full-time and 11 part-time employees**[35](index=35&type=chunk) [Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces operational, financial, and market risks, including supply chain disruptions, customer concentration, and **limited stock trading volume** - The business is exposed to risks from pandemics like COVID-19, which can disrupt operations, supply chains, and customer demand[38](index=38&type=chunk)[40](index=40&type=chunk) - A significant portion of revenue comes from a few major customers. In FY2023, the two largest customers accounted for **14% of net sales, down from 24% in FY2022**[42](index=42&type=chunk) - The company has experienced challenges in procuring electronic components due to global supply chain shortages, which may continue to cause lengthened lead times[29](index=29&type=chunk)[71](index=71&type=chunk) - All products are manufactured and assembled at a single facility in Milton, New York, making operations vulnerable to disruption at this site[69](index=69&type=chunk) - International sales accounted for **55% of total net sales in FY2023**, exposing the company to risks such as regulatory changes, tariffs, and geopolitical instability[73](index=73&type=chunk) - Inflationary pressures are expected to remain elevated, potentially increasing the company's cost structure for labor, shipping, and materials[78](index=78&type=chunk) - The common stock (SOTK) has **limited trading volume**, which could make it difficult for investors to liquidate their positions[86](index=86&type=chunk) [Unresolved Staff Comments](index=23&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[108](index=108&type=chunk) [Properties](index=23&type=section&id=Item%202.%20Properties) Sono-Tek owns a **50,000 square foot industrial park** in Milton, New York, utilizing **37,000 square feet** for its operations - The company owns a **50,000 square foot industrial park** in Milton, New York, using **37,000 square feet** for its own operations[108](index=108&type=chunk) - Approximately **13,000 square feet** of the park is leased or available for lease to third parties[109](index=109&type=chunk) [Legal Proceedings](index=23&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no legal proceedings - None[110](index=110&type=chunk) [Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not Applicable[110](index=110&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=24&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on **Nasdaq Capital Market (SOTK)**, with **97 record holders and approximately 1,519 beneficial shareholders**, and no history of cash dividends, retaining earnings for business use - Common stock trades on the **Nasdaq Capital Market (SOTK)**[112](index=112&type=chunk) - As of May 18, 2023, there were **97 record holders and approximately 1,519 beneficial shareholders**[112](index=112&type=chunk) - The company has no history of paying cash dividends and plans to retain future earnings[112](index=112&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2023 net sales decreased **12% to $15.1 million** due to supply chain issues, while gross profit margin improved and backlog increased **60% to $8.5 million**, despite a **64% drop in operating income** Fiscal 2023 Financial Highlights vs. Fiscal 2022 | Metric | Fiscal 2023 | Fiscal 2022 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | **$15.1M** | **$17.1M** | **($2.0M)** | **(12%)** | | Gross Profit Margin | **50.8%** | **50.3%** | **+0.5 p.p.** | N/A | | Operating Income | **$683,000** | **$1.9M** | **($1.2M)** | **(64%)** | | Backlog (Year-End) | **$8.5M** | **$5.3M** | **+$3.2M** | **60%** | | Cash & Marketable Securities | **$11.4M** | **$10.7M** | **+$0.7M** | **7%** | [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Net sales for fiscal 2023 were $15.1 million, a 12% decrease from $17.1 million in fiscal 2022, primarily due to a 32% drop in Multi-Axis Coating Systems sales, leading to a 64% decline in operating income and 75% fall in net income Sales and Gross Profit (Fiscal Year Ended Feb 28) | | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $15,058,000 | $17,133,000 | $(2,075,000) | (12%) | | Gross Profit | $7,652,000 | $8,613,000 | $(961,000) | (11%) | | Gross Profit % | 50.8% | 50.3% | N/A | N/A | Product Sales Breakdown (Fiscal Year Ended Feb 28) | Product Line | 2023 Sales | 2022 Sales | Change (%) | | :--- | :--- | :--- | :--- | | Fluxing Systems | $1,179,000 | $691,000 | 71% | | Integrated Coating Systems | $1,114,000 | $1,182,000 | (6%) | | Multi-Axis Coating Systems | $6,785,000 | $9,912,000 | (32%) | | OEM Systems | $2,144,000 | $2,381,000 | (10%) | | Other | $3,836,000 | $2,967,000 | 29% | Market Sales Breakdown (Fiscal Year Ended Feb 28) | Market | 2023 Sales | 2022 Sales | Change (%) | | :--- | :--- | :--- | :--- | | Electronics/Microelectronics | $5,509,000 | $7,134,000 | (23%) | | Medical | $3,702,000 | $4,338,000 | (15%) | | Alternative Energy | $3,060,000 | $3,688,000 | (17%) | | Industrial | $2,440,000 | $1,055,000 | 131% | | Emerging R&D and Other | $347,000 | $918,000 | (62%) | Geographic Sales Breakdown (Fiscal Year Ended Feb 28) | Region | 2023 Sales | 2022 Sales | Change (%) | | :--- | :--- | :--- | :--- | | U.S. & Canada | $6,804,000 | $5,480,000 | 24% | | Asia Pacific (APAC) | $3,260,000 | $5,301,000 | (39%) | | Europe, Middle East, Asia (EMEA) | $3,448,000 | $5,255,000 | (34%) | | Latin America | $1,546,000 | $1,097,000 | 41% | [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital increased to $11.1 million and total cash and securities to $11.4 million at fiscal year-end 2023, driven by net income and customer deposits, with $1.3 million cash from operations and an undrawn $1.5 million credit line Working Capital and Cash Position (as of Feb 28) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Working Capital | $11,117,000 | $10,782,000 | | Cash and cash equivalents | $3,355,000 | $4,841,000 | | Marketable securities | $8,090,000 | $5,868,000 | | **Total Cash & Securities** | **$11,445,000** | **$10,709,000** | - **Stockholders' equity increased by $893,000 to $14.6 million**, primarily due to **net income of $636,000 and stock-based compensation of $257,000**[144](index=144&type=chunk) - The company has a **$1.5 million revolving credit line** and a **$750,000 equipment purchase facility**. As of February 28, 2023, there were no outstanding borrowings under the line of credit[148](index=148&type=chunk) [Critical Accounting Policies](index=30&type=section&id=Critical%20Accounting%20Policies) The company's financial statements adhere to U.S. GAAP, with key policies for income taxes, stock-based compensation, and revenue recognition under ASC 606 - The company uses the asset and liability method for income taxes and recognizes a valuation allowance if a deferred tax asset is not likely to be realized[156](index=156&type=chunk) - Stock-based compensation is valued using the Black-Scholes option pricing model, which requires subjective assumptions about stock price volatility and option life[157](index=157&type=chunk) - Revenue is recognized under ASC 606, depicting the transfer of goods or services to customers for the expected consideration[158](index=158&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of February 28, 2023, with no material changes to internal controls reported - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the fiscal year[162](index=162&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of February 28, 2023[163](index=163&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=33&type=section&id=Item%2010.%20Directors,%20Executive%20Officers,%20and%20Corporate%20Governance) The company's Board of Directors operates with **two classes with staggered two-year terms**, supported by **three independent directors** on the Audit and Compensation Committees, and adheres to a Code of Business Conduct and Ethics - The Board of Directors is classified into **two classes with staggered two-year terms**[168](index=168&type=chunk) - The Audit Committee consists of **three independent directors**: Philip A. Strasburg (Chairman), Carol O'Donnell, and Eric Haskell. Mr. Strasburg is designated as the **'audit committee financial expert'**[169](index=169&type=chunk) - The company has adopted a Code of Business Conduct and Ethics, which is available on its website[196](index=196&type=chunk) [Executive Compensation](index=37&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation for fiscal 2023 included base salaries, bonuses, and stock option awards, with severance provisions and non-employee directors receiving meeting fees and option awards Summary Compensation Table (Fiscal 2023) | Name and Principal Position | Salary ($) | Bonus ($) | Option Awards ($) | All Other Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Christopher L. Coccio (CEO) | 192,200 | 20,200 | 15,000 | 6,373 | 233,773 | | R. Stephen Harshbarger (President) | 249,200 | 23,000 | 15,000 | 8,167 | 295,367 | | Stephen J. Bagley (CFO) | 174,800 | 18,500 | 7,500 | 5,799 | 206,599 | - Executive agreements provide for **severance payments equal to two years of base, commission, and bonus compensation** in the event of termination following a change of control[207](index=207&type=chunk) - Non-employee directors receive **$2,500 for each meeting attended**. In fiscal 2023, each non-employee director also received **option awards valued at $9,900**[210](index=210&type=chunk)[211](index=211&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=40&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of May 23, 2023, executive officers and directors collectively owned **6.53% of the company's common stock**, with Emancipation Management LLC holding **42.11% of the outstanding shares**, and a new 2023 Stock Incentive Plan proposed Security Ownership of >5% Beneficial Owners (as of May 23, 2023) | Name of Beneficial Owner | Amount Beneficially Owned | Percent | | :--- | :--- | :--- | | Emancipation Management LLC, Charles Frumberg, Circle N Advisors, LLC | 6,628,393 | 42.11% | | V. Adah Nicklin | 915,599 | 5.82% | | Richard A. Bayles | 840,536 | 5.34% | | All Executive Officers and Directors as a Group | 1,034,122 | 6.53% | Equity Compensation Plan Information | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 250,759 | $4.84 | 1,212,793 | - In May 2023, the Board authorized a new 2023 Stock Incentive Plan to grant **up to 2,500,000 options or shares**, intended to replace the 2013 Plan. The 2023 Plan is subject to shareholder approval[224](index=224&type=chunk) [Principal Accountant Fees and Services](index=42&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) For fiscal 2023, the company incurred **approximately $100,000** in audit fees and **approximately $18,000** in tax fees, all pre-approved by the Audit Committee Accountant Fees (Fiscal 2023) | Service | Firm | Fee | | :--- | :--- | :--- | | Audit Fees | Marcum LLP | ~$100,000 | | Audit Fees | Friedman LLP | ~$46,000 | | Tax Fees | RBSM, LLP | ~$18,000 | - The Audit Committee's policy is to pre-approve all audit and non-audit services, and all such services in fiscal 2023 and 2022 were pre-approved[230](index=230&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=43&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed as part of the Form 10-K, including corporate documents, executive agreements, and certifications Financial Statements and Supplementary Data [Consolidated Financial Statements](index=48&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements for fiscal 2023 show **decreased net sales to $15.1 million in FY2023 from $17.1 million in FY2022** and **Net income also decreased significantly to $636,000 from $2.5 million**, while **total assets increased to $20.2 million** and **stockholders' equity to $14.6 million**, with **positive operating cash flow of $1.3 million** Consolidated Statement of Income Highlights (Fiscal Year Ended Feb 28) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Sales | $15,058,203 | $17,132,710 | | Gross Profit | $7,652,007 | $8,612,554 | | Operating Income | $682,991 | $1,889,336 | | Net Income | $635,905 | $2,542,573 | | Diluted EPS | $0.04 | $0.16 | Consolidated Balance Sheet Highlights (as of Feb 28) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Current Assets | $16,575,422 | $14,497,599 | | Total Assets | $20,174,718 | $17,625,534 | | Total Current Liabilities | $5,457,895 | $3,715,381 | | Total Stockholders' Equity | $14,633,958 | $13,741,313 | Consolidated Statement of Cash Flows Highlights (Fiscal Year Ended Feb 28) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $1,325,039 | $2,319,167 | | Net Cash Used In Investing Activities | ($2,810,996) | ($1,631,462) | | Net (Decrease) Increase in Cash | ($1,485,957) | $756,480 | [Notes to Consolidated Financial Statements](index=52&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue disaggregation showing **Multi-Axis Coating Systems as the largest contributor at 45% of sales in FY2023**, customer concentrations, and ongoing supply chain risks - Revenue is recognized under ASC 606 when control of equipment is transferred to the customer. The company does not capitalize sales commission costs[292](index=292&type=chunk)[298](index=298&type=chunk) Revenue by Product Line (FY 2023) | Product Line | Revenue | % of Total | | :--- | :--- | :--- | | Multi-Axis Coating Systems | $6,785,000 | 45% | | Other | $3,836,000 | 26% | | OEM Systems | $2,144,000 | 14% | | Fluxing Systems | $1,179,000 | 8% | | Integrated Coating Systems | $1,114,000 | 7% | - In fiscal 2023, **two customers accounted for 14% of sales**. Export sales to customers outside the U.S. and Canada were $8.3 million, or **55% of sales were to foreign customers**[325](index=325&type=chunk)[326](index=326&type=chunk) - The company has a **$1.5 million revolving line of credit**, of which **$1.355 million was unused and available** as of February 28, 2023[315](index=315&type=chunk)[316](index=316&type=chunk) - In fiscal 2022, the company recorded a **gain of $1,005,372 from the forgiveness of its PPP loan**[318](index=318&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: November 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-16035 (Exact name of registrant as specified in its charter) New York 14-1568099 (State or other jurisdiction of (IRS Employer incorporation or organization) Identificatio ...