Sono-Tek (SOTK) - 2026 Q1 - Quarterly Report

Part I Condensed Consolidated Financial Statements The company's financial statements for the quarter ended May 31, 2025, show total assets increased to $23.42 million, net income rose to $485,000, and operating cash flow was ($922,000) Condensed Consolidated Balance Sheets Balance Sheet Summary (as of May 31, 2025) | Account | May 31, 2025 (Unaudited) ($) | February 28, 2025 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4,863,039 | $5,202,361 | | Total current assets | $18,966,929 | $18,988,465 | | Total Assets | $23,422,323 | $23,411,636 | | Liabilities & Equity | | | | Total current liabilities | $5,026,984 | $5,487,307 | | Total Liabilities | $5,149,459 | $5,619,441 | | Total Stockholders' Equity | $18,272,864 | $17,792,195 | Condensed Consolidated Statements of Income Income Statement Summary (Three Months Ended May 31) | Account | 2025 (Unaudited) ($) | 2024 (Unaudited) ($) | | :--- | :--- | :--- | | Net Sales | $5,132,773 | $5,031,038 | | Gross Profit | $2,664,514 | $2,454,487 | | Operating Income | $483,368 | $238,296 | | Net Income | $484,985 | $330,837 | | Diluted Earnings Per Share | $0.03 | $0.02 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Three Months Ended May 31) | Activity | 2025 (Unaudited) ($) | 2024 (Unaudited) ($) | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | ($922,293) | $327,964 | | Net Cash Provided by (Used in) Investing Activities | $662,450 | ($60,743) | | Net Cash Used in Financing Activities | ($79,479) | $0 | | Net (Decrease)/Increase in Cash | ($339,322) | $267,221 | Notes to Unaudited Condensed Consolidated Financial Statements Key notes detail revenue recognition for short-term contracts, product line contributions, export sales, and significant customer concentration - Sales revenue is primarily derived from short-term contracts (less than 12 months) and recognized when control of equipment is transferred to the customer[33][34] Revenue by Product Line (Three Months Ended May 31, 2025) | Product Line | Revenue ($) | % of Total | | :--- | :--- | :--- | | Integrated Coating Systems | $3,054,000 | 59% | | Multi-Axis Coating Systems | $677,000 | 13% | | OEM Systems | $130,000 | 3% | | Fluxing Systems | $152,000 | 3% | | Spare Parts, Services and Other | $1,120,000 | 22% | - For the three months ended May 31, 2025, sales to foreign customers were approximately $1.59 million, or 31% of total revenues[49] - A single customer accounted for 57% of sales during the first quarter of fiscal 2026 and 68% of outstanding accounts receivable at May 31, 2025[50] Management's Discussion and Analysis (MD&A) Management discusses a 2% increase in net sales to $5.1 million, improved gross margin to 51.9%, and a strong liquidity position with $10.9 million in cash - Net Sales increased 2% to $5.13 million, driven by strong shipments to the Alternative/Clean Energy market[62] - Gross margin expanded 310 basis points to 51.9%, attributed to a favorable product mix and higher concentration of U.S. sales with lower commission expenses[62] - Operating income increased to $483,000 from $238,000 in the prior year period[62] - As of May 31, 2025, the company had $10.9 million in cash, cash equivalents, and marketable securities with no outstanding debt[62] Results of Operations Sales growth was driven by a 309% increase in Integrated Coating Systems, with Alternative Energy sales up 42%, and gross margin improving to 51.9% Sales by Product (Three Months Ended May 31) | Product Line | 2025 ($) | 2024 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Integrated Coating Systems | $3,054,000 | $747,000 | 309% | | Multi-Axis Coating Systems | $677,000 | $2,664,000 | (75%) | | OEM Systems | $130,000 | $332,000 | (61%) | Sales by Market (Three Months Ended May 31) | Market | 2025 ($) | 2024 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Alternative Energy/Clean | $3,248,000 | $2,282,000 | 42% | | Electronics/Microelectronics | $943,000 | $1,568,000 | (40%) | | Medical | $809,000 | $857,000 | (6%) | Sales by Geography (Three Months Ended May 31) | Region | 2025 ($) | 2024 ($) | Change (%) | | :--- | :--- | :--- | :--- | | U.S. & Canada | $3,543,000 | $3,091,000 | 15% | | EMEA | $897,000 | $1,245,000 | (28%) | | Asia Pacific (APAC) | $597,000 | $513,000 | 16% | - Gross profit increased 9% to $2.67 million, and gross margin improved to 51.9% from 48.8%, driven by a favorable product mix and lower commission expenses on a large U.S. order[66] Liquidity and Capital Resources Working capital increased to $13.94 million, while cash and marketable securities decreased due to higher accounts receivable and inventories, resulting in ($922,000) cash used in operations - Working capital increased to $13.94 million at May 31, 2025, from $13.50 million at February 28, 2025[77] - Cash used in operating activities was $922,000, a decrease of $1.25 million from the prior year, mainly due to increases in accounts receivable and inventories[80] - Accounts receivable increased by $749,000 due to revised payment terms for one customer on a $2.9 million order; the company does not foresee collection issues[81] - The company has a $1.5 million revolving line of credit and a $750,000 equipment line of credit, with no outstanding borrowings under either as of May 31, 2025[47][48] Critical Accounting Estimates The company identifies Accounting for Income Taxes and Revenue Recognition as critical policies requiring significant judgment, particularly for deferred tax assets and equipment control transfer - The company's critical accounting policies are identified as Accounting for Income Taxes and Revenue Recognition[90] - For revenue recognition, judgment is required to determine the point in time control of manufactured equipment is transferred to customers, based on contract terms[93] Quantitative and Qualitative Disclosures about Market Risk The company is not subject to material market risk, avoiding speculative financial instruments, and faces immaterial foreign currency or interest rate risks due to U.S. dollar operations - The company does not issue or invest in financial instruments for trading or speculative purposes[97] - Operations are primarily in the United States and all sales transactions are in U.S. dollars, so the company is not subject to material foreign currency exchange rate risk[97] - Market rate risk from changing interest rates on its $4.86 million in cash and $5.99 million in marketable securities is not considered material[98] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of May 31, 2025, with no material changes to internal controls during the quarter - The CEO and CFO evaluated the company's disclosure controls and procedures as of May 31, 2025, and concluded they were effective[99] - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[100] Part II Legal Proceedings & Risk Factors The company reports no legal proceedings and no material changes to risk factors from its most recent Annual Report on Form 10-K - The company has no legal proceedings to report[103] - There are no material changes to risk factors from the most recent Form 10-K[103] Issuer Purchases of Equity Securities The company repurchased 21,335 shares for $79,479 under its $2 million stock repurchase program, with $1.91 million remaining Stock Repurchase Activity (Q1 FY2026) | Period | Shares Purchased | Average Price Paid ($) | | :--- | :--- | :--- | | March 2025 | 11,646 | $3.77 | | April 2025 | 9,689 | $3.67 | | May 2025 | - | - | | Total | 21,335 | N/A | - The total cost for shares repurchased during the quarter was $79,479[104] - The stock repurchase program, for up to $2,000,000, had $1,912,654 remaining value for future purchases as of the end of the quarter[104]