Sono-Tek (SOTK) - 2022 Q1 - Quarterly Report

Part I – Financial Information Item 1 – Condensed Consolidated Financial Statements Presents Sono-Tek's unaudited Q1 FY2022 condensed consolidated financial statements, highlighting net income growth and stable financial position Condensed Consolidated Balance Sheets Total assets slightly decreased as of May 31, 2021, while liabilities significantly dropped due to PPP loan forgiveness, boosting stockholders' equity Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | May 31, 2021 | February 28, 2021 | | :--- | :--- | :--- | | Total Assets | $16,383,149 | $16,423,391 | | Cash and cash equivalents | $5,793,647 | $4,084,078 | | Total Liabilities | $4,144,078 | $5,472,709 | | Long term debt | $— | $1,001,640 | | Total Stockholders' Equity | $12,239,071 | $10,950,682 | Condensed Consolidated Statements of Income Net sales increased 6% for Q1 FY2022, with gross profit up 17%; net income surged to $1.27 million due to PPP loan forgiveness, resulting in $0.08 diluted EPS Condensed Consolidated Statement of Income (Unaudited) | Metric | Three Months Ended May 31, 2021 | Three Months Ended May 31, 2020 | | :--- | :--- | :--- | | Net Sales | $3,644,468 | $3,428,544 | | Gross Profit | $1,824,165 | $1,560,733 | | Operating Income | $342,908 | $184,190 | | Paycheck Protection Program Loan Forgiveness | $1,005,372 | $— | | Net Income | $1,266,752 | $167,928 | | Diluted Earnings Per Share | $0.08 | $0.01 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $722,005 in Q1 FY2022, with $987,564 from investing activities, leading to a $1.71 million increase in cash Cash Flow Summary (Unaudited) | Activity | Three Months Ended May 31, 2021 | Three Months Ended May 31, 2020 | | :--- | :--- | :--- | | Net Cash Provided By (Used in) Operating Activities | $722,005 | $(395,749) | | Net Cash Provided By Investing Activities | $987,564 | $158,384 | | Net Cash Provided By Financing Activities | $— | $959,761 | | Net Increase in Cash and Cash Equivalents | $1,709,569 | $722,396 | | Cash and Cash Equivalents, End of Period | $5,793,647 | $4,381,947 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail revenue recognition, product line sales, PPP loan forgiveness, and foreign sales, highlighting Multi-Axis Coating Systems as the largest revenue driver and 66% foreign sales - The company designs and manufactures ultrasonic coating systems for various markets, including microelectronics, alternative energy, and medical[16] Sales Revenue by Product Line (Three Months Ended May 31) | Product Line | 2021 Revenue | % of Total | 2020 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | | Fluxing Systems | $358,000 | 10% | $344,000 | 10% | | Integrated Coating Systems | $155,000 | 4% | $1,176,000 | 34% | | Multi-Axis Coating Systems | $2,079,000 | 57% | $913,000 | 27% | | OEM Systems | $326,000 | 9% | $422,000 | 12% | | Other | $726,000 | 20% | $574,000 | 17% | | TOTAL | $3,644,000 | | $3,429,000 | | - In April 2021, the Small Business Administration (SBA) forgave the company's Paycheck Protection Program (PPP) loan in its entirety. A gain of $1,005,372 was recorded, which is a non-taxable event[57][85][86] - For the first quarter of fiscal 2022, foreign sales accounted for approximately 66% ($2,416,000) of total revenues, a decrease from 78% in the prior-year period. Three customers accounted for 33% of sales[60][61] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY2022 financial results, highlighting 6% net sales growth, 86% operating income increase, and 13.7% backlog growth, driven by strong market demand - The company's growth strategy is to leverage its ultrasonic coating technologies to provide complete machine solutions, shifting from primarily selling nozzles and components. This has increased average selling prices, with some systems reaching over $1,000,000[68][70] Q1 FY2022 Financial Highlights (vs. Q1 FY2021) | Metric | Q1 FY2022 | Change vs. Q1 FY2021 | | :--- | :--- | :--- | | Net Sales | $3,644,000 | +6% | | Gross Profit | $1,824,000 | +17% | | Gross Margin | 50.0% | +450 bps | | Operating Income | $343,000 | +86% | | Backlog (at May 31, 2021) | $4,380,000 | +13.7% (from Feb 28, 2021) | Results of Operations Total sales for Q1 FY2022 increased 6% to $3.64 million, driven by a 128% surge in Multi-Axis Coating Systems, improving gross profit margin to 50.0%, and boosting operating income by 86% Sales by Product (Three Months Ended May 31) | Product Line | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Multi-Axis Coating Systems | $2,079,000 | $913,000 | +128% | | Integrated Coating Systems | $155,000 | $1,176,000 | -87% | | Electronics/Microelectronics | $2,258,000 | $2,240,000 | +1% | Sales by Geography (Three Months Ended May 31) | Region | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | U.S. & Canada | $1,228,000 | $756,000 | +62% | | Asia Pacific (APAC) | $1,222,000 | $1,923,000 | -36% | | Europe, Middle East, Asia (EMEA) | $842,000 | $430,000 | +96% | - Gross profit margin increased by 450 basis points to 50.0% in Q1 FY2022, primarily due to product mix and decreased warranty and installation costs[75] - Total operating expenses increased by 8% ($104,000), driven by higher international commission expense, professional fees, and stock-based compensation[76][77][78] Impact of Covid 19 The company acknowledges ongoing COVID-19 risks, implementing safety protocols and spending reductions, while monitoring potential adverse impacts on operations, demand, and supply chain - The company implemented changes to protect employees, including social distancing, enhanced cleaning, remote work arrangements, and restricted facility access[89][93] - COVID-19 has impacted the supply chain, and continued disruptions may cause difficulty in sourcing materials or unexpected shortages and delays[90] - The company has implemented plans to reduce spending, including cuts to capital expenditures, trade show participation, and travel[91] Liquidity and Capital Resources Working capital increased to $9.21 million at May 31, 2021, with cash and equivalents rising to $9.28 million, and operating cash flow turning positive at $722,000, boosting equity - Working capital increased to $9,212,000 at May 31, 2021, from $8,902,000 at February 28, 2021, mainly due to the period's net income[94] - Cash generated from operating activities was $722,000 in Q1 FY2022, compared to cash used of $396,000 in Q1 FY2021[96] - Stockholders' Equity increased by $1,288,000 to $12,239,000 at May 31, 2021, primarily due to net income of $1,267,000[95] Item 3 – Quantitative and Qualitative Disclosures about Market Risk The company does not use financial instruments for speculation and is not subject to material foreign currency or interest rate market risks, as all sales are in U.S. dollars - The company is not subject to material foreign currency exchange rate risk as all sales transactions are completed in US dollars[105] - Market rate risk from changing interest rates is not considered material, despite holding $5.8 million in cash and $3.5 million in marketable securities[106] Item 4 – Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of May 31, 2021, with no material changes to internal controls over financial reporting in Q1 FY2022 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of May 31, 2021[107] - No changes in internal controls over financial reporting occurred during the first fiscal quarter of 2022 that materially affected, or are reasonably likely to materially affect, these controls[108] Part II – Other Information Item 1. Legal Proceedings The company reported no material legal proceedings - None[114] Item 1A. Risk Factors As a smaller reporting company, this section is not required - Not Required for Smaller Reporting Companies[114] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The company reported no unregistered sales of equity securities - None[114] Item 6. Exhibits and Reports This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and financial data in Inline XBRL format - Exhibits filed include Rule 13a-14(a)/15d-14(a) Certifications, Section 906 Certifications, and financial information formatted in Inline XBRL[111][112]