Sono-Tek (SOTK) 10-Q 15 Jul 15 2016 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	May. 31, 2015	Jul. 10, 2015
Document And Entity Information
Entity Registrant Name	SONO TEK CORP
Entity Central Index Key	806,172
Document Type	10-Q
Document Period End Date	May 31, 2015
Amendment Flag	false
Current Fiscal Year End Date	--02-29
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		14,943,774
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2,016

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($)	May. 31, 2015	Feb. 28, 2015
Current Assets:
Cash and cash equivalents	$ 2,717,176	$ 2,562,782
Marketable Securities	1,650,594	1,652,485
Accounts receivable (less allowance of $40,000 and $43,047 at May 31 and February 28, respectively)	725,462	1,029,250
Inventories, net	2,255,322	2,059,177
Prepaid expenses and other current assets	60,291	94,487
Total current assets	7,408,845	7,398,181
Land	250,000	250,000
Buildings, net	1,988,194	2,015,625
Equipment, furnishings and building improvements, net	667,111	661,411
Intangible and other assets, net	171,966	175,412
Deferred tax asset	90,021	90,021
TOTAL ASSETS	10,576,137	10,590,650
Current Liabilities:
Accounts payable	638,325	584,963
Accrued expenses	718,804	691,937
Customer deposits	427,385	462,168
Current maturities of long term debt	142,791	158,184
Income taxes payable	54,523	229,927
Total current liabilities	1,981,828	2,127,179
Long term debt, less current maturities	1,285,494	1,319,737
Total liabilities	3,267,322	3,446,916
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares authorized, 14,933,107 shares issued and outstanding	149,331	149,331
Additional paid-in capital	8,777,220	8,766,160
Accumulated deficit	(1,617,736)	(1,771,757)
Total stockholders' equity	7,308,815	7,143,734
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 10,576,137	$ 10,590,650

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	May. 31, 2015	Feb. 28, 2015
Statement of Financial Position [Abstract]
Allowance for doubtful accounts receivable	$ 40,000	$ 43,047
Common stock, par value	$ 0.01	$ 0.01
Common stock, authorized	25,000,000	25,000,000
Common stock, issued shares	14,933,107	14,933,107
Common stock, outstanding shares	14,933,107	14,933,107

Condensed Consolidated Statemen

Condensed Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended
	May. 31, 2015	May. 31, 2014
Income Statement [Abstract]
Net Sales	$ 2,882,897	$ 2,420,699
Cost of Goods Sold	1,509,766	1,272,733
Gross Profit	1,373,131	1,147,966
Operating Expenses
Research and product development costs	282,131	235,848
Marketing and selling expenses	571,627	543,847
General and administrative costs	256,784	241,585
Rental operations expense	39,545	39,159
Total Operating Expenses	1,150,087	1,060,439
Operating Income	223,044	87,527
Interest Expense	(15,288)	(16,035)
Interest Income	13,760	1,584
Other (expense) income	(14,280)	8,715
Income form Operations Before Income Taxes	207,236	81,791
Income Tax Expense	53,214	15,149
Net Income	$ 154,022	$ 66,642
Basic Earnings Per Share	$ 0.01	$ 0
Diluted Earnings Per Share	$ 0.01	$ 0
Weighted Average Shares - Basic	14,833,107	14,709,773
Weighted Average Shares - Diluted	14,926,642	14,836,943

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	May. 31, 2015	May. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$ 154,022	$ 66,642
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	102,176	93,283
Stock based compensation expense	11,061	13,480
Allowance for doubtful accounts	(3,047)	3,000
Inventory reserve	30,000	$ 30,000
Unrealized loss on marketable securities	13,268
Decrease (Increase) in:
Accounts receivable	306,835	$ (20,600)
Inventories	(226,145)	(146,568)
Prepaid expenses and other current assets	34,197	45,486
(Decrease) Increase in:
Accounts payable and accrued expenses	80,228	(104,167)
Customer deposits	(34,782)	(229,157)
Income taxes payable	(175,404)	(111,929)
Net Cash Provided by (Used In) Operating Activities	292,409	(360,530)
CASH FLOW FROM INVESTING ACTIVITIES:
Patent application costs	(1,010)	(17,550)
Purchase of equipment and furnishings	(75,992)	(90,682)
Purchase of marketable securities	(11,377)	(505,903)
Net Cash (Used in) Investing Activities	(88,379)	(614,135)
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments of notes payable and loans	(49,636)	(47,958)
Net Cash (Used In) Financing Activities	(49,636)	(47,958)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	154,394	(1,022,623)
CASH AND CASH EQUIVALENTS
Beginning of period	2,562,782	3,232,021
End of period	2,717,176	2,209,398
SUPPLEMENTAL DISCLOSURE:
Interest paid	15,288	16,035
Taxes Paid	$ 228,618	$ 127,046

Significant Accounting Policies

Significant Accounting Policies	3 Months Ended
	May. 31, 2015
Notes to Financial Statements
Significant Accounting Policies	NOTE 1: SIGNIFICANT ACCOUNTING POLICIES Consolidation Cash and Cash Equivalents – Fair Value of Financial Instruments - Level 1: Quoted prices in active markets. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. The fair values of financial assets of the Company were determined using the following categories at May 31, 2015 and February 28, 2015: Quoted Prices in Active Markets (Level 1) May 31, February 28, Marketable Securities $ 1,650,594 $ 1,652,485 Marketable Securities include mutual funds of $1,650,594, which are considered to be highly liquid and easily tradable as of May 31, 2015. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the Company’s fair value hierarchy. Interim Reporting The financial information reflects all adjustments, normal and recurring, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results for such interim periods are not necessarily indicative of the results to be expected for the year. Intangible Assets Reclassifications – Impact of New Accounting Pronouncements

Inventories

Inventories	3 Months Ended
	May. 31, 2015
Notes to Financial Statements
Inventories	NOTE 2: INVENTORIES Inventories consist of the following: May 31, February 28, 2015 2015 Finished goods $ 536,755 $ 441,026 Work in process 760,810 220,577 Raw materials and subassemblies 1,075,029 1,692,202 Total 2,372,594 2,353,805 Less: Allowance (117,272 ) (294,628 ) Net inventories $ 2,255,322 $ 2,059,177

Stock Options and Warrants

Stock Options and Warrants	3 Months Ended
	May. 31, 2015
Equity [Abstract]
Stock Options and Warrants	NOTE 3: STOCK OPTIONS AND WARRANTS Stock Options Under the 2003 Stock Incentive Plan, as amended ("2003 Plan"), until May 2013, options were available to be granted to officers, directors, consultants and employees of the Company and its subsidiaries to purchase up to 1,500,000 shares of the Company's common stock. As of May 31, 2015, there were 298,834 options outstanding under the 2003 Plan, under which no additional options may be granted.

Stock Based Compensation

Stock Based Compensation	3 Months Ended
	May. 31, 2015
Notes to Financial Statements
Stock Based Compensation	NOTE 4: STOCK BASED COMPENSATION The weighted-average fair value of options are estimated on the date of grant using the Black-Scholes options-pricing model. For the three months ended May 31, 2015, no options were issued. In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. For the three months ended May 31, 2015 and 2014, net income and earnings per share reflect the actual deduction for stock-based compensation expense. The impact of applying ASC 718 approximated $11,061 and $13,480 in additional compensation expense during the three months ended May 31, 2015 and 2014, respectively. Such amounts are included in general and administrative expenses on the statement of operations. The expense for stock-based compensation is a non-cash expense item.

Earnings Per Share

Earnings Per Share	3 Months Ended
	May. 31, 2015
Notes to Financial Statements
Earnings Per Share	NOTE 5: EARNINGS PER SHARE The denominator for the calculation of diluted earnings per share at May 31, 2015 and 2014, are calculated as follows: Three Months Ended May 31, 2015 2014 Denominator for basic earnings per share 14,833,107 14,709,773 Dilutive effect of stock options 93,535 127,170 Denominator for diluted earnings per share 14,926,642 14,836,943 Basic Earnings Per Share $ 0.01 $ .00 Diluted Earnings Per Share $ 0.01 $ .00

Long Term Debt

Long Term Debt	3 Months Ended
	May. 31, 2015
Notes to Financial Statements
Long Term Debt	NOTE 6: LONG TERM DEBT Long-term debt consists of the following: May 31, February 28, 2015 2015 Equipment loan, bank, collateralized by related production equipment, payable in monthly installments of principal and interest of $5,158 through June 2015. Interest rate 2.12%. 48 month term. $ 5,149 $ 20,542 Note payable, bank, collateralized by land and buildings, payable in monthly installments of principal and interest of $16,358 through January 2024. Interest rate 4.15%. 10 year term. 1,423,136 1,457,379 Total long term debt 1,428,285 1,477,921 Due within one year 142,791 158,184 Due after one year $ 1,285,494 $ 1,319,737

Revolving Line of Credit

Revolving Line of Credit	3 Months Ended
	May. 31, 2015
Notes to Financial Statements
Revolving Line of Credit	NOTE 7: REVOLVING LINE OF CREDIT The Company has a $750,000 revolving line of credit at prime which was 3.25% at May 31, 2015. The loan is collateralized by all of the assets of the Company, except for the land and buildings. The line of credit is payable on demand and must be retired for a 30 day period once annually. If the Company fails to perform the 30 day annual pay down or if the bank elects to terminate the credit line, the bank may at its option convert the outstanding balance to a 36 month term note with payments including interest in 36 equal installments. As of May 31, 2015, the Company’s outstanding balance was $0, and the unused credit line was $750,000.

Segment Information

Segment Information	3 Months Ended
	May. 31, 2015
Notes to Financial Statements
Segment Information	NOTE 8: SEGMENT INFORMATION The Company operates in two segments: ultrasonic spray coating systems, which is the business of developing, manufacturing, selling, installing and servicing ultrasonic spray coating equipment; and real estate operations, which is the business of owning and operating the Sono-Tek Industrial Park. All inter-company transactions are eliminated in consolidation. For the three months ended May 31, 2015 and 2014, segment information is as follows: Three Months Ended May 31, 2015 Three Months Ended May 31, 2014 Ultrasonic Spraying Rental Real Estate Operations Eliminations Consolidated Ultrasonic Spraying Rental Real Estate Operations Eliminations Consolidated Net Sales $ 2,858,597 $ 73,374 $ 49,074 $ 2,882,897 $ 2,401,949 $ 67,824 $ 49,074 $ 2,420,699 Rental Expense $ 49,074 $ 39,545 $ (49,074 ) $ 39,545 $ 49,074 $ 39,159 $ (49,074 ) $ 39,159 Interest Expense $ 75 $ 15,213 $ 15,288 $ 394 $ 16,035 $ 16,429 Net Income $ 135,406 $ 18,616 $ 154,022 $ 54,012 $ 12,630 $ 66,642 Assets $ 8,078,215 $ 2,497,922 $ 10,576,137 $ 6,876,160 $ 2,489,912 $ 9,366,072 Debt $ 5,149 $ 1,423,136 $ 1,428,285 $ 66,091 $ 1,556,475 $ 1,622,566

Significant Accounting Polici14

Significant Accounting Policies (Policies)	3 Months Ended
	May. 31, 2015
Notes to Financial Statements
Consolidation	Consolidation
Cash and Cash Equivalents	Cash and Cash Equivalents –
Fair Value of Financial Instruments	Fair Value of Financial Instruments - Level 1: Quoted prices in active markets. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. The fair values of financial assets of the Company were determined using the following categories at May 31, 2015 and February 28, 2015: Quoted Prices in Active Markets (Level 1) May 31, February 28, Marketable Securities $ 1,650,594 $ 1,652,485 Marketable Securities include mutual funds of $1,650,594, which are considered to be highly liquid and easily tradable as of May 31, 2015. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the Company’s fair value hierarchy.
Interim Reporting	Interim Reporting The financial information reflects all adjustments, normal and recurring, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results for such interim periods are not necessarily indicative of the results to be expected for the year.
Intangible Assets	Intangible Assets
Reclassifications	Reclassifications –
Impact of New Accounting Pronouncements	Impact of New Accounting Pronouncements

Significant Accounting Polici15

Significant Accounting Policies (Tables)	3 Months Ended
	May. 31, 2015
Notes to Financial Statements
Fair values of financial assets of the Company	Quoted Prices in Active Markets (Level 1) May 31, February 28, Marketable Securities $ 1,650,594 $ 1,652,485

Inventories (Tables)

Inventories (Tables)	3 Months Ended
	May. 31, 2015
Inventories Tables
Inventories	May 31, February 28, 2015 2015 Finished goods $ 536,755 $ 441,026 Work in process 760,810 220,577 Raw materials and subassemblies 1,075,029 1,692,202 Total 2,372,594 2,353,805 Less: Allowance (117,272 ) (294,628 ) Net inventories $ 2,255,322 $ 2,059,177

Earnings Per Share (Tables)

Earnings Per Share (Tables)	3 Months Ended
	May. 31, 2015
Earnings Per Share Tables
Computation of basic and diluted earnings per share	Three Months Ended May 31, 2015 2014 Denominator for basic earnings per share 14,833,107 14,709,773 Dilutive effect of stock options 93,535 127,170 Denominator for diluted earnings per share 14,926,642 14,836,943 Basic Earnings Per Share $ 0.01 $ .00 Diluted Earnings Per Share $ 0.01 $ .00

Segment Information (Tables)

Segment Information (Tables)	3 Months Ended
	May. 31, 2015
Segment Information Tables
Segment information	Three Months Ended May 31, 2015 Three Months Ended May 31, 2014 Ultrasonic Spraying Rental Real Estate Operations Eliminations Consolidated Ultrasonic Spraying Rental Real Estate Operations Eliminations Consolidated Net Sales $ 2,858,597 $ 73,374 $ 49,074 $ 2,882,897 $ 2,401,949 $ 67,824 $ 49,074 $ 2,420,699 Rental Expense $ 49,074 $ 39,545 $ (49,074 ) $ 39,545 $ 49,074 $ 39,159 $ (49,074 ) $ 39,159 Interest Expense $ 75 $ 15,213 $ 15,288 $ 394 $ 16,035 $ 16,429 Net Income $ 135,406 $ 18,616 $ 154,022 $ 54,012 $ 12,630 $ 66,642 Assets $ 8,078,215 $ 2,497,922 $ 10,576,137 $ 6,876,160 $ 2,489,912 $ 9,366,072 Debt $ 5,149 $ 1,423,136 $ 1,428,285 $ 66,091 $ 1,556,475 $ 1,622,566

Significant Accounting Polici19

Significant Accounting Policies - Fair values of financial assets of the Company (Details) - USD ($)	May. 31, 2015	Feb. 28, 2015
Marketable Securities	$ 1,650,594	$ 1,652,485
Quoted Prices in Active Markets (Level 1)
Marketable Securities	$ 1,650,594	$ 1,652,485

Significant Accounting Polici20

Significant Accounting Policies - Fair values of financial assets of the Company (Details Narrative) - USD ($)	May. 31, 2015	Feb. 28, 2015
Notes to Financial Statements
Mutual funds	$ 1,650,594	$ 1,652,485

Significant Accounting Polici21

Significant Accounting Policies - Intangible Assets (Details Narrative) - USD ($)	May. 31, 2015	Feb. 28, 2015
Notes to Financial Statements
Accumulated amortization of intangible assets	$ 119,373	$ 116,804
Annual Amortization Expense of Intangible Assets For the Next Five Years
Annual amortization expense this year	9,000
Annual amortization expense year two	9,000
Annual amortization expense year three	9,000
Annual amortization expense year four	9,000
Annual amortization expense year five	$ 9,000

Inventories (Details)

Inventories (Details) - USD ($)	May. 31, 2015	Feb. 28, 2015
Inventories Tables
Finished goods	$ 536,755	$ 441,026
Work in process	760,810	220,577
Raw materials	1,075,029	1,692,202
Total	2,372,594	2,353,805
Less: Allowance	117,272	294,628
Net inventories	$ 2,255,322	$ 2,059,177

Stock Options and Warrants (Det

Stock Options and Warrants (Details Narrative) - May. 31, 2015 - shares	Total
Additional stock options to be granted	0
2013 Stock Incentive Plan
Stock options shares available for purchase	2,500,000
Stock options outstanding	190,600
2003 Stock Incentive Plan
Stock options shares available for purchase	1,500,000
Stock options outstanding	298,834
Additional stock options to be granted	0

Stock Based Compensation (Detai

Stock Based Compensation (Details Narrative) - USD ($)	3 Months Ended
	May. 31, 2015	May. 31, 2014
Notes to Financial Statements
Stock options issued	0
Additional stock-based compensation expense as a result of applying ASC 718	$ 11,061	$ 13,480

Earnings Per Share (Details)

Earnings Per Share (Details) - $ / shares	3 Months Ended
	May. 31, 2015	May. 31, 2014
Earnings Per Share Tables
Denominator for basic earnings per share	14,833,107	14,709,773
Dilutive effect of stock options	93,535	127,170
Denominator for diluted earnings per share	14,926,642	14,836,943
Basic Earnings Per Share	$ 0.01	$ 0
Diluted Earnings Per Share	$ 0.01	$ 0

Long Term Debt (Details)

Long Term Debt (Details) - USD ($)	May. 31, 2015	Feb. 28, 2015
Long-term debt	$ 1,428,285	$ 1,477,921
Due within one year	142,791	158,184
Due after one year	1,285,494	1,319,737
Equipment loan, bank, collateralized by related production equipment, payable in monthly installments of principal and interest of $5,158 through June 2015. Interest rate 2.12%. 48 month term.
Long-term debt	5,149	20,542
Note payable, bank, collateralized by land and buildings, payable in monthly installments of principal and interest of $16,358 through January 2024. Interest rate 4.15%. 10 year term.
Long-term debt	$ 1,423,136	$ 1,457,379

Revolving Line of Credit (Detai

Revolving Line of Credit (Details Narrative) - May. 31, 2015 - Revolving Line of Credit - USD ($)	Total
Line of credit description	The Company has a $750,000 revolving line of credit at prime which was 3.25% at May 31, 2015. The line of credit is collateralized by all of the assets of the Company, except for the land and buildings. The line of credit is payable on demand and must be retired for a 30 day period once annually. If the Company fails to perform the 30 day annual pay down or if the bank elects to terminate the credit line, the bank may at its option convert the outstanding balance to a 36 month term note with payments including interest in 36 equal installments.
Outstanding balance	$ 0
Unused credit line	$ 750,000

Segment Information (Details)

Segment Information (Details) - USD ($)	3 Months Ended
	May. 31, 2015	May. 31, 2014	Feb. 28, 2015
Net Sales	$ 2,882,897	$ 2,420,699
Rental Expense	39,545	39,159
Interest Expense	15,288	16,035
Net Income (Loss)	154,022	66,642
Assets	10,576,137		$ 10,590,650
Debt	1,428,285		$ 1,477,921
Ultrasonic Spraying
Net Sales	2,858,597	2,401,949
Rental Expense	49,074	49,074
Interest Expense	75	394
Net Income (Loss)	135,406	54,012
Assets	8,078,215	6,876,160
Debt	5,149	66,091
Rental Real Estate Operations
Net Sales	73,374	67,824
Rental Expense	39,545	39,159
Interest Expense	15,213	16,035
Net Income (Loss)	18,616	12,630
Assets	2,497,922	2,489,912
Debt	1,423,136	1,556,475
Eliminations
Net Sales	49,074	49,074
Rental Expense	(49,074)	(49,074)
Consolidated
Net Sales	2,882,897	2,420,699
Rental Expense	39,545	39,159
Interest Expense	15,288	16,429
Net Income (Loss)	154,022	66,642
Assets	10,576,137	9,366,072
Debt	$ 1,428,285	$ 1,622,566