Sono-Tek Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended August 31, 2012. This corresponds to the second fiscal quarter of fiscal 2013; the filing compares results with the periods ended August 31, 2011. Sono-Tek makes ultrasonic spray-coating equipment for electronics, advanced energy, medical devices, glass, textiles and food, and also operates rental real estate.
Key financial results
| Metric | Three months ended Aug. 31, 2012 | Three months ended Aug. 31, 2011 | Six months ended Aug. 31, 2012 | Six months ended Aug. 31, 2011 |
|---|---|---|---|---|
| Net sales | $2.391 million | $3.150 million | $5.231 million | $6.139 million |
| Gross profit / margin | $1.165 million / 49% | $1.678 million / 53% | $2.515 million / 48% | $3.112 million / 51% |
| Operating income | $35,392 | $465,127 | $90,542 | $732,520 |
| Net income | $59,735 | $437,526 | $70,836 | $676,120 |
| Basic and diluted EPS | $0.00 | $0.03 | $0.00 | $0.05 |
- Cash flow: Six-month operating cash flow was negative $264,123, versus positive $303,059 a year earlier. Investing used $797,872, including $704,377 to purchase marketable securities, $61,277 for equipment and $32,218 for patent costs. Financing used $39,646. Cash declined $1.102 million to $1.430 million.
- Liquidity: At August 31, cash and cash equivalents were $1.430 million and marketable securities were $958,364. Current assets were $6.043 million and current liabilities $1.262 million; management reported working capital of $4.781 million and a 4.8:1 current ratio.
- Debt: Total long-term debt was $2.175 million, including $123,573 due within one year. The $750,000 revolving credit line had no balance outstanding.
- Balance sheet: Total assets were $9.233 million and stockholders’ equity was $5.920 million at August 31, 2012.
Material changes and management commentary
- Sales fell 24% in the quarter and 15% in the six-month period. Management attributed the declines to lower sales of several product categories, including stent-coating systems, XYZ units, nozzles and generators; six-month decreases also included fluxers and hypersonic units. Servo-unit sales increased, partially offsetting declines.
- Management cited softer markets in Asia and Europe amid the worldwide slowdown, including reduced or eliminated government investment in high-tech sectors that can fund customers’ coating systems.
- Gross margins declined by four percentage points in both comparison periods. Lower sales and a less favorable mix contributed to the decrease.
- Six-month operating expenses increased $46,000: lower research and development costs were more than offset by higher marketing and selling and general and administrative costs. Management cited international commissions on large Asian orders and consulting related to strategic and growth opportunities.
- The six-month net income comparison includes an income tax benefit of $39,647 in 2012; the comparable 2011 period had $253 of tax expense.
Outlook, risks and other disclosures
- The filing provides no quantified sales or earnings guidance. Management described product and market diversification and new applications as a foundation for future growth, while noting that textile customers’ investment decisions depend on economic recovery and that food-industry adoption is slow.
- Forward-looking risks identified include economic and business conditions, competition, regulatory and technological developments, product acceptance, financing, capacity, patent enforcement, sales growth and continued profitability. International demand and government-backed customer investment are additional concerns discussed by management.
- The company reported no legal proceedings, defaults, or required risk-factor disclosures for smaller reporting companies. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
- Disclosure item to reconcile: The MD&A reports rental real estate net losses of $83,960 for six months and $48,699 for the quarter, while the segment table reports losses of $16,090 and $13,931, respectively. The filing text does not clearly reconcile these figures.
Investor facts to verify
- Whether subsequent quarters show recovery in the Asian and European markets and improved product mix and gross margins.
- Whether operating cash flow improves as receivables, customer deposits and working-capital movements normalize.
- The reconciliation of rental real estate results between the MD&A and segment disclosures.
- Use and liquidity of marketable securities, and the company’s ability to meet scheduled debt payments while maintaining its unused credit facility.
- Whether strategic opportunities and growth initiatives translate into sales without materially raising operating costs.