UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended:February 29, 201628, 2018

Commission File Number:0-16035

(Name of registrant as specified in its charter)

Registrant's Telephone Number, Including Area Code:(845) 795-2020

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:Common Stock, $.01 par value

(Title of Class)

Indicate by checkmark if the registrant is a well-knownwell known seasoned issuer, as defined in Rule 405 of the Securities Act.☐Yes☑No

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.☐Yes☑No

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☑Yes☐No

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).☑Yes☐No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.☑

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer | | ☐Accelerated Filer | | ☐Non-accelerated Filer | | ☐Smaller reporting company☑Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES☐ Yes   NO☑ No

As of August 31, 2015,2017 the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant was approximately $10,786,111$14,504,312 computed by reference to the average of the bid and asked prices of the Common Stock on said date, which average was $1.16.$1.15.

The Registrant had 14,955,40014,989,003 shares of Common Stock outstanding as of May 19, 2016.10, 2018.

DOCUMENTS INCORPORATED BY REFERENCE: None.

PART I

Organization and Business

Sono-Tek Corporation (the “Company”, “Sono-Tek”, “We” or “Our”) was incorporatedis the world leader in New Yorkthe design and manufacture of ultrasonic coating systems for applying precise, thin film coatings to protect, strengthen or smooth surfaces on March 21, 1975parts and components for the purpose of engaging in the development,microelectronics/electronics, alternative energy, medical, industrial and emerging research & development/other markets. We design and manufacture custom-engineered ultrasonic coating systems and sale of ultrasonic liquid atomizingalso provide patented nozzles and systems. Ultrasonicgenerators for manufacturers’ equipment. Our fiscal year ends on February 28. We refer to the fiscal year ended February 28, 2018 as “fiscal 2018” and use similar protocol for previous fiscal years.

Our ultrasonic nozzle systems atomize low to medium viscosity liquids by converting electrical energy into mechanical motion in the form ofuse high frequency ultrasonic vibrations that breakatomize liquids into minute drops that can be applied to surfaces at low velocity. velocity providing microscopic layers of protective materials over a wide variety of surfaces, including glass. Our solutions are environmentally-friendly, efficient and highly reliable. They enable dramatic reductions in overspray, savings in raw material, water and energy usage and provide improved process repeatability, transfer efficiency, high uniformity and reduced emissions. We serve a variety of industries and applications and have a broad base of customers with no single customer that provides more than 10% of our revenue. Our largest customer accounted for 8% of revenue in fiscal 2018.

The principal advantageapplications that are employing our unique coating technology and expertise have been expanding as the advantages of these nozzle systems isultrasonic coatings are more broadly recognized. The original application of our technology was to coat the inner surface of blood collection tubes used for medical diagnostic testing. Our products enable the application of a thin and uniform coating of material that they use much less liquid than competitive nozzle systemsprevents coagulation of blood. Following that initial breakthrough, our technology was then used for applying uniform flux coatings to attain the required coatings on solar cells, fuel cells, glass, advanced textiles, food and food packaging,printed circuit boards, medical devicesa critical part of the fabrication process for all electronic devices. A later application for much larger surfaces was to address the many challenges that glass manufacturers faced. They needed a solution for specialized glass applications in the construction and manyautomotive industries. Among other coating applications. This advantage translates into precise thin filmsthings, our ultrasonic nozzles are used to provide coatings that improve durability, create filters, increase clarity, reduce reflection, enable conductivity, and lower costs for materials, less costly liquid consumption, less energy required for subsequent drying operationsenhance safety.

Our corporate offices are located in Milton, New York where our production facilities are co-located. We also have a sales and less release into the environment of spray that would typically bounce backservice office in Hong Kong and scatter while using competitive nozzle systems. These factorsan equipment demonstration room in Shenzen, China. We are increasingly important to customers at a time of rising commodityISO 9001 qualified since registering in September 1998 and energy costs and supply limitations.we have been recertified annually since then.

We usewere founded by the inventor of the ultrasonic nozzle and incorporated in New York on March 21, 1975. We became a public company in 1987 and our core technology – ultrasonic spray coating – to provide both standardstock is traded on the OTCQX U.S. tier of the OTC exchange under the ticker symbol “SOTK”.

Our Products, Markets and customized coating solutions toCustomers

Our products are used in a wide range of manufacturing companies, enabling themapplications. We provide our customers a differentiated offering of ultrasonic spray solutions custom suited for their requirements and we continually expand our offerings to reduce their product costsaddress new applications. Our products include fully-integrated Multi-Axis Coating Systems, Integrated Coating Systems, Fluxing Systems, OEM Systems and other related systems. We invest heavily in research and development to continually bring to market new solutions for our customers, to increase our market share and to develop new products with superior features and quality. Presently, our customers aresolve high value problems in six major industries: electronics, advanced energy (solar and fuel cells), medical device, glass, textiles and foods. Our systems are widelyused by leading high tech companies and research institutions, as well as by governmental, defense, energy and health agencies around the world.manufacturing.

Our diversified group ofMulti-Axis Coating Systems, Integrated Coating Systems and Fluxing Systems provide complete fully-integrated solutions for our customers, provideswhile we created the base for both financial stabilityUniversal Align to offer our customers subsystems that integrate our nozzles and business growth opportunities.generators that they can then incorporate into their original equipment.

Markets

We target the following markets where our product quality and consistency and application knowledge are valued by our customers. We have built our brand and reputation on providing high quality, highly reliable products that provide consistent performance for critical applications in demanding operating environments. Our diverse offerings have positioned us to provide a unique and superior family of customized products to the six major industries that we serve. All of these systemssurface coating solutions are based on our core technology of ultrasonic spray coating. Many of these systems have been commercially provenused in 24/7 workingwork schedules, under harsh and challenging manufacturing environments, where they provide value in a continuous and reliabledependable fashion. The industries and applications in which our products can be found include:

Our principal customers include original equipment manufacturers, distributors and end users of our products in the industries that we serve.

1.       Electronics Industry.Our products are sold primarily through select independent distributors and sales representatives around the world that are trained on our technologies and products. Our distributors are typically experts in their industries and recognize the significant value our technology provides their customers. We provide extensive training and on-site support with our direct sales force and application engineers, who also respond to leads generated by our web sites and the trade shows in which we participate. To grow sales, we have strengthened our team of application engineers and expanded our process development laboratory.

We serve this industry primarilyalso provide application consulting services enabling our customers to rely on our surface coating expertise and specific customer process optimization. We offer these services both in two sectors; Printed Circuit Board (PCB) manufacturingour application laboratory and Semiconductor manufacturing.at our customers’ sites where we can assist in the design and development of customized coating systems.

We provide manufacturersare a global business and, depending on the timing of PCBs with state-of-the-art solder fluxers. Spray fluxers are used inorders from customers, our geographical sales mix can vary from year to year. In fiscal 2018 56% of our sales were from outside the manufacturing process of PCBs to apply flux, which removes oxidation and prepares the PCB for the process of soldering components onto it.U.S.

Our ultrasonic spray fluxers reduce the amount of fluxing chemical needed, enhance the quality of the boards,Strengths

Our core strengths and provide our customers with a better product at reduced costs of operations, when compared with conventional foam fluxers and pressure assisted fluxers.capabilities include:

Our Strategy

We are recognized as a standard setterfocused on the further development of technologies that enable the microscopic coating of surfaces to enable better outcomes for our customers’ products and processes. We believe product superiority is imperative in all that we produce and that it is developed through the extensive experience we have in the coatings industry, our proprietary manufacturing know-how and skills, and our systems are incorporated by various original equipment manufacturers (OEM) in their manufacturing lines forunique work force we have built over the production of electronic printed circuit boards. Some examples of products that we market to the electronics industry include: SonoFlux 2000F, SelectaFlux, SonoFlux EZ and SonoFlux Servo.

Pursuant to an exclusive distribution agreement with EVS International Ltd (“EVS”) for the territories of the United States and Canada, we offer the EVS solder recovery system to our PCB customer base.years.

We also have a significant established customer base in the semiconductor industry. The semi-conductor industry utilizesintend to leverage our ultrasonic atomizing nozzlesinnovative technologies, proprietary know-how, unique talent and robotic XYZ coating platforms for the applicationexperience, and deposition of photo-resist onto semiconductor wafers. Certain of our semi-conductor manufacturing industry customers engaged in the production of micro-electro-mechanical systems, “MEMS”, have proven the ability of our technology to apply micron thick coatings to these complex wafers.

2.       Advanced Energy Industry.

Manufacturers of solar cells and fuel cells share two major technical and business challenges: enhancing the energy efficiency of their products and manufacturing their products in a cost effective way. Extremely uniform, thin layer coatings are at the heart of the solution for these advanced energy systems’ challenges.

Our precision coating systems provide superior surface uniformity and density, which are directly related to enhanced energy efficiency, compared to conventional systems. Our systems also afford our energy industry clients with the capabilities of saving up to 80% of the expensive catalysts and nano-materials used in these manufacturing processes. Some examples of our products marketed to the advanced energy industry include: ExactaCoat FC & SC, Sonic Syringe, VersiCoat, and FlexiCoat FC & SC, and SonoFlow Fusion.

3.       Medical Device Industry.

Our ultrasonic coating technology is used by medical device manufacturers worldwide. The leading applications for this industry are coating of arterial stents and balloon catheters with precise and uniform micron layers of polymers and drugs; coating of various implantable devices with biomedical materials and coating of blood collection tubes with anti-coagulants. These applications are typically performed under strict regulatory supervision of governmental agencies in different countries, and the continuing demand for our systems from these customers is indicative of the high quality performance that our systems provide these customers. Some examples of our products marketed to the medical device industry include: MediCoat I; Medicoat II; Medicoat PSI; MedXT; MediCoat BCC and ExactaCoat MD.

4.       Glass Industry.

The manufacture of float glass occurs under extremely harsh conditions of elevated temperatures. Our ultrasonic coating technology provides this manufacturing process with the means to precisely and uniformly apply anti-stain, and other specialty chemical agents, on the hot glass. Our customers benefit from an improved quality product, enhanced productivity and significantly reduced expenditures on annual maintenance, often resulting in a return on investment of less than one year. Based on this equipment’s recent successful performance, our systems are now specified by many global glass manufacturers as their equipment of choice.

The equipment we offer to the glass industry is the WideTrack – wide area modular coating system.

5.       Advanced Textiles Industry.

The textiles industry is expanding the introduction of high performance value adding coatings onto fabrics, such as anti-microbial, anti-stain, flame retardant and moisture barriers. The current manufacturing process for applying these expensive coatings creates significant waste of material, energy and water. We are working with this industry to incorporate our ultrasonic technology, often in combination with unique pre and post treatments of the coating materials, to reduce the effective material and energy usage by as much as 90%.

6.       Food Safety and Food Coatings Industry.

The food industry is evolving in response to greater demands for reduction of food borne illnesses. We have successfully introduced an anti-microbial coating system for sliced packaged meats, and we are focusing efforts on those global food companies that will need this technology to meet the new demands. We have also introduced our systems to other segments of the food industry for the coating of flavors, ingredients and other additives of interest. Most of our food industry equipment is designed on the WideTrack platform.

Products

We have core technology and have developed and market the following products:reach to:

Other Product Offerings – EVS Solder Recovery SystemTo accomplish these objectives, we believe we must judiciously deploy our monetary and human capital, in order to expand our presence in our targeted markets and create a broader offering for our customers.

WeAvailability of Raw Materials and Working Capital Practices

Historically, we have an exclusive distribution relationship with EVS to distribute EVS’s linenot been adversely impacted by the availability of solder recovery systems and spare partsraw materials or components used in the United States and Canada. EVS manufactures the EVS 10K and EVS 8K solder recovery systems which are used to reclaim solder from the dross which accumulates in the wave-solder equipmentmanufacture of circuit board manufacturers. The customer base for distribution of these systems is synergistic with our existing customer base for spray fluxer sales in the printed circuit board industry.

Manufacturing

We purchase circuit board assemblies and sheet metal components from outside suppliers. These materials are available from a wide range of suppliers throughout the world.products. All raw materials used in our products are readily available from many different domestic suppliers. We also purchase certain systemscircuit board assemblies and subsystems to supplement our in-house manufacturing. These items are integrated with our ultrasonic system technology to meet specific applications.sheet metal components from a wide range of suppliers throughout the world.

We carefully manage our inventory using lean manufacturing processes. We provide a limited warranty on all of our products covering parts and labor for a period of one year from the date of sale.

We own an industrial park in Milton, New York. The park has 50,000 square feet of leasable area and we use more than half the space for manufacturing.

We have a business and quality control system that meets the qualifications of ISO 9001. We were ISO registered in September 1998 and we have been recertified annually since then.

Research and Development

We believe that our long-term growth and stability are linked to the development and release of products that provide solutions to customer needs across a wide spectrum of industries, while advancing the utility of our core technology. We expended approximately $1,268,000During fiscal 2018 and $1,016,000 for Fiscal Years 2016fiscal 2017, we spent $1,280,000 and 2015,$1,276,000, respectively, on research and development activities related to new engineeringproducts and product development.services and the ongoing improvement of existing products and services.

Patents and LicensesIntellectual Property

Our business is based in part on the technology covered by our United StatesU.S. patents. We also rely on unpatented know-how in the design and production of our nozzle systems.systems, subsystems and complete solutions. We have executed non-disclosure and non-compete agreements with all of our employees to safeguard our intellectual property. We execute reciprocal non-disclosure agreements with our key customers to safeguard any jointly developed intellectual property.

In recent years we have made significant progress on building our intellectual property portfolio. We have a patent covering a new design for our entire line of nozzle systems. During the fiscal year ended February 29, 2016, we were granted three new patents relating to:

Marketing and Distribution

Our products are marketed and distributed through independent distributors, sales representatives, or sales representative companies, OEMs, and through an in-house direct sales force. Many of our sales leads are generated from our Internet web site and from attendance at major industry trade shows. In addition, we have retained an external marketing firm to expand awareness of our products in our targeted industries, and to make use of the Internet with our web page and other techniques.

Competition

We operate in competitive markets in many of our industry segments. We compete against alternative coating technologies, as well as global and regional manufacturers of nozzles and other products based on price, quality, product features and follow up service. We maintain our competitive position by providing highly effective solutions that meet our customers’ requirements and needs. In several emerging markets, we encounter less competition based on the uniqueness of our ultrasonic technology in these applications.

Significant CustomersInformation Regarding Sales Outside the United States

We have significant geographicDuring fiscal 2018 and market diversification. Our largest customerfiscal 2017, sales to customers outside the U.S.  accounted for approximately 7%$6,303,000, or 57% of our sales for the Fiscal Year ended February 29, 2016.total revenue, and $6,052,000, or 63% of total revenue, respectively.

Foreign and Export Sales

During Fiscal Years 2016 and 2015, sales to foreign customers accounted for approximately $6,577,000 and $5,018,000, or 56% and 47% respectively, of total revenues.

Employees

As of February 29, 2016,28, 2018, we employed 5864 full-time employees and one part-time employee.employees. We believe that relations with our employees are generally good.

Available Information

We have filedare subject to the informational requirements of the Securities Exchange Act of 1934, as amended. Therefore, we file reports, proxy statements and other information with the Securities and Exchange Commission. Copies of ourCommission (“SEC”). The SEC maintains a website at www.sec.gov that contains the reports, proxy statements and other information for registrants that file electronically, as we do. Additionally, these reports may be inspectedread and copied at the public reference facilities maintained byPublic Reference Room of the SEC at SEC, Public Reference Section, 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation ofInformation regarding the SEC’s public reference facilitiesPublic Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains

We maintain a website that contains reports, proxy statements and other information regarding us. The address of the SEC website isat http://www.sec.gov. We will alsowww.sono-tek.com. On our site, we provide copies of our Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at no charge available through our website at http://www.sono-tek.com as soon as reasonably practicable after filing electronically such material with the SEC. Copies are also available, without charge, from Sono-Tek Corporation, 2012 Route 9W, Milton, NY 12547.

We own an industrial park located in Milton, New York.York that is subject to a ten-year mortgage, of which six years remain. The industrial park consists of approximately 50,000 square feet of office and warehouse space. Approximately 21,000 square feet of the park is leased or available for lease at any given time. The property is subject to a ten year mortgage, of which eight years remain.

Our offices, product development, manufacturing and assembly facilities are located in the industrial park. We presently utilize a 13,000 square foot building and 16,00033,000 square feet or 66% of additional office and storage space in an adjacent building. Our current manufacturing areas consist of (i) a machine shop, (ii) a nozzle assembly/test area, (iii) an electronics assembly area, (iv) an areathe park for assembling and testing final products and systems and (v) a receiving and shipping area.our operations. We believe our facilities will be adequate for the foreseeable future.future and the ownership of the industrial park provides us opportunity to expand as we grow.

We presently maintain a sales and service office in Hong Kong and an equipment demonstration room in Shenzhen, China. The office and demonstration room are located onApproximately 17,000 square feet of the premises of one of our product distributors.park is leased or available for lease to unrelated third parties at any given time.

PART II

Our common stock currently trades on the OTCQX U.S. Premier tier of the OTC Marketsexchange under the ticker symbol “SOTK”. The following table sets forth the range of high and low closing bid quotations for our Common Stock for the periods indicated.

The above quotations are believed to represent inter-dealer quotations without retail markups, markdowns or commissions and may not represent actual transactions.

As of February 29, 2016,28, 2018, there were 165131 shareholders of record of our Common Stock, according to our stock transfer agent. We estimate that we have between 1,000 and 1,400 beneficial shareholders of our common stock. The difference between theBeneficial shareholders of record and the total shareholdersare those that hold their shares in “street name”, that is due to stock being held in street names at our transfer agent.brokerage accounts.

We have not paid any cash dividends on our Common Stock since inception. We intend to retain earnings, if any, for use in our business and for other corporate purposes.

Forward-Looking Statements

We discuss expectations regarding our future performance, such as our business outlook, in our annual and quarterly reports, press releases, and other written and oral statements. These “forward-looking statements” are based on currently available competitive, financial and economic data and our operating plans. They are inherently uncertain, and investors must recognize that events could turn out to be significantly different from our expectations. These factors include, among other considerations, general economic and business conditions; political, regulatory, competitive and technological developments affecting our operations or the demand for our products; timely development and market acceptance of new products; adequacy of financing; capacity additions, the ability to enforce patents and the ability to achieve increased sales volume and continued profitability.

We undertake no obligation to update any forward-looking statement.

Overview

Founded in 1975, Sono-Tek Corporation designs and manufactures ultrasonic coating systems that apply precise, thin film coatings to a multitude of products for the microelectronics/electronics, alternative energy, medical and industrial markets, including specialized glass applications in construction and automotive. We have developed a uniquealso sell our products to emerging research and proprietary series ofdevelopment and other markets.

Our ultrasonic atomizing nozzles andnozzle systems which are being used in an increasing variety of electronics, advanced energy (solar and fuel cells), medical device, glass, textiles and food applications. These nozzles are electrically driven and create a fine, uniform, low velocity spray of atomized liquid particles, in contrast to common pressure nozzles. These characteristics create a series of commercial applicationsuse high frequency ultrasonic vibrations that benefit from the precise, uniform, thin coatingsatomize liquids into minute drops that can be achieved. When combined with significantapplied to surfaces at low velocity providing microscopic layers of protective materials over a surface such as glass. Our solutions are environmentally-friendly, efficient and highly reliable. They enable dramatic reductions in liquid wasteoverspray, savings in raw material, water and less overspray than can be achievedenergy usage and provide improved process repeatability, transfer efficiency, high uniformity and reduced emissions.

We are focused on the further development of technologies that enable the microscopic coating of surfaces to enable better outcomes for our customers’ products and processes. We believe product superiority is imperative in all that we produce and that it is developed through the extensive experience we have in the coatings industry, our proprietary manufacturing know-how and skills and our unique work force we have built over the years.

We are a global business with ordinary pressure nozzle systems, thereapproximately 57% of our sales generated from outside the United States. Our direct sales team and our distributor and sales representative network is lower environmental impactlocated in North America, Latin America, Europe and lower energy use.Asia. Over the last few years, we have expanded our sales capabilities by increasing the size of our direct sales force, adding new distributors and sales representatives (‘reps”). Of note, we have developed demonstration labs in Asia and at our facility in New York that are used to train our distributors and reps. These labs are also very valuable for demonstrating to prospective customers the capabilities of our equipment and enable us to develop custom solutions to meet their needs.

Highlights

Highlights for fiscal 2018 include:

Market and Geographic Diversity

During the past five years weWe have invested significant time, monies and effortsresources to enhance our market diversity. Based on our core ultrasonic coating technology, we increased our portfolio of products, the industries we serve, and the countries in which we sell our products.

Today, we serve six majorfive industries: microelectronics/electronics, advancedmedical, alternative energy, (solaremerging research and fuel cells), medical device, glass, textilesdevelopment and food.other, as well as the industrial markets.

In recent years,We are a substantial portion of our sales originated outside the United States, and weglobal company. We are geographically present directly and through distributors and trade representatives in NorthUnited States and Canada , EMEA (Europe, Middle East and Africa), APAC (Asia Pacific) and Latin America Europe(including Mexico). In fiscal 2018, approximately 56% of sales in fiscal 2018 originated outside of the United States and Asia. TheCanada. We established an infrastructure upon which this diversified market approach is based, includesto drive our geographic diversity including a newly equipped process development laboratory in APAC, a strengthened sales organization withof application engineers, anexpanded talent on our engineering team, with additional talent and the latest, most sophisticated design software tools, as well as an expanded, highly trained installation and service organization.

TheWe believe that the new products which we have introduced, the new markets that we have penetrated, and the regions in which we now sell our products, are a strong foundation for our future sales growth and enhanced profitability.

Results of Operations

Sales:

Strong market conditions and the expansion of our global sales effort drove sales up 14% to $11,008,000 in fiscal 2018 compared with the prior fiscal year. Stronger sales were primarily driven by the alternative energy industry, specifically fuels cell development programs in China, and the medical device coating market in the US and Canada, where we provide coating technologies for stents, medical devices, blood collection tubes and other items.

Product Sales:

The increase in Multi-Axis Systems and Integrated Coating Systems reflects new customers and increased demand from existing customers primarily in the alternative energy and medical markets.

Market Sales:

Growth in the Medical market was from sales of customized machines primarily used for coating implantable devices with polymers and other active nanomaterials. The Company’s application expertise provides a competitive advantage in this market. The Alternative Energy market expanded as applications for fuel cells increased. Asia, specifically China, has been driving demand for fuel cells because of the investments being made by the Chinese government. Our equipment is used to produce highly durable, uniform, pinhole free coatings of carbon-based catalyst inks onto fuel cell proton exchange membranes reducing waste and improving functionality.

Geographic Sales:

In fiscal 2018, approximately 56% of sales originated outside of the United States and Canada. This compares with 60% in fiscal 2017.

Gross Profit:

Our gross profit increased $933,000, or 21%, to $5,296,000 for fiscal 2018 from $4,363,000 for the prior fiscal year. Gross profitmargin improved by 280 basis points to 48.1% for fiscal 2018 primarily due to product mix, as a greater portion of the sales growth was from higher margin Multi-Axis Systems and Integrated Coating Systems. In addition, our fixed overhead costs marginally decreased during fiscal 2018.

Operating Expenses:

Research and Product Development:

Research and product development costs increased $4,000 to $1,280,000 for fiscal 2018 as compared with $1,276,000 for the prior fiscal year. For fiscal 2018, we experienced decreases in engineering materials and supplies expense and engineering salaries. These decreases were partially offset by increases in health insurance and depreciation.

Marketing and Selling:

Marketing and selling costs increased $299,000 to $2,516,000 for fiscal 2018 as compared with $2,217,000 for the prior fiscal year. For fiscal 2018, we experienced increases in sales salaries, international commission expense and health insurance. These increases were partially offset by decreased depreciation and other miscellaneous expenses.

During fiscal 2018, we expended approximately $530,000 for commissions as compared with $417,000 for the prior fiscal year, an increase of $113,000 resulting primarily from increased sales.

During fiscal 2018, we expended approximately $280,000 for advertising and trade show expense compared with $286,000 for the prior fiscal year, a decrease of $6,000.

General and Administrative:

General and administrative costs increased $70,000 to $1,118,000 for fiscal 2018 as compared with $1,048,000, for the prior fiscal year ended February 28, 2017. For fiscal 2018, we experienced increases in salary expense, health insurance and corporate and other miscellaneous expenses. These increases were partially offset by decreases in professional fees and stock based compensation expense.

Operating Income (Loss):

We maintained or increased spending levels for new product development and sales and marketing as we continued to address market expansion opportunities. However, as a percentage of net sales, operating expenses were down 250 basis points to 44.6% in fiscal 2018. As a result, fiscal 2018 operating income increased significantly to $382,000, from an operating loss of $179,000 for the prior fiscal year, and the operating margin improved to 3.5%.

Interest Expense:

Interest expense decreased to $46,000 for fiscal 2018 as compared with $52,000 for the prior fiscal year.

Interest and Dividend Income:

Interest and dividend income increased to $91,000 for fiscal 2018 as compared with $71,000 for the prior fiscal year. Our present investment policy is to invest excess cash in highly liquid, lower risk fixed income mutual funds. At February 28, 2018, the majority of our holdings are rated at or above investment grade.

Other Income:

Included in other income is the net revenue related to the rental of the Company’s real estate . For fiscal 2018, the Company’s rental revenue was $77,800, expenses were $58,900 and the net revenue was $18,900.

For fiscal 2017, the Company’s rental revenue was $89,000, expenses were $59,000 and the net revenue was $30,000. In addition, during fiscal 2017, we received a payout of $200,000 in life insurance proceeds from the death of a former employee.

Income Tax Expense (Benefit):

We recorded income tax expense of $92,000 for fiscal 2018 compared with a benefit of $19,000 for the prior fiscal year. The details of the current year’s tax expense are explained in Note 11 in our financial statements.

Net Income:

For fiscal 2018, net income increased to $368,000 from $96,000 for the prior fiscal year, which was due to higher revenue and gross profit margin which was partially offset by an increase in operating expenses and income tax expense.

For fiscal 2018 and 2017, we do not believe that our sales revenue or net income has been adversely affected by the impact of inflation or changing prices.

Other Comprehensive Income (Loss)

Net unrealized income (loss) on marketable securities:

As of February 28, 2018, certain of our marketable securities were in an unrealized gain position. Unrealized gains and losses are principally due to changes in the fair value of our investments held as available-for-sale. Because the Company has the ability and intent to hold the securities for the foreseeable future as classified as available-for-sale, the Company does not deem these unrealized gains or losses to be other than temporary.

For fiscal 2018, the unrealized gain on our available-for-sale marketable securities was $59,000 compared with $112,000 for the prior fiscal year.

Liquidity and Capital Resources

Working Capital -Our working capital increased $343,000$490,000 from a working capital of $5,512,000$6,070,000 at February 28, 20152017 to $5,855,000$6,560,000 at February 29, 2016.28, 2018. The increase in working capital is due to:to net income of $548,000,$368,000 and our non-cash items, including $399,000 for depreciation and amortization, $42,000 for stock based compensation, $59,000 for an increase in the market values of our Available-For-Sale Investments, and $33,000 for an increase in our deferred tax expense. These non-cash expenses were partially offset by cash expendituresoutflows of $17,000 for patent and other asset costs, $465,000$189,000 for the purchase of equipment and furnishings and $158,000$156,000 for the repayment of notes payable. In addition, we incurred non-cash expenses for depreciation and amortization expense of $477,000, stock based compensation expense of $43,000 and a decrease in our current deferred tax asset of $86,000. The Company’s current ratio was 4.5 to 1 at February 29, 2016 as compared to 3.64.08 to 1 at February 28, 2015.2018 as compared with 5.19 to 1 at February 28, 2017.

The aggregate balance of cash and marketable securities increased $1,523,000 during fiscal 2018. At February 29, 2016,28, 2018, our working capital includes $2,388,000included $2,016,000 of cash and $1,696,000$4,406,000 of marketable securities, as compared to $2,563,000a total of $6,422,000. At February 28, 2017, our working capital included $2,557,000 of cash and $1,652,000$2,342,000 of marketable securities, at February 28, 2015.a total of $4,899,000.

Stockholders’ Equity - Stockholders' equity increased $524,000$469,000 from $7,144,000$7,923,000 at February 28, 20152017 to $7,668,000$8,392,000 at February 29, 2016.28, 2018. The increase in stockholders’ equity is the result of the current year’s net income of $548,000,$368,000, stock based compensation of $43,000$42,000, and stock option proceedsan increase in our accumulated comprehensive income of $3,000 offset by the current year’s comprehensive loss valuation of $70,000.$59,000.

Operating Activities –Our operating activities provided $629,000$1,802,000 of cash for the year ended February 29, 2016fiscal 2018 as compared towith providing $924,000$1,029,000 for the year ended February 28, 2015.prior fiscal year. For the year ended February 29, 2016,fiscal 2018, we had net income of $548,000,$368,000, accounts receivable decreased $376,000, inventories increased $188,000, inventories decreased $234,000,$118,000, prepaid expenses and other assets increased $15,000,$12,000, accounts payable and accrued expenses decreased $56,000,increased $341,000, customer deposits decreased $261,000increased $265,000 and income taxes payable decreased $142,000.increased $70,000. In addition, we incurred non-cash expenses of $477,000$399,000 for depreciation and amortization, $43,000$42,000 for stock based compensation expense, $3,000 for our accounts receivable reserve, an increase of $107,000 in our deferred tax expense and a decrease in our inventory reserve of $120,000.$104,000, and $33,000 for an increase in our deferred tax expense.

Investing Activities -For the year ended February 29, 2016,fiscal 2018, we used $648,000$2,194,000 of cash in our investing activities as compared towith using $1,401,000$716,000 for the year ended February 28, 2015.prior fiscal year. In 2016fiscal 2018 and 2015,fiscal 2017, we used $465,000$189,000 and $357,000,$183,000, respectively, for the purchase or manufacture of equipment, furnishings and leasehold improvements. In 2016fiscal 2018 and 2015,fiscal 2017, we used $17,000$2,004,000 and $22,000, respectively, for patent application and other asset costs. In 2016 and 2015, we used $165,000 and $1,022,000,$534,000, respectively, for the purchase of marketable securities .securities.

Financing Activities –For the year ended February 29, 2016,fiscal 2018, we used $155,000$149,000 of cash in our financing activities as compared towith using $193,000$143,000 for the year ended February 28, 2015.prior fiscal year. In 2016fiscal 2018 and 2015,fiscal 2017, we used $158,000$150,000 and $193,000,$143,000, respectively, for the repayments of notes payable. In 2016 we received $3,000 for the exercise of stock options.

Net Decrease in Cash –For the year ended February 29, 2016,fiscal 2018, our cash balance decreased by $174,000as$541,000 as compared to a decreasewith an increase of $669,000$169,000 for the prior fiscal year ended February 28, 2015.2017. During the year ended February 29, 2016,fiscal 2018, our operations provided $629,000$1,802,000 of cash, we used $648,000$2,194,000 in our investing activities and used $155,000$150,000 in our financing activities.

Bank Credit Facilities:

We currently have a revolving credit line of $750,000 and a $250,000 equipment purchase facility, both of which are with a bank. The revolving credit line 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 day30-day period once annually. As of February 29, 2016,28, 2018, there were no outstanding borrowings under the line of credit.

We had outstanding borrowings under a note payable of $1,320,000$1,027,000 at February 29, 2016.28, 2018. The note is payable over eightsix years and accrues interest at 4.15%. per year. The note payable is secured by a mortgage on our land and buildings.

Results of Operations

Ultrasonic Spraying – Sales and Gross Profit:

Sales:

For the year ended February 29, 2016, our sales increased by $981,000 to $11,739,000 as compared to $10,758,000 for the year ended February 28, 2015, an increase of 9%. Duringthe year ended February 29, 2016, we experienced an increase in sales of our widetrack units, fluxers and related spares, servo units and spray dryer units. We did, however, see a decrease in sales of our stent coating units, XYZ units and nozzles and generators.

Gross Profit:

Our gross profit increased $419,000, to $5,543,000 for the year ended February 29, 2016 from $5,124,000 for the year ended February 28, 2015. Our gross profit margin percentage was 47% for the year ended February 29, 2016 compared to 48% for the year ended February 28, 2015. The decrease in the current year’s gross profit margin is due to decreases in sales of our higher gross margin stent coaters, XYZ units and nozzles and generators.

Export Sales:

For the year ended February 29, 2016, sales to customers located in European countries increased by $720,000 or 35%, sales to customers located in Asian countries increased by $834,000 or 39% and sales to other non-based US customers were steady.

Operating Expenses:

Research and Product Development:

Research and product development costs increased $252,000 to $1,268,000 for the year ended February 29, 2016 as compared to $1,016,000 for the year ended February 28, 2015. For the year ended February 29, 2016 we experienced increases in engineering salaries, engineering materials and depreciation.

During the year ended February 29, 2016, we expended approximately $787,000 for engineering personnel as compared to $589,000 for the year ended February 28, 2015. The increase in salaries is a result of the start of our New Product Development team, which has recently completed two new products; the VersiCoat and SonoBraze. During the year ended February 29, 2016, we expended approximately $187,000 for additional research, materials and product development as compared to $172,000 for the year ended February 28, 2015. During the year ended February 29, 2016 we incurred approximately $133,000 for depreciation expense as compared to $120,000 for the year ended February 28, 2015.

Marketing and Selling:

Marketing and selling costs increased $218,000 to $2,371,000 for the year ended February 29, 2016 as compared to $2,153,000 for the year ended February 28, 2015. For the year ended February 29, 2016, we experienced increases in commission expense, advertising and trade show expenses and sales salaries. In addition we experienced a decrease in travel and entertainment expense.

During the year ended February 29, 2016, we expended approximately $590,000 for commissions as compared to $502,000 for the year ended February 28, 2015, an increase of $88,000.

During the year ended February 29, 2016, we expended approximately $228,000 for advertising and trade show expense compared to $169,000 for the year ended February 28, 2015, an increase of $59,000.

During the year ended February 29, 2016, salary expense was $1,119,000 as compared to $1,061,000 for the year ended February 28, 2015, an increase of $58,000.

During the year ended February 29, 2016, we expended approximately $113,000 for travel and entertainment as compared to $157,000 for the year ended February 28, 2015, a decrease of $44,000.

General and Administrative:

General and administrative costs increased $67,000 to $1,100,000 for the year ended February 29, 2016 as compared to $1,033,000, for the year ended February 28, 2015. For the year ended February 28, 2016, we experienced increases in insurance expense, depreciation expense, and corporate and other miscellaneous expenses. These increases were offset by a decrease in bad debt expense.

Operating Income – Ultrasonic Spraying:

Our operating income for the year ended February 29, 2016 was $804,000 as compared to $922,000 for the year ended February 28, 2015, a decrease of $118,000 or 13%. During the current year, our gross profit increased by $419,000 when compared to the prior year. The increase in gross profit was offset by an increase in Research and Development costs, Marketing and Selling expenses and General and Administrative expenses, which collectively increased by $537,000 when compared to the prior year.

Rental Real Estate Operations:

For the year ended February 29, 2016, our real estate operations generated $95,000 in rental income from unrelated third parties as compared to $92,000 for the year ended February 28, 2015. Our real estate operations incurred $108,000 in operating expenses compared to $114,000 for the prior year period, real estate taxes of $51,000 compared to $49,000 for the prior year period and $58,000 in interest expense compared to $63,000 for the prior year period. For the year ended February 29, 2016, our real estate operations reported a net loss of $122,000 compared to a net loss of $134,000 for the prior year period. The reported losses exclude any inter-company rent.

A summary of our real estate operations is as follows:

For the years ended February 29, 2016 and February 28, 2015, net cash outflows related to the industrial park were $187,000 and $269,000, respectively. These cash outflows are net of rental income and depreciation expense and include the principal payments on the industrial park’s mortgage and the costs of capital improvements. Prior to purchasing the industrial park in December 2010, our annual rental expense was approximately $136,000 or $7.14 per square foot. If we are able to lease additional vacant space, it will provide positive cash flow for the industrial park when compared to our prior rental payments of $136,000.

Our rental income was approximately $6.00 per square foot, based on 15,600 square feet leased to third parties for the years ended February 29, 2016 and February 28, 2015.

Interest Income, Interest Expense and Income Taxes:

Interest income increased to $55,000 for the year ended February 29, 2016 as compared to $33,000 for the year ended February 28, 2015. Our present investment policy is to invest excess cash in highly liquid mutual funds. Our holdings are rated at or above investment grade.

Interest expense decreased to $58,000 for the year ended February 29, 2016 as compared to $65,000 for the year ended February 28, 2015.

We recorded income tax expense of $195,000 for the year ended February 29, 2016 as compared to $219,000 for the year ended February 28, 2015. The details of the current year’s tax expense is explained in Note 12 in our financial statements.

Net Income:

For the year ended February 29, 2016, we had net income of $548,000 as compared to $606,000 for the year ended February 28, 2015. The decrease in our net income is due to an increase in operating expenses which was offset by an increase in gross profit.

For the years ended February 29, 2016 and February 28, 2015, we do not believe that our sales revenue or net income has been adversely affected by the impact of inflation or changing prices.

Other Comprehensive Loss

Net unrealized loss on marketable securities:

As of February 29, 2016, certain of our marketable securities were in an unrealized loss position. Unrealized losses are principally due to changes in fair value of the investments held as available-for-sale. Because we have the ability and intent to hold the securities until maturity, or for the foreseeable future as classified as available-for-sale, we do not deem the decline to be other-than-temporary.

As of February 29, 2016, our unrealized loss on available-for-sale securities was $70,140.

Off - Balance Sheet Arrangements

We do not have any Off - Balance Sheet Arrangements as of February 29, 2016.28, 2018.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions and conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. As of February 29, 2016,28, 2018, management believes there are no critical accounting policies applicable to the Company that are reflective of significant judgments and or uncertainties.

Stock-Based Compensation

The computation of the expense associated with stock-based compensation requires the use of a valuation model. ASC 718 is a complex accounting standard, the application of which requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. We currently use a Black-Scholes option pricing model to calculate the fair value of stock options. We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. ASC 718 requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.

Impact of New Accounting Pronouncements

AllIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services. In addition, ASU 2014-09 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The ASU is effective for fiscal years beginning after December 15, 2017.

The new revenue standard is principle based and interpretation of those principles may vary from company to company based on their unique circumstances. It is possible that interpretation, industry practice, and guidance may evolve as companies and the accounting profession work to implement this new standard. The Company is still in the process of evaluating the effect of the new standard on the Company’s historical financial statements and disclosures. While the Company has not completed its evaluation, the Company currently believes that the impact to revenue and expense recognized will not be material to any of the years presented.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”.  ASU 2018-02 was issued to allow the reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effect resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017.  The Tax Cuts and Jobs Act, among other things, reduced the corporate tax rate from 35% to 21%, which required the re-evaluation of any deferred tax assets and liabilities at the lowered tax rate which potentially could leave a disproportionate tax effect in accumulated other comprehensive income. ASU 2018-02 allows for the election to reclassify these stranded tax effects to retained earnings. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for public business entities for reporting periods for which financials statements have not yet been issued. The Company is currently evaluating the impact of adopting ASU 2018-02.

Other than, Accounting Standards Update (“ASU”) No. 2014-09 and ASU 2018-02 discussed above, all new accounting pronouncements issued but not yet effective have been deemed to be not applicable orto the Company. Hence, the adoption of suchthese new accounting pronouncementpronouncements, once effective, is not expected to have a materialan impact on the financials.Company.

Our financial statements are presented on pages 32 to 4849 of this Report.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”)) as of the end of the period covered by this annual report on Form 10-K.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of such date, at a reasonable level of assurance, in ensuring that the information required to be disclosed by us in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Chairman & CEO (principal executive officer) and Chief Financial Officer (principal accounting officer), we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management has concluded that our internal control over financial reporting was effective as of February 29, 2016.28, 2018. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART III

(a)      Identification of Directors

* Member of the Audit Committee.

The Board of Directors is divided into two classes. The directors in each class serve for a term of two years. The terms of the classes are staggered so that only one class of directors is elected at each annual meeting of the Company. The terms of Dr. Mowbray and Messrs. Handler, Haskell and Schwartz run until the annual meeting to be held in 2016.2018, and in each case until their respective successors are duly elected and qualified. The terms of Drs. Coccio and Riemer and Messrs. Strasburg and Harshbarger run until the annual meeting to be held in 2017, and in each case until their respective successors are duly elected and qualified.2019.

Audit Committee

The Company’s Board of Directors has an Audit Committee composed of “independent directors”, Edward J. Handler, Eric Haskell, CPA and Philip A. Strasburg, CPA, as Chairman. The “audit committee financial expert” designated by the Board is Philip A. Strasburg. The Company considers Mr. Strasburg to be an “independent director”.

The Audit Committee is responsible for (i) selecting an independent public accountant for ratification by the stockholders, (ii) reviewing material accounting items affecting the consolidated financial statements of the Company, and (iii) reporting its findings to the Board of Directors.

Nominating Committee

There have been no changes to the procedures by which shareholders may recommend nominees to the Board of Directors.

The foregoing officers are appointed for terms of one year or until their successors are duly elected and qualified or until terminated by the action of the Board of Directors. There are no arrangements or understandings between any executive officer and any other persons(s) pursuant to which he was or is to be selected as an officer.

Business Experience

STEPHEN J. BAGLEY, CPA was appointed Chief Financial Officer in June 2005. From 1987 to 1991 he worked in public accounting in various capacities. From 1992 to 2005, he held various leadership positions as Controller, Chief Financial Officer and Vice President of Finance for companies with up to $45,000,000 in revenues. Mr. Bagley earned a Bachelor of Science degree from The State University of NY – College at Oneonta and an MBA from Marist College. He was licensed as a CPA in 1990. Mr. Bagley is a past President of the Board of Education for the New Paltz Central School District and a past Chairman of the Audit and Finance Committee for the District.

BENNET D. BRUNTIL was appointed Vice President in March 2018. Mr. Bruntil joined Sono-Tek in 2007 as a Regional Sales Manager and has served as Marketing Brand Manager and Director of the Electronics and Advanced Energy Division. Mr. Bruntil has experience in branding and product development and has successfully implemented sales strategies, launched new products and management of a diverse product line. Prior to joining Sono-Tek, Mr. Bruntil was a branch manager in the retail banking industry. He is a graduate of Central Connecticut State University with a major in psychology and a concentration in sociology.

DR. CHRISTOPHER L. COCCIO was appointed President and Chief Executive Officer of Sono-Tek on April 30, 2001, has been a Director of the Company since June 1998, and was appointed Chairman in August 2007. From 1964 to 1996, he held various engineering, sales, marketing and management positions at General Electric Company, with P&L responsibilities for up to $100 million in sales and 500 people throughout the United States. He also won an ASME Congressional Fellowship and served with the Senate Energy Committee in 1976. His business experience includes both domestic and international markets and customers. He founded a management consulting business in 1996, and was appointed a legislative Fellow on the New York State Assembly’s Legislative Commission on Science and Technology from 1996 to 1998. From 1998 to 2001, he worked with Accumetrics Associates, Inc., a manufacturer of digital wireless telemetry systems, as Vice President of Business Development and member of the Board of Advisors. Dr. Coccio received a B.S.M.E. from Stevens Institute of Technology, an M.S.M.E. from the University of Colorado, and a Ph.D. from Rensselaer Polytechnic Institute in Chemical Engineering.

Key attributes, Experience and Skills: Dr. Coccio brings his strategicvisionstrategic vision for our Company to the Board together with his leadership, business experience and investor relations skills. Dr. Coccio has an immense knowledge of our Company and its related applications which is beneficial to the Board. Dr. Coccio’s service as Chairman and CEO bridges a critical gap between the Company’s management and the Board, enabling the Board to benefit from management’s perspective on the Company’s business while the Board performs its oversight function.

ROBB W. ENGLEjoined Sono-Tek in 2000 as a Field Service Technician and became Vice President of Engineering in January 2013. Mr. Engle created the Sono-Tek Service Department and led the development of key products in his leadership role of our engineering resources. As Vice President of Engineering, he directs the engineering department, service department, IT and Sono-Tek laboratory services. Mr. Engle was formally trained and certified by the U.S. Navy as a Nuclear Operator where he was recognized with an induction into the Navy League Memorial for meritorious service and the advancement of training techniques. He also served with honors on board a submarine and earned the prestigious Sub-Surface Warfare (E) Insignia.

EDWARD J. HANDLER, III, Esq., is a retired partner from Kenyon & Kenyon, a law firm that provided intellectual property advice to the Company. Mr. Handler became a Director of the Company on October 1, 2004, coincident with his retirement from his law firm. Mr. Handler has 40 years of experience in all aspects of intellectual property, including patents, trade secrets, trademarks and copyrights, including litigation and other adversarial proceedings. Mr. Handler is Chairman and CEO of The Bronx Project, Inc., a private Delaware corporation active in the area of therapeutics for acute (CNS) inflammatory conditions. Mr. Handler is past President of the West Point Society of New York and a past Trustee of the Association of Graduates, U.S. Military Academy. He holds a J.D. degree from the University of Virginia Law School and a B.S. in Engineering Science from the United States Military Academy.

Key attributes, Experience and Skills: Mr. Handler’s extensive experience as an attorney enables him to bring valuable strategic insights to the Board. Mr. Handler’s past experience as the Company’s intellectual property attorney provides him with an in depth knowledge of the Company and its related market applications. Mr. Handler also brings leadership and oversight experience to the Board.

R. STEPHEN HARSHBARGERjoined Sono-Tek in 1993. He was appointed President of the Company in 2012 and became a Director in August 2013. As President, he directs the Company’s Sales, Marketing, Engineering, Service, and Manufacturing Operations. Prior to assuming his present position, Mr. Harshbarger served as Sales Engineer, World Wide Sales and Marketing Manager, Vice President & Director of Electronics and Advanced Energy (E&AE) and Executive Vice President. In his years managing the sales organization, he established a worldwide distribution and representative network in more than 40 countries consisting of more than 300 persons, with revenue growth of greater than 300%. He has over 20 years of experience in ultrasonic coating equipment for the electronics, medical device and advanced energy industries. Prior to joining Sono-Tek, Mr. Harshbarger was the Sales and Marketing Manager for Plasmaco Inc., a world leader in the development of flat panel displays. In that position, he established their distribution network, participated in venture capital funding, and introduced the first flat panel technology to Wall Street trading floors.  He is a graduate of Bentley University, with a major in Finance and a minor in Marketing.

Key attributes, Experience and Skills: Mr. Harshbarger is among a small handful of ultrasonic coating experts in the world. He has a proven track record of identifying, developing and implementing the technology for new markets and applications. His expertise in ultrasonic coating brings specific product application insights to the Board. Mr. Harshbarger also brings leadership and oversight experience to the Board.

ERIC HASKELL, CPA has been a Director since August 2009. He has over 3040 years of experience in senior financial positions at several public and private companies.  He has significant expertise in the areas of acquisitions and divestitures, strategic planning and investor relations.  From December 2005 through March 2008, Mr. Haskell served as the Executive Vice President and Chief Financial Officer of SunCom Wireless Holdings, Inc., a company providing digital wireless communications services which was publicly traded until its merger with a wholly-owned subsidiary of T-Mobile USA, Inc. in February 2008.  He also served as a member of SunCom’s Board of Directors from November 2003 through May 2007.  From 1989 until April 2004, Mr. Haskell served as the Chief Financial Officer of Systems & Computer Technology Corp., a NASDAQ listed software and services corporation.  Mr. Haskell received his Bachelors Degree in Business Administration from Adelphi University in 1969.

Key attributes, Experience and Skills: Mr. Haskell’s training and extensive experience in financial management at both public and private companies provide the Board with valuable insights. Mr. Haskell’s significant experience in acquisitions and divestitures and investor relations bring strategic judgment and experience to the Board. Mr. Haskell’s strong operational and business background complement his accounting and finance experience and are valuable resources to the Board as it exercises its oversight duties and support of the Company’s growth strategies.

DR. DONALD F. MOWBRAY has been a Director since August 2003. He has been an independent consultant since August 1997. From September 1992 to August 1997, he was the Manager of the General Electric Company’s Corporate Research and Development Mechanical Engineering Laboratory. From 1962 to 1992 he worked for the General Electric Company in a variety of engineering and managerial positions. Dr. Mowbray received a B.S. in Aeronautical Engineering from the University of Minnesota in 1960, a Master of Science in Engineering Mechanics from the University of Minnesota in 1962 and a Ph.D. from Rensselaer Polytechnic Institute in Engineering Mechanics in 1968.

Key attributes, Experience and Skills: Dr. Mowbray’s extensive research and managerial experience enables him to bring valuable insights to the Board. His knowledge of the Company’s products and the materials sciences technology underlying them has enabled him to contribute to the Company’s advanced products development and designs. Dr. Mowbray also brings leadership and oversight experience to the Board from his GE management background.

DR. JOSEPH RIEMER joined the Company in January 2007 as Vice President of Engineering, and has been a Director since August 2007. Dr. Riemer served as President from September 2007 until August 2012 when he became Vice President of Food Business Development.Development, which position he held until June 2016. Dr. Riemer holds a Ph.D. in Food Science and Technology from the Massachusetts Institute of Technology (MIT), focusing on food technology, food chemistry, biochemical analysis, and food microbiology. His experience includes seven years with Pfizer in its Adams Confectionary Division, where he was Director, Global Operations Development. Dr. Riemer has also held leading positions with several food, food ingredients, and personal care products companies. He has served in the capacities of research and development, operations, and general management. Prior to joining the Company, he was a management consultant serving clients in the food, biotech and pharmaceutical industries.

Key attributes, Experience and Skills: Dr. Riemer’s extensive research and management experience enables him to bring valuable insights to the Board. His considerable experience in the biotech, food and pharmaceutical industries bring specific product application insights to the Board. Dr. Riemer’s previous service as Vice President of Food Business Development helps to provide focus to the Board on this important marketing area. Dr. Riemer also brings leadership and oversight experience to the Board.

SAMUEL SCHWARTZ has been a Director of the Company since August 1987, and was Chairman of the Board from February 1993 to May 1999 and August 2001 to August 2007. From 1959 to 1992, he was the Chairman and Chief Executive Officer of Krystinel Corporation, a manufacturer of ceramic magnetic components used in electronic circuitry. He received a B.Ch.E. from Rensselaer Polytechnic Institute in 1941 and an M.Ch.E. from New York University in 1948.

Key attributes, Experience and Skills: Mr. Schwartz’s long-time experience as a businessman and manufacturer enables him to bring valuable operational insights to the Board. Mr. Schwartz’s experience as former Chairman of the Board enable him to bring operational insights to the Board. Mr. Schwartz also brings leadership and oversight experience to the Board.

PHILIP STRASBURG, CPA, has been a Director since August 2004. He is a retired partner from the firm of Anchin Block and Anchin, LLP and has 40 years of experience in auditing. He has served as Audit Committee Chairman since 2005. He was the lead partner on the Sono-Tek account from Fiscalfiscal 1994 to Fiscalfiscal 1996. Mr. Strasburg is a certified public accountant in New York State. He has a Master of Science in economics from The London School of Economics and Political Science and a Bachelors of Science degree from Lehigh University, where he majored in business administration.

Key attributes, Experience and Skills: Mr. Strasburg’s training and extensive experience in auditing provide the Board with valuable insights and skills necessary to lead the Audit Committee. Mr. Strasburg’s strong operational and business background complement his accounting and finance experience, and are valuable resources to the Board as it exercises its oversight duties and support of the Company’s growth strategies.

(c)      Identification of Certain Significant Employees

Not applicable.

(d)      Family Relationships

None.

(e)      Involvement in certain legal proceedings

None.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's Directors, executive officers and persons who own more than ten percent of the Company's common stock to file with the Securities and Exchange Commission initial reports of beneficial ownership and reports of changes of beneficial ownership of common stock.  Such persons are also required by Securities and Exchange Commission regulations to furnish the Company with copies of all such reports.  Based solely on a review of such filings, during the year ended February 29, 2016,28, 2018, all of the Company's Directors and executive officers and holders of more than ten percent of the Company’s stock have made timely filings of such reports.

Code of Ethics

The Company has adopted a Code of Ethics for senior executives and financial officers. The Board intends that this Code satisfy the requirements of the Securities and Exchange Commission rules for a Code of Ethics that applies to senior management. A copy of the Company's Code of Ethics is posted on the "information for investors" web page located athttp:at http://www.sono-tek.com/code-of-ethics/ and is available in print to any shareholder who requests a copy.

The following table sets forth the aggregate remuneration paid or accrued by the Company for the Fiscal Years ended February 29, 2016fiscal 2018 and February 28, 2015fiscal 2017 for each named officer of the Company.

Summary Compensation Table

All Other Compensation represents Company contributions to the Company’s 401K plan.

Option awards in the above table are calculated using the Black-Scholes options pricing model which is further discussed in Note 4 – Stock Based Compensation, in the Company’s financial statements.

Officer Compensation Arrangements

During the year ended February 29, 2016,fiscal 2018, Dr. Coccio was compensated at a rate of $150,000 per annum.

During the year ended February 29, 2016,fiscal 2018, Mr. Harshbarger was compensated at a rate of $200,000$220,000 per annum.

During the year ended February 29, 2016,fiscal 2018, Mr. Bagley was compensated at a rate of $140,000$155,000 per annum.

In addition, each named officer earned bonus compensation based on the achievement of certain operating objectives.

Outstanding Equity Awards At Fiscal Year End

¹7,20066,000 of these options vested on March 15, 2018, 67,000 of these options will vest on 02/20/2017.

² 15,120March 15, 2019 and 34,000 of these options will vest on February 20, 2017 and 8,640March 15, 2020.

² 36,667 of these options vested on March 15, 2019, 36,667 of these options will vest on February 20, 2018.March 15,2020 and 36,666 of these options will vest on March 15, 2021.

³20,000 of these options vested on March 15, 2018, 33,333 of these options will vest on March 15, 2019, 23,333 of these options will vest on March 15, 2020 and 13,334 of these options will vest on March 15, 2021.

Estimated Payments and Benefits Upon Termination or Change in Control

On September 1, 2007, the Company entered into identical Executive Agreements with Stephen J. Bagley, Chief Financial Officer and Christopher L. Coccio, Chief Executive Officer. The Company also entered into an Executive Agreement with R. Stephen Harshbarger, President, on March 5, 2008. The agreements, as subsequently amended, provide that in the event of a change of control of the Company followed by a termination of the executives’ employment under certain circumstances, the officers shall receive severance payments equal to two years of the executive’s annual base, commissions and bonus compensation paid by the Company for the previous calendar year. 

Based on last year’s salary arrangements, if the rights of the foregoing officers were to be triggered following a change of control, they would be entitled to the following payments from the Company: Stephen J. Bagley $309,000,$345,000, Christopher L. Coccio $358,000$360,000 and R. Stephen Harshbarger $410,000.$499,000.

Severance Agreements

On October 20, 2017, the Company entered into identical Executive Agreements with Stephen J. Bagley, Chief Financial Officer, Christopher L. Coccio, Chief Executive Officer and R. Stephen Harshbarger, President. The agreements provide that in the event of termination of the executive’s employment, other than for the cause, the officers shall receive severance payments equal to two weeks of compensation for each full year employed by the Company.

Compensation of Directors

Each non-employee director receives $1,000 for each meeting attended. Directors who are employees of the Company receive no additional compensation for serving as directors. For the year ended February 29, 2016,28, 2018, director compensation was as follows:

20162018 Director Compensation

The following information is furnished as of May 19, 201610, 2018 to indicate beneficial ownership of the Company's Common Stock by each Director, by each named executive officer, by all Directors and executive officers as a group, and by each person known to the Company to be the beneficial owner of more than 5% of the Company's outstanding Common Stock. Such information has been furnished to the Company by the indicated owners. Unless otherwise indicated, the named person has sole voting and investment power.

The above ownership percentages are based on 14,955,40014,989,003 shares outstanding as of April 29, 2016.May 10, 2018.

*c/o Sono-Tek Corporation, 2012 Route 9W, Milton, NY 12547.

** Less than 1%

¹ Includes 20,000 options currently exercisable issued under the Company’s Stock Incentive Plans.

² Includes 2,000 shares held in the name of Dr. Coccio’s wife.

²³Includes 61,57944,797 shares owned jointly with Mr. Handler’s wife, 35,929 shares in the name of Mr. Handler’s wife and 30,000 options currently exercisable issued under the Company’s Stock Incentive Plans.

³⁴Includes 48,240178,200 options currently exercisable issued under the Company’s Stock Incentive Plans.

⁴⁵Represents 20,000 options currently exercisable issued under the Company’s Stock Incentive Plans.

⁵⁶Includes 20,000 options currently exercisable issued under the Company’s Stock Incentive Plans.

⁶⁷Includes 30,000 options currently exercisable issued under the Company’s Stock Incentive Plans

⁷⁸Includes 10,000 shares in the name of Mr. Strasburg’s wife and 40,00020,000 options currently exercisable issued under the Company’s Stock Incentive Plans.

⁸9The group total includes 225,320405,600 options currently exercisable issued under the Company’s Stock Incentive Plans. The group total does not include 351,000 options that are currently unexercisable. The group total includes 9,8965,896 shares and 37,08077,400 exercisable options held by Robb Engle, .a Vice President of Engineering and 2,516 shares and 10,000 exercisable options held by Bennett Bruntil, a Vice President.

Securities Authorized for Issuance Under Equity Compensation Plans:

EQUITY COMPENSATION PLAN INFORMATION

Description of Equity Compensation Plans:

2013 Stock Incentive Plan

Under the 2013 Stock Incentive Plan, as amended ("2013(the "2013 Plan"), options can be granted to officers, directors, consultants and employees of the Company and its subsidiaries to purchase up to 2,500,000 shares of the Company's common stock. Under the 2013 Plan options expire ten years after the date of grant. As of February 29, 2016,28, 2018, there were 246,600744,100 options outstanding under the 2013 plan.

Under the 2013 Stock Incentive Plan, option prices must be at least 100% of the fair market value of the common stock at time of grant. For qualified employees, except under certain circumstances specified in the plan or unless otherwise specified at the discretion of the Board of Directors, no option may be exercised prior to one year after date of grant, with the balance becoming exercisable in cumulative installments over a three year period during the term of the option, and terminating at a stipulated period of time after an employee's termination of employment.

2003 Stock Incentive Plan

Under the 2003 Stock Incentive Plan, as amended ("2003(the "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 of the Company's common shares. As of February 29, 2016,28, 2018, there were 217,500168,000 options outstanding under the 2003 Plan, under which no additional options may be granted.

Transactions With Related Persons – None

Independence of Directors

The Company’s Board of Directors is comprised of fivesix “independent directors”, as that term is defined under NASDAQ rules, and threetwo directors who are not “independent directors”. The Company’s “independent directors” are Samuel Schwartz, Donald Mowbray, Edward Handler, Eric Haskell, Joseph Riemer and Philip Strasburg. Christopher Coccio Joseph Riemer and R. Stephen Harshbarger are employees of the Company and are therefore not independent.

Audit Fees

For theeach of fiscal years ended February 29, 20162018 and February 28, 2015,fiscal 2017, the Company paid or accrued fees of approximately $46,500 for services rendered by Liggett & Webb, P.A., its independent auditors. These fees included audit and review services.

Audit Related Fees - None

Tax Fees

For theeach of fiscal years ended February 29, 20162018 and February 28, 2015,fiscal 2017, the Company paid or accrued tax preparation fees of approximately $5,500 and $6,700, respectively, for services rendered by Liggett & Webb, P.A., its independent auditors.

All Other Fees – None

Pre-Approval Policies and Procedures

The Audit Committee’s current policy is to pre-approve all audit and non-audit services that are to be performed and fees to be charged by the Company’s independent auditor to assure that the provision of these services does not impair the independence of the auditor. The Audit Committee pre-approved all audit and non-audit services rendered by the Company’s principal accountants in 2016fiscal 2018 and 2015.

fiscal 2017.

PART IV

SONO-TEK CORPORATION

FORM 10-K

ITEM 7

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

FOR THE YEARS ENDED FEBRUARY 29, 201628, 2018 and FEBRUARY 28, 20152017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheets at February 29, 201628, 2018 and February 28, 20152017

Consolidated Statements of Operations and Comprehensive Income

For the Years Ended February 29, 201628, 2018 and February 28, 20152017

Consolidated Statements of Stockholders' Equity

For the Years Ended February 29, 201628, 2018 and February 28, 20152017

Consolidated Statements of Cash Flows

For the Years Ended February 29, 201628, 2018 and February 28, 20152017

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Sono-Tek Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Sono-Tek Corporation (the "Company") as of February 29, 201628, 2018 and February 28, 2015 and2017, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the years then ended. These financial statements areended, and the responsibility ofrelated notes (collectively referred to as the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)"financial statements"). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 29, 201628, 2018 and February 28, 2015,2017, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted accounting principles in the United States.States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Liggett & Webb P.A.

LIGGETT
Liggett & WEBB,Webb, P.A.

Certified Public Accountants

We have served as the Company’s auditor since 2012.

New York, New YorkNY

May 25, 201624, 2018

SONO-TEK CORPORATION

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

SONO-TEK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

See notes to consolidated financial statements.

SONO-TEK CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED FEBRUARY 29, 201628, 2018 AND FEBRUARY 28, 20152017