UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

SONO TEK CORP

For the quarterly period ended:November 30, 20172023

OR

Commission File No.:0-16035000-16035

(Exact name of registrant as specified in its charter)

2012 Rt. 9W, Milton, NY12547

(Address of Principal Executive Offices) (Zip Code)

Issuer's telephone no., including area code:(845)795-2020

Securities Registered Pursuant to Section 12(b) of the Act:

Indicate by check mark 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 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 Yes☐ No

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

Large Accelerated Filer ☐     Accelerated Filer ☐     Smaller reporting company ☑

Non Accelerated Filer☐  (Do not check if a 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 ☐   NO  Yes    ☑No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

SONO-TEK CORPORATION

INDEX

SONO-TEK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three and Nine Months Ended November 30, 2023

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION

Notes to Condensed Consolidated Financial StatementsNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months NovemberNINE MONTHS ENDED NOVEMBER 30, 20172023 and 20162022

(Unaudited)

NOTE 1: BUSINESS DESCRIPTION

Sono-Tek Corporation (the “Company”, “Sono-Tek”, “We” or “Our”) was incorporated in New York on March 21, 19751975. We are the world leader in the design and manufacture of ultrasonic coating systems for applying precise, thin film coatings to add functional properties, protect or strengthen surfaces on parts and components for the purpose of engagingmicroelectronics/electronics, alternative energy, medical, industrial and emerging research & development/other markets. We design and manufacture custom-engineered ultrasonic coating systems incorporating our patented technology, in combination with strong applications engineering knowledge, to assist our customers in achieving their desired coating solutions.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the development, manufacture,United States (“GAAP”) for interim financial information with the instructions for Form 10-Q and saleArticle 8 of ultrasonic liquid atomizing nozzles, whichRegulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are sold world-wide. Ultrasonic nozzle systems atomize low to medium viscosity liquids by converting electrical energy into mechanical motionnot necessarily indicative of what the results will be for the fiscal year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended February 28, 2023 (“fiscal year 2023”) contained in the form of high frequency ultrasonic vibrations that break liquids into minute drops that can be applied to surfaces at low velocity.

BasedCompany’s 2023 Annual Report on its core technology of ultrasonic liquid atomizing nozzles,Form 10-K filed with the Company has developed intellectual property in the area of precision spray coating of liquids.SEC on May 25, 2023. The Company is presently engaged in the development, manufacture, sales, installation and servicing of diverse ultrasonic coating equipment for various manufacturing industries worldwide.Company’s current fiscal year ends on February 29, 2024 (“fiscal 2024”).

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Available-For-Sale Investments –The Company’s available for sale investments are carried at fair value with the unrealized gains or losses, net of tax, included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized losses and declines in value below cost judged to be other than temporary, if any, are included as a component of asset impairments expense in the consolidated statement of operations. The fair value of the available-for-sale investments are based on quoted market prices. The Company’s fair value determination method is discussed below in “Fair Value of Financial Instruments.”

Cash and Cash Equivalents -Cash and cash equivalents consist of money market mutual funds, short term commercial paper and short-term certificates of deposit with original maturities of 90 days or less.

At November 30, 2023, $2,666,264 of the Company’s bank deposits exceeded the insured limit provided by the Federal Deposit Insurance Corporation.

Consolidation - The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Sono-Tek Industrial Park, LLC (“SIP”) in conformity with generally accepted accounting principles in the United States (“GAAP”). SIP operates as a real estate holding company for the Company’s real estate operations. All intercompany accounts and transactions have been eliminated in consolidation.

Earnings Per Share -Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Equipment, Furnishings and Leasehold Improvements – Equipment, furnishings and leasehold improvements are stated at cost. Depreciation of equipment and furnishings is computed by use of the straight-line method based on the estimated useful lives of the assets, which range from three to five years.

Fair Value of Financial Instruments - The Company follows the guidance in the “Fair Value Measurements and Disclosure Topic” of theapplies Accounting Standards Codification for assets and liabilities measured at fair value on a recurring basis. This guidance establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements,(“ASC”) 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and expands disclosure about suchclarifies the definition of fair value measurements. The guidancewithin that framework. ASC 820 defines fair value as an exit price, which is the price that would be received to sellfor an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants aton the measurement date. Additionally, the guidanceThe fair value hierarchy established in ASC 820 generally requires the use of valuation techniques thatan entity to maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are prioritizeddeveloped based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.

The carrying amounts of financial instruments reported in the accompanying unaudited condensed consolidated financial statements for current assets and current liabilities approximate the fair value because of the immediate or short-term maturities of the financial instruments.

The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:

Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 1: Quoted2 — Inputs to the fair value measurement are determined using prices in active markets.

Level 2: Observable market-basedfor recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, or unobservable inputssuch as interest rates and yield curves that are corroborated by market data.observable at commonly quoted intervals.

Level 3: Unobservable3 — Inputs to the fair value measurement are unobservable inputs, for which there issuch as estimates, assumptions, and valuation techniques when little or no market data which requireexists for the use of the reporting entity’s own assumptions.assets or liabilities.

The fair values of financial assets of the Company were determined using the following categories at November 30, 20172023 and February 28, 2017,2023, respectively:

 Schedule of Significant Accounting Policies - Fair values of financial assets of the Company

Marketable Securities include mutual funds, certificates of $4,447,496deposit and $2,342,184US Treasury securities, totaling $9,609,000 and $8,090,000 that are considered to be highly liquid and easily tradeable as of November 30, 20172023 and February 28, 2017,2023, respectively. TheseMutual funds and US Treasury securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 and certificates of deposit are classified as Level 2 within the Company’s fair value hierarchy. The Company’s marketable securities are considered to be available-for-sale investments as defined under ASC 320 “Investments – Debt and Equity Securities.”

Income Taxes - The Company accounts for income taxes under the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

Intangible Assets -Include costs The Company uses a recognition threshold and a measurement attribute for financial statement recognition and measurement of patent applications which are deferred and chargedtax positions taken or expected to operations over seventeen years for domestic patents and twelve years for foreign patents. The accumulated amortizationbe taken in a return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. As of patents is $147,000 and $139,000 at November 30, 20172023 and February 28, 2017, respectively. Annual amortization expense2023, there were no accruals for uncertain tax positions.

Inventories - Inventories are stated at the lower of such intangible assetscost or net realizable value. Cost is expecteddetermined using the first-in, first-out (FIFO) method for raw materials, subassemblies and work-in-progress and the specific identification method for finished goods. Management compares the cost of inventory with the net realizable value and, if applicable, an allowance is made for writing down the inventory to be approximately $11,000 per yearits net realizable value, if lower than cost. On an ongoing basis, inventory is reviewed for potential write-down for estimated obsolescence or unmarketable inventory based upon forecasts for future demand and market conditions.

Land and Buildings - Land and buildings are stated at cost. Buildings are being depreciated by use of the next fivestraight-line method based on an estimated useful life of forty years.

At November 30, 2023 and February 28, 2023, the Company had land stated at cost of $250,000.

At November 30, 2023 and February 28, 2023, the Company had buildings, equipment, furnishings and leasehold improvements totaling, $2,850,100 and $2,624,996, respectively, net of accumulated depreciation.

Interim Reporting

Management Estimates - The attached summarypreparation of the unaudited condensed consolidated financial information does not include all disclosures required to be included in a complete set of financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Such disclosures were included with the financial statements of the Company at February 28, 2017, and included in its report on Form 10-K. Such statements should be read in conjunction with the data herein.

The financial information reflects all adjustments, normal and recurring, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of financial statements in conformity with generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results for such interim periods are not necessarily indicative of the results to be expected for the year.

Inventories -Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for raw materials, subassemblies and work-in-progress and the specific identification method for finished goods.

Land and Buildings –Land and buildings are stated at cost. Buildings are being depreciated by use of the straight-line method based on an estimated useful life of forty years.

Long-Lived Assets -The Company periodically evaluates the carrying value of long-lived assets, including intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.

Management Estimates -The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theunaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements-Pronouncements - In June 2016, the FASB issued ASU 2016-13 - Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments. Codification Improvements to Topic 326, Financial Instruments – Credit Losses, have been released in November 2015,2018 (2018-19), November 2019 (2019-10 and 2019-11) and a January 2020 Update (2020-02) that provided additional guidance on this Topic. This guidance replaces the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classificationcurrent incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of Deferred Taxes” (“a broader range of reasonable and supportable information to inform credit loss estimates. For SEC filers meeting certain criteria, the amendments in this ASU 2015-17”). The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. ASU 2015-17 isare effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016.2019. For SEC filers that meet the criteria of a smaller reporting company (including this Company) and for non-SEC registrant public companies and other organizations, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption iswill be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated the impact of this guidance on its consolidated financial statements and the standard may be applied either retrospectively or on a prospective basisimpact is not material to all deferred tax assets and liabilities. The Company adopted ASU 2015-17 during the first quarter of fiscal year 2018 on a retrospective basis. Accordingly, the Company reclassified the current deferred taxes to noncurrent on its February 28, 2017 Consolidated Balance Sheet, which increased noncurrent deferred tax assets by $315,171. There was no impact on the results of operations as a result of the adoption of ASU 2015-17.Company’s consolidated financial statements.

Other than Accounting Standards Update (“ASU”) No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”)2016-13 discussed above, all new accounting pronouncements issued but not yet effective have been deemed to be not applicable to the Company. Hence, the adoption of these new accounting pronouncements, once effective, areis not expected to have an impact on the Company.

Reclassifications –Product Warranty Where appropriate, certain reclassifications- Expected future product warranty expense is recorded when the product is sold.

Revenue Recognition - The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:

Uncertainties - Although the World Health Organization declared in early May of 2023 that COVID-19 no longer constitutes a public health emergency the Company continues to actively monitor the COVID-19 developments and potential impact on the Company's employees, business and operations. The effects of COVID-19 did not have been madea significant impact on the Company's result of operations or financial condition for the three months ended November 30, 2023. However, given the evolution of the COVID-19 situation, and the global responses to curb its spread, the Company is not able to estimate the effects COVID-19 may have on future results of operations or financial condition.

NOTE 3: REVENUE RECOGNITION

A majority of the Company’s sales revenue is derived primarily from short term contracts with customers which are primarily in effect for less than twelve months. Sales revenue from manufactured equipment transferred at a single point in time accounts for a majority of the Company’s revenue.

Sales revenue is recognized when control of the Company’s manufactured equipment is transferred to its customers, in an amount that reflects the consideration the Company expects to receive based upon the agreed transaction price. The Company’s performance obligations are satisfied when its customers take control of the purchased equipment, which is based on the contract terms. Based on prior experience, the Company reasonably estimates its sales returns and warranty reserves. Sales are presented net of discounts and allowances. Discounts and allowances are determined when a sale is negotiated. The Company does not grant its customers or independent representatives, the ability to return equipment nor does it grant price adjustments after a sale is complete.

The Company does not capitalize any sales commission costs related to the prior periodacquisition of a contract. All commissions related to conform toa performance obligation that are satisfied at a point in time are expensed when the presentationscustomer takes control of the current period.purchased equipment.

The Company applies the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one-year or less.

At November 30, 2023, the Company had received approximately $3,143,000 in cash deposits, representing contract liabilities, and had issued a Letter of Credit in the amount of $60,294 to secure a cash deposit submitted by a customer. At November 30, 2023, the Company was utilizing $60,294 of its available credit line to collateralize this letter of credit.

At February 28, 2023, the Company had received $2,838,000 in cash deposits for customer orders. During the nine months ended November 30, 2023, the Company recognized $2,633,000 of these deposits as revenue.

The Company’s sales revenue by product line is as follows:

Schedule of Revenue Recognition - Sales Revenue by Product Line

NOTE 3: 4: INVENTORIES

Inventories consist of the following:

 Schedule of Inventory, Current

NOTE 4: STOCK OPTIONS AND WARRANTS

Stock Options – Under the 2013 Stock Incentive Plan ("2013 Plan"), options can be granted to officers, directors, consultantsThe Company maintains an allowance for slow moving inventory for raw materials 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 offinished goods. The recorded allowances at November 30, 2017, there were 744,100 options outstanding under the 2013 Plan.

Under the 2003 Stock Incentive Plan, as amended ("2003 Plan")2023 and February 28, 2023, totaled $374,000 and $332,525, until May 2013, options were available to be granted to officers, directors, consultants and employees of the Company and its subsidiaries to purchase up to 1,500,000 shares of the Company's common stock. As of November 30, 2017, there were 173,500 options outstanding under the 2003 Plan, under which no additional options may be granted.respectively.

NOTE 5: STOCK BASEDSTOCK-BASED COMPENSATION

Stock Options - Until May 2023, options were available to 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 Company’s 2013 Stock Incentive Plan (the "2013 Plan"). Under the 2013 Plan options expire ten years after the date of grant. As of November 30, 2023, there were 247,483 options outstanding under the 2013 Plan, of which 171,704 are vested. No additional options may be granted under the 2013 Plan.

In August 2023, the Company’s shareholders approved the Company’s 2023 Stock Incentive Plan (the “2023 Plan”) under which 2,500,000 options may be granted to officers, directors, consultants and employees of the Company and its subsidiaries. As of November 30, 2023, there were 58,810 options outstanding under the 2023 Plan.

The Company accounts for stock based compensation under ASC 718, “Share Based Payments.” which requires companies to expense the value of employee stock options and similar awards.

During the nine months ended November 30, 2023, the Company granted options to acquire 47,830 shares to employees exercisable at prices ranging from $4.79 to $5.60 and options to acquire 18,380 shares to non-employee members of the board of directors with an exercise price of $4.79. The options granted to employees and directors vest over three years 3 and expire in ten 10 years. The options granted during the first nine months of fiscal 2024 had a combined weighted average grant date fair value of $3.06 per share.

The weighted-average fair value of options are estimated on the date of grant using the Black-Scholes options-pricing model. The weighted-average Black-Scholes assumptions are as follows:

In computing the impact, the fair valueSchedule of each option is estimated on the date of grant based on theweighted-average Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.

For the three and nine months ended November 30, 20172023 and 2016,2022, net income and earnings per share reflect the actual deduction for stock-based compensation expense. The impact of applying ASC 718 approximated $32,000 and $33,000 in additional compensation expense during each ofFor the nine month periodsthree months ended November 30, 20172023 and 2016,2022, the Company recognized approximately $53,000 and $61,000 of stock based compensation expense, respectively. For the nine months ended November 30, 2023 and 2022, the Company recognized approximately $147,000 and $173,000 of stock based compensation expense, respectively. Such amounts are included in general and administrative expenses on the statementunaudited condensed consolidated statements of operations. The expense for stock-based compensation is a non-cash expense item.income.

NOTE 6: EARNINGS PER SHARE

The denominators for the calculation of diluted earnings per share at November 30, 2017 and 2016 are calculated as follows:

As of November 30, 2017, the unrealized gain on available-for-sale securities was $153,387.

The following table sets forth the changes in Accumulated Other Comprehensive Gain for the nine months ended November 30, 2017:computation of basic and diluted earnings per share:

NOTE 8: LONG TERM DEBT

Long-term debt consistsSchedule of the following:Computation of basic and diluted earnings per share

NOTE 9: 7: REVOLVING LINE OF CREDIT

The Company has a $750,000$1,500,000 revolving line of credit at prime which was 4.25%8.50% at November 30, 2017. 2023 and 7.75% at February 28, 2023. The revolving credit line of credit is collateralized by all of the assets of the Company, except for the landCompany’s accounts receivable and buildings.inventory. The revolving credit line of credit is payable on demand and must be retired for a 30-day period, once annually. If the Company fails to perform the 30-day annual pay down or if the bank elects to terminate the credit line, the bank may, at its option, convert the outstanding balance to a 36-month term note with payments including interest in 36 equal installments.

As of November 30, 2017,2023, $60,294 of the Company’s credit line was being utilized to collateralize letters of credit issued to customers that have remitted cash deposits to the Company on existing orders. The letters of credit expired in 2023. As of November 30, 2023, there were nooutstanding balance was $0,borrowings under the line of credit and the unused portion of the credit line was $750,000.

NOTE 10: SEGMENT INFORMATION

The Company operates in two segments: ultrasonic spray coating systems, which is the business of developing, manufacturing, selling, installing and servicing ultrasonic spray coating equipment; and real estate operations, which is the business of owning and operating the Sono-Tek Industrial Park.

All inter-company transactions are eliminated in consolidation. For the nine and three months ended November 30, 2017 and 2016, segment information is as follows:

NOTE 11: SUBSEQUENT EVENTS

The Company has evaluated subsequent events for disclosure purposes.$1,439,706.

NOTE 8: CUSTOMER CONCENTRATIONS AND FOREIGN SALES

Export sales to customers located outside the United States and Canada were approximately as follows:

Schedule of Customer Concentrations and Foreign Sales

In the first nine months of fiscal 2024 and fiscal 2023, sales to foreign customers accounted for approximately $5,944,000 and $6,225,000, or 40% and 55%, respectively, of total revenues.

During the third quarter of fiscal 2024 and fiscal 2023, sales to foreign customers accounted for approximately $2,269,000 and $2,001,000, or 40% and 56%, respectively, of total revenues.

The Company had no customers that accounted for more than 10% of sales during the first nine months of fiscal 2024. The Company had one customer which accounted for 13% of sales during the third quarter of fiscal 2024. One customer accounted for 25% of the outstanding accounts receivables at November 30, 2023.

The Company had two customers which accounted for 14% of sales during the first nine months of fiscal 2023. The Company had two customers which accounted for 21% of sales during the third quarter of fiscal 2023. Four customers accounted for 44% of the outstanding accounts receivable at February 28, 2023.

NOTE 9: COMMITMENTS AND CONTINGENCIES

The Company did not have any material commitments or contingencies as of November 30, 2023.

The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition, and cash flows. As of November 30, 2023, the Company did not have any pending legal actions.

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking StatementsFORWARD-LOOKING STATEMENTS

We discuss expectations regarding our future performance, such as our business outlook, in our annual and quarterly reports, pressnews 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.expectations and could cause actual results to differ materially. These factors include, among other considerations, general economic and business conditions; political, regulatory, tax, competitive and technological developments affecting our operations or the demand for our products; inflationary and supply chain pressures; continued abatement of the COVID-19 pandemic and any residual effects; the recovery of the Electronics/Microelectronics and Medical markets following COVID-19 related slowdowns; and further adverse effects to our supply chain; maintenance of increased order backlog, including effects of any COVID-19 related cancellations; the imposition of tariffs; timely development and market acceptance of new products;products and continued customer validation of our coating technologies; adequacy of financing; capacity additions, the ability to enforce patentspatents; maintenance of operating leverage; maintenance of increased order backlog; consummation of order proposals; completion of large orders on schedule and on budget; continued sales growth in the abilitymedical and alternative energy markets; successful transition from primarily selling ultrasonic nozzles and components to achieve increaseda more complex business providing complete machine solutions and higher value subsystems; and realization of quarterly and annual revenues within the forecasted range of sales volume and continued profitability.guidance.

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

Overview

We have developed a uniqueFounded in 1975, Sono-Tek Corporation designs and proprietary series ofmanufactures ultrasonic atomizing nozzles andcoating 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 applications that benefit from the precise, uniform, thin coatings that can be achieved. When combined with significant reductions in liquid waste and less overspray than can be achieved with ordinary pressure nozzle systems, there is lower environmental impact and lower energy use.

Ultrasonic nozzle systems atomize low to medium viscosity liquids by converting electrical energy into mechanical motion in the form of high frequency ultrasonic vibrations that break liquids into minute drops that can be applied to surfaces at low velocity. The principal advantage of these nozzle systems is that they use much less liquid than competitive nozzle systems to attain the required coatings on solar cells, fuel cells, glass, advanced textiles, food and food packaging, circuit boards, medical devices and many other coating applications. This advantage translates intoapply precise, thin films and lower costs for materials, less costly liquid consumption, less energy required for subsequent drying operations and less release into the environment of spray that would typically bounce back and scatter while using competitive nozzle systems. These factors are increasingly important to customers at a time of rising commodity and energy costs and supply limitations.

We use our core ultrasonic spray coating technology to provide both standard and customized coating solutionsfilm coatings to a wide rangemultitude of manufacturing companies, enabling themproducts for the microelectronics/electronics, alternative energy, medical and industrial markets, including specialized glass applications in construction and automotive. We also sell our products to reduce their product costsemerging research and to develop new products with superior featuresdevelopment and quality. Presently, our customers are in six major industries: electronics, advanced energy (solar and fuel cells), medical device, glass, textiles and foods. Our systems are widely used by leading high tech companies and research institutions, as well as by governmental, defense, energy and health agencies around the world.

Our diversified group of customers provides the base for both financial stability and business growth opportunities.

Market Diversity

During the past several years weother markets. We have invested significant time, monies and effortsresources to enhance our market diversity. Based ondiversity by leveraging our core ultrasonic coating technology,technology. As a result, we have increased our portfolio of products, the industries we serve and the countries in which we sell our products.

Today we serve six major industries: electronics, advancedOur ultrasonic nozzle systems use high frequency, ultrasonic vibrations that atomize liquids into minute drops that can be applied to surfaces at low velocity providing thin layers of functional or protective materials over surfaces such as glass or metals. Our solutions are environmentally-friendly, efficient and highly reliable. They enable dramatic reductions in overspray, savings in raw materials, water and energy (solarusage and fuel cells), medical device, glass, textilesprovide improved process repeatability, transfer efficiency, high uniformity and food.reduced emissions.

In recent years,We believe product superiority is imperative and that it is attained through the extensive experience we have in the coatings industry, our proprietary manufacturing know-how and skills and the unique work force we have built over the years. Our growth strategy is to leverage our innovative technologies, proprietary know-how, unique talent and experience, and global reach to further advance the use of ultrasonic coating technologies for the microscopic coating of surfaces in a substantial portionbroader array of applications that enable better outcomes for our customers’ products and processes.

We are a global business with approximately 40% of our sales originatedgenerated from outside the United States and weCanada in the first nine months of fiscal 2024. Our direct sales team and our distributor and sales representative network are geographically present directly and through distributors and trade representativeslocated in North andAmerica, Latin America, Europe and Asia. The infrastructure upon which this diversified market approach is based, includes a newly equipped process development laboratory, a strengthenedWe continue to expand our sales organization with application engineers, an engineering team with additional talentcapabilities by increasing the size of our direct sales force and the latest, most sophisticated design software tools, as well as an expanded, highly trained installationadding new distributors and service organization.

The new products whichsales representatives. In addition, we have introduced,established testing labs at our distribution partner sites in China, Taiwan, Germany, Turkey, Korea and Japan, while also expanding our first testing lab that is co-located with our manufacturing facilities in New York. These labs provide significant value for demonstrating to prospective customers the new markets that we have penetrated,capabilities of our equipment and the regions in which we now sell our products, are a strong foundation for our future sales growth and enhanced profitability.

Markets We Serve

Our diverse offerings have positionedenabling us to provide a unique and superior family of customized productsdevelop custom solutions to the six major industriesmeet their needs. Providing customers that we serve. All of these systems are based onvisit our core technology of ultrasonic spray coating. Many of these systems have been commercially proven in 24/7 working schedules, under harsh and challenging manufacturing environments, where they provide value in a continuous and reliable fashion.

1.        Electronics Industry.

We serve this industry primarily in two sectors; Printed Circuit Board (“PCB”) manufacturing and Semiconductor manufacturing.

We provide manufacturers of PCBs with state-of-the-art solder fluxers. Spray fluxers are used in the manufacturing process of PCBs to apply flux, which removes oxidation and prepares the PCB for the process of soldering components onto it.

Our ultrasonic spray fluxers reduce the amount of fluxing chemical needed, enhance the quality of the boards, and provide our customerslabs with a better product at reduced costshigh level of operations, when compared with conventional foam fluxers and pressure assisted fluxers.

We are recognizedapplication engineering expertise to develop their unique coating processes is an area of focus in our sales efforts, as a standard setter inwe continually expand Sono-Tek’s services to best support the industry and our systems are incorporated by various original equipment manufacturers (OEM) in their manufacturing lines for 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.

We also have a significant established customer base in the semiconductor industry. The semiconductor industry utilizes our ultrasonic atomizing nozzles and robotic XYZ coating platforms for the application and deposition of photo-resist onto semiconductor wafers. Manyneeds 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.customers.

2.         Advanced Energy Industry.Over the last decade, we have shifted our business from primarily selling our ultrasonic nozzles and components to a more complex business providing complete machine solutions and higher value subsystems to original equipment manufacturers (“OEMs”). This strategy has resulted in significant growth of our average unit selling price; with our larger machines often selling for over $300,000 and system prices sometimes reaching over $1,000,000. As a result of this transition, we have broadened our addressable market and we believe that we can grow sales on a larger scale. We expect that we will experience wide variations in both order flow and shipments from quarter to quarter in part due to the increase of larger orders in our sales mix.

Manufacturers

Third Quarter Fiscal 2024 Highlights (compared with the third quarter of solar cells, fuel cellsfiscal 2023 unless otherwise noted) We refer to the three-month periods ended November 30, 2023 and advanced batteries share two major technical2022 as the third quarter of fiscal 2024 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.fiscal 2023, respectively.

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

Nine Months Fiscal 2024 Highlights (compared with the capabilities to significantly reduce the consumptionfirst nine months of the expensive catalysts and nano-materials used in these manufacturing processes. Some examples of our products marketedfiscal 2023 unless otherwise noted) We refer to the advanced energy industry include: ExactaCoat FC & SC, Sonic Syringe, VersiCoat,nine-month periods ended November 30, 2023 and FlexiCoat FC & SC,2022 as the first nine-months of fiscal 2024 and SonoFlow Fusion.fiscal 2023, respectively.

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.

Our glass coating systems are primarily sold in two separate sub-markets, which we identify as “Float Glass” and “Panel Glass”.

Float Glass - 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 float glass manufacturers as their equipment of choice.

Panel Glass – Panel glass primarily refers to glass used in the manufacture of TV’s, tablets, phones, lenses and other consumer viewing devices. By using our coating equipment, manufacturers can apply a wide range of functional coatings to these devices, such as conductive layers, hard coatings, anti-reflection, and other nano-material formulations.

The equipment we offer to the glass industry is typically the WideTrack and FlexiCoat platforms.

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.RESULTS OF OPERATIONS

Products We OfferSales:

Product Sales

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

MediCoat DES 1000 / 2000 / 3000 / 4000, MediCoat IITotal sales for the third quarter and MediCoat PSI provide a full rangefirst nine months of stent coating platformsfiscal 2024 grew by 59% and 31%, respectively, driven by increased demand for uses ranging from research and development to high volume production in the application of thin layers of polymer and drug coatings to arterial stents with high precision. The system incorporates motion control of the stent during the coating process and produces coatings having excellent uniformity. The MediCoat systems use either the AccuMist or MicroMist nozzleour Multi-Axis Coating systems which are precision nozzle configurationscommonly used in applications where precise patternsthe clean energy sector. Sales of our Multi-Axis Coating systems grew by 98%, or $1.47M, to $2.96M in the third quarter of fiscal 2024. In addition, Integrated Coating System sales accelerated by 635%, or $1.2M, to $1.4M due to continued success with our newly developed float glass coating platform and coatings are required. These products minimize waste of expensive drug polymer coatings and provide high uniformity of drug addition from stent to stent. We also have additional medical coating platforms to address developing market segmentsa newly completed custom built system for drug coated balloons, catheters and other implantable devices.an important strategic customer in the solar market.

Following uncharacteristically high revenue for Printed Circuit Board “PCB” Fluxing systems for our fiscal year ended February 28, 2023, PCB Fluxing sales dipped by 75% and 48%, respectively, for the third quarter and first nine months of fiscal 2024. Also, sales to our OEM Printed Circuit Board customers that integrate our ultrasonic nozzles into their own spray fluxers declined, causing OEM sales to decrease by 47% and 41%, respectively, for the third quarter and first nine months of fiscal 2024. We believe the PCB spray fluxer market has slowed and returned to what was closer to our historical revenue norms. The dip in OEM sales was largely offset by an increase in spare parts and service related revenue, which is a growing revenue stream that falls in the Other product category.

Wide area modular coating system – designed

Market Sales

Sales to be usedthe Alternative/Clean Energy market recorded growth of 189% in applications that require efficient web-coating or wide area spraying capability. One module can cover substrates from six inches to 24 inches wide, depending on the application. Much greater widths can be achievedthird quarter of fiscal 2024, and 134% for the first nine months of fiscal 2024, which were positively impacted by linking modules together, and these systems have been applied in glass lines of up to 13 feet wide. A largea growing number of our customers transitioning from our R&D systems have been sold over the past six years, and this application holds promiseto production scale systems that carry much higher average selling prices.

Electronics market revenue decreased for the future due to costfirst nine months of fiscal year 2024, influenced by softening sales of our PCB spray fluxers.

Medical sales rebounded strongly with 53% growth in the third quarter of fiscal 2024, and environmental savings demonstrated at customer sites. It uses non-clogging ultrasonic atomizing nozzles to produce a low velocity, highly controllable spray. The WideTrack System offers significant advantages over conventional pressure-spray methods in a broad range3% growth for the first nine months of applications such as non-woven fabrics,FY 2024.

Industrial sales remain very strong, showing growth of 95% for the first nine months of fiscal 2024, influenced by shipment of two next gen float glass or odd-shaped industrial or consumer products. Sincecoating systems totaling approximately $700,000, and the ultrasonic spray can be easily controlled, it is possiblelast two machines of a multi-system order to use fewer chemicals and less water and energy in applying coatings to glass, textiles, food products and packaging materials than with traditional nozzles. This also results in reduced environmental impact due to less overspray.

a US based customer for $432,000.

Geographic Sales