Part I [Business](index=4&type=section&id=Item%201.%20Business) Sono-Tek Corporation is a global leader in designing and manufacturing ultrasonic coating systems for various industries, with **55% of fiscal 2023 sales** from outside the U.S. and Canada - Sono-Tek designs and manufactures ultrasonic coating systems for applying precise, thin film coatings across several key industries: microelectronics/electronics, alternative energy, medical, industrial, and R&D[10](index=10&type=chunk)[20](index=20&type=chunk) - The company's strategy focuses on advancing ultrasonic coating technologies, growing globally, increasing earnings through lean manufacturing, and developing new solutions to solve customer problems[25](index=25&type=chunk)[27](index=27&type=chunk) - In fiscal 2023, international sales (outside the U.S. and Canada) accounted for **55% of total net sales**. The company's two largest customers represented **14% of net sales**[24](index=24&type=chunk)[34](index=34&type=chunk) Research and Development Expenses | Fiscal Year | R&D Expense | % of Sales | | :--- | :--- | :--- | | 2023 | $2,149,000 | 14.3% | | 2022 | $1,730,000 | 10.1% | - As of February 28, 2023, the company employed **73 full-time and 11 part-time employees**[35](index=35&type=chunk) [Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces operational, financial, and market risks, including supply chain disruptions, customer concentration, and **limited stock trading volume** - The business is exposed to risks from pandemics like COVID-19, which can disrupt operations, supply chains, and customer demand[38](index=38&type=chunk)[40](index=40&type=chunk) - A significant portion of revenue comes from a few major customers. In FY2023, the two largest customers accounted for **14% of net sales, down from 24% in FY2022**[42](index=42&type=chunk) - The company has experienced challenges in procuring electronic components due to global supply chain shortages, which may continue to cause lengthened lead times[29](index=29&type=chunk)[71](index=71&type=chunk) - All products are manufactured and assembled at a single facility in Milton, New York, making operations vulnerable to disruption at this site[69](index=69&type=chunk) - International sales accounted for **55% of total net sales in FY2023**, exposing the company to risks such as regulatory changes, tariffs, and geopolitical instability[73](index=73&type=chunk) - Inflationary pressures are expected to remain elevated, potentially increasing the company's cost structure for labor, shipping, and materials[78](index=78&type=chunk) - The common stock (SOTK) has **limited trading volume**, which could make it difficult for investors to liquidate their positions[86](index=86&type=chunk) [Unresolved Staff Comments](index=23&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[108](index=108&type=chunk) [Properties](index=23&type=section&id=Item%202.%20Properties) Sono-Tek owns a **50,000 square foot industrial park** in Milton, New York, utilizing **37,000 square feet** for its operations - The company owns a **50,000 square foot industrial park** in Milton, New York, using **37,000 square feet** for its own operations[108](index=108&type=chunk) - Approximately **13,000 square feet** of the park is leased or available for lease to third parties[109](index=109&type=chunk) [Legal Proceedings](index=23&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no legal proceedings - None[110](index=110&type=chunk) [Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not Applicable[110](index=110&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=24&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on **Nasdaq Capital Market (SOTK)**, with **97 record holders and approximately 1,519 beneficial shareholders**, and no history of cash dividends, retaining earnings for business use - Common stock trades on the **Nasdaq Capital Market (SOTK)**[112](index=112&type=chunk) - As of May 18, 2023, there were **97 record holders and approximately 1,519 beneficial shareholders**[112](index=112&type=chunk) - The company has no history of paying cash dividends and plans to retain future earnings[112](index=112&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2023 net sales decreased **12% to $15.1 million** due to supply chain issues, while gross profit margin improved and backlog increased **60% to $8.5 million**, despite a **64% drop in operating income** Fiscal 2023 Financial Highlights vs. Fiscal 2022 | Metric | Fiscal 2023 | Fiscal 2022 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | **$15.1M** | **$17.1M** | **($2.0M)** | **(12%)** | | Gross Profit Margin | **50.8%** | **50.3%** | **+0.5 p.p.** | N/A | | Operating Income | **$683,000** | **$1.9M** | **($1.2M)** | **(64%)** | | Backlog (Year-End) | **$8.5M** | **$5.3M** | **+$3.2M** | **60%** | | Cash & Marketable Securities | **$11.4M** | **$10.7M** | **+$0.7M** | **7%** | [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Net sales for fiscal 2023 were $15.1 million, a 12% decrease from $17.1 million in fiscal 2022, primarily due to a 32% drop in Multi-Axis Coating Systems sales, leading to a 64% decline in operating income and 75% fall in net income Sales and Gross Profit (Fiscal Year Ended Feb 28) | | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $15,058,000 | $17,133,000 | $(2,075,000) | (12%) | | Gross Profit | $7,652,000 | $8,613,000 | $(961,000) | (11%) | | Gross Profit % | 50.8% | 50.3% | N/A | N/A | Product Sales Breakdown (Fiscal Year Ended Feb 28) | Product Line | 2023 Sales | 2022 Sales | Change (%) | | :--- | :--- | :--- | :--- | | Fluxing Systems | $1,179,000 | $691,000 | 71% | | Integrated Coating Systems | $1,114,000 | $1,182,000 | (6%) | | Multi-Axis Coating Systems | $6,785,000 | $9,912,000 | (32%) | | OEM Systems | $2,144,000 | $2,381,000 | (10%) | | Other | $3,836,000 | $2,967,000 | 29% | Market Sales Breakdown (Fiscal Year Ended Feb 28) | Market | 2023 Sales | 2022 Sales | Change (%) | | :--- | :--- | :--- | :--- | | Electronics/Microelectronics | $5,509,000 | $7,134,000 | (23%) | | Medical | $3,702,000 | $4,338,000 | (15%) | | Alternative Energy | $3,060,000 | $3,688,000 | (17%) | | Industrial | $2,440,000 | $1,055,000 | 131% | | Emerging R&D and Other | $347,000 | $918,000 | (62%) | Geographic Sales Breakdown (Fiscal Year Ended Feb 28) | Region | 2023 Sales | 2022 Sales | Change (%) | | :--- | :--- | :--- | :--- | | U.S. & Canada | $6,804,000 | $5,480,000 | 24% | | Asia Pacific (APAC) | $3,260,000 | $5,301,000 | (39%) | | Europe, Middle East, Asia (EMEA) | $3,448,000 | $5,255,000 | (34%) | | Latin America | $1,546,000 | $1,097,000 | 41% | [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital increased to $11.1 million and total cash and securities to $11.4 million at fiscal year-end 2023, driven by net income and customer deposits, with $1.3 million cash from operations and an undrawn $1.5 million credit line Working Capital and Cash Position (as of Feb 28) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Working Capital | $11,117,000 | $10,782,000 | | Cash and cash equivalents | $3,355,000 | $4,841,000 | | Marketable securities | $8,090,000 | $5,868,000 | | **Total Cash & Securities** | **$11,445,000** | **$10,709,000** | - **Stockholders' equity increased by $893,000 to $14.6 million**, primarily due to **net income of $636,000 and stock-based compensation of $257,000**[144](index=144&type=chunk) - The company has a **$1.5 million revolving credit line** and a **$750,000 equipment purchase facility**. As of February 28, 2023, there were no outstanding borrowings under the line of credit[148](index=148&type=chunk) [Critical Accounting Policies](index=30&type=section&id=Critical%20Accounting%20Policies) The company's financial statements adhere to U.S. GAAP, with key policies for income taxes, stock-based compensation, and revenue recognition under ASC 606 - The company uses the asset and liability method for income taxes and recognizes a valuation allowance if a deferred tax asset is not likely to be realized[156](index=156&type=chunk) - Stock-based compensation is valued using the Black-Scholes option pricing model, which requires subjective assumptions about stock price volatility and option life[157](index=157&type=chunk) - Revenue is recognized under ASC 606, depicting the transfer of goods or services to customers for the expected consideration[158](index=158&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of February 28, 2023, with no material changes to internal controls reported - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the fiscal year[162](index=162&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of February 28, 2023[163](index=163&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=33&type=section&id=Item%2010.%20Directors,%20Executive%20Officers,%20and%20Corporate%20Governance) The company's Board of Directors operates with **two classes with staggered two-year terms**, supported by **three independent directors** on the Audit and Compensation Committees, and adheres to a Code of Business Conduct and Ethics - The Board of Directors is classified into **two classes with staggered two-year terms**[168](index=168&type=chunk) - The Audit Committee consists of **three independent directors**: Philip A. Strasburg (Chairman), Carol O'Donnell, and Eric Haskell. Mr. Strasburg is designated as the **'audit committee financial expert'**[169](index=169&type=chunk) - The company has adopted a Code of Business Conduct and Ethics, which is available on its website[196](index=196&type=chunk) [Executive Compensation](index=37&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation for fiscal 2023 included base salaries, bonuses, and stock option awards, with severance provisions and non-employee directors receiving meeting fees and option awards Summary Compensation Table (Fiscal 2023) | Name and Principal Position | Salary ($) | Bonus ($) | Option Awards ($) | All Other Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Christopher L. Coccio (CEO) | 192,200 | 20,200 | 15,000 | 6,373 | 233,773 | | R. Stephen Harshbarger (President) | 249,200 | 23,000 | 15,000 | 8,167 | 295,367 | | Stephen J. Bagley (CFO) | 174,800 | 18,500 | 7,500 | 5,799 | 206,599 | - Executive agreements provide for **severance payments equal to two years of base, commission, and bonus compensation** in the event of termination following a change of control[207](index=207&type=chunk) - Non-employee directors receive **$2,500 for each meeting attended**. In fiscal 2023, each non-employee director also received **option awards valued at $9,900**[210](index=210&type=chunk)[211](index=211&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=40&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of May 23, 2023, executive officers and directors collectively owned **6.53% of the company's common stock**, with Emancipation Management LLC holding **42.11% of the outstanding shares**, and a new 2023 Stock Incentive Plan proposed Security Ownership of >5% Beneficial Owners (as of May 23, 2023) | Name of Beneficial Owner | Amount Beneficially Owned | Percent | | :--- | :--- | :--- | | Emancipation Management LLC, Charles Frumberg, Circle N Advisors, LLC | 6,628,393 | 42.11% | | V. Adah Nicklin | 915,599 | 5.82% | | Richard A. Bayles | 840,536 | 5.34% | | All Executive Officers and Directors as a Group | 1,034,122 | 6.53% | Equity Compensation Plan Information | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 250,759 | $4.84 | 1,212,793 | - In May 2023, the Board authorized a new 2023 Stock Incentive Plan to grant **up to 2,500,000 options or shares**, intended to replace the 2013 Plan. The 2023 Plan is subject to shareholder approval[224](index=224&type=chunk) [Principal Accountant Fees and Services](index=42&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) For fiscal 2023, the company incurred **approximately $100,000** in audit fees and **approximately $18,000** in tax fees, all pre-approved by the Audit Committee Accountant Fees (Fiscal 2023) | Service | Firm | Fee | | :--- | :--- | :--- | | Audit Fees | Marcum LLP | ~$100,000 | | Audit Fees | Friedman LLP | ~$46,000 | | Tax Fees | RBSM, LLP | ~$18,000 | - The Audit Committee's policy is to pre-approve all audit and non-audit services, and all such services in fiscal 2023 and 2022 were pre-approved[230](index=230&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=43&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed as part of the Form 10-K, including corporate documents, executive agreements, and certifications Financial Statements and Supplementary Data [Consolidated Financial Statements](index=48&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements for fiscal 2023 show **decreased net sales to $15.1 million in FY2023 from $17.1 million in FY2022** and **Net income also decreased significantly to $636,000 from $2.5 million**, while **total assets increased to $20.2 million** and **stockholders' equity to $14.6 million**, with **positive operating cash flow of $1.3 million** Consolidated Statement of Income Highlights (Fiscal Year Ended Feb 28) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Sales | $15,058,203 | $17,132,710 | | Gross Profit | $7,652,007 | $8,612,554 | | Operating Income | $682,991 | $1,889,336 | | Net Income | $635,905 | $2,542,573 | | Diluted EPS | $0.04 | $0.16 | Consolidated Balance Sheet Highlights (as of Feb 28) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Current Assets | $16,575,422 | $14,497,599 | | Total Assets | $20,174,718 | $17,625,534 | | Total Current Liabilities | $5,457,895 | $3,715,381 | | Total Stockholders' Equity | $14,633,958 | $13,741,313 | Consolidated Statement of Cash Flows Highlights (Fiscal Year Ended Feb 28) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $1,325,039 | $2,319,167 | | Net Cash Used In Investing Activities | ($2,810,996) | ($1,631,462) | | Net (Decrease) Increase in Cash | ($1,485,957) | $756,480 | [Notes to Consolidated Financial Statements](index=52&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue disaggregation showing **Multi-Axis Coating Systems as the largest contributor at 45% of sales in FY2023**, customer concentrations, and ongoing supply chain risks - Revenue is recognized under ASC 606 when control of equipment is transferred to the customer. The company does not capitalize sales commission costs[292](index=292&type=chunk)[298](index=298&type=chunk) Revenue by Product Line (FY 2023) | Product Line | Revenue | % of Total | | :--- | :--- | :--- | | Multi-Axis Coating Systems | $6,785,000 | 45% | | Other | $3,836,000 | 26% | | OEM Systems | $2,144,000 | 14% | | Fluxing Systems | $1,179,000 | 8% | | Integrated Coating Systems | $1,114,000 | 7% | - In fiscal 2023, **two customers accounted for 14% of sales**. Export sales to customers outside the U.S. and Canada were $8.3 million, or **55% of sales were to foreign customers**[325](index=325&type=chunk)[326](index=326&type=chunk) - The company has a **$1.5 million revolving line of credit**, of which **$1.355 million was unused and available** as of February 28, 2023[315](index=315&type=chunk)[316](index=316&type=chunk) - In fiscal 2022, the company recorded a **gain of $1,005,372 from the forgiveness of its PPP loan**[318](index=318&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: November 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-16035 (Exact name of registrant as specified in its charter) New York 14-1568099 (State or other jurisdiction of (IRS Employer incorporation or organization) Identificatio ...

Financial Data and Key Metrics - Revenue for Q2 FY2023 decreased by 8% to $3.8 million due to delayed shipments caused by supply chain challenges [17] - Gross profit decreased by 9% to $1.9 million, with a gross profit margin of 50.4% compared to 51% in the prior year period [18][19] - Operating expenses increased by 6% to $1.7 million, driven by higher employee compensation and travel costs [14][20] - Net income for Q2 was $162,000 or $0.01 per share, down from $344,000 or $0.02 per share in Q2 FY2022 [22] - For the first half of FY2023, total sales increased by 1% to $7.8 million, with gross profit up 3% to $4 million [23][24] Business Line Data and Key Metrics - Fluxing sales grew by 241% in Q2 to $399,000, driven by the launch of the SelectFlux X2 product [30] - OEM sales decreased by 10% in Q2 but grew by 12% for the first half, led by shipments to European partners [31] - Multi-Axis Coating Systems sales decreased by 21% in Q2 and 13% for the first half due to supply chain delays [31] - Industrial market sales grew by 77% in Q2 and 118% for the first half, including the first shipment of a roll-to-roll system [32][33] - Medical sector revenue decreased by 27% in Q2 but increased by 36% for the first half, driven by large U.S.-based medical companies [34] Market Data and Key Metrics - Sales outside the U.S. and Canada accounted for 56% of total sales in Q2, down from 62% in the prior year period [18] - APAC sales decreased by 49% in Q2 and 46% for the first half, primarily due to COVID-19 lockdowns in China [35] - Backlog increased by 19% to $5 million at the end of Q2, driven by new orders from the electronics sector [36] Company Strategy and Industry Competition - The company is focusing on opening new markets in microelectronics, clean energy, and medical devices, leveraging its thin film coating technology [10] - A significant $1.1 million order from the clean energy sector validates the company's investment in this market [11] - The company is expanding its roll-to-roll product handling capabilities, which is expected to become an important product line [12][33] Management Commentary on Operating Environment and Future Outlook - Management expects supply chain challenges to continue impacting deliveries in Q3 but anticipates higher year-over-year sales for FY2023 [16][37] - The company is raising prices to reflect increased labor and material costs, though there is a lag in realizing these increases [15] - Management remains confident in growth opportunities, particularly in semiconductors, medical devices, and clean energy [15][16] Other Important Information - The company has no debt and holds $10.7 million in cash, cash equivalents, and short-term investments as of August 31, 2022 [25] - CapEx for the first half of the year was $244,000, focused on upgrading manufacturing facilities [25] Q&A Session Summary Question: Supply Chain Resolution - The company is addressing supply chain issues by purchasing inventory earlier, engineering solutions, and building subsystems in-house [44][45][46] - Once supply chain issues are resolved, a surge in shipments is expected as delayed orders are fulfilled [47] Question: Customer Lab Visits - Customer visits to the development lab are increasing, particularly from the clean energy sector, with a 75% conversion rate to machine purchases [48][50] Question: Hydrogen Market Opportunity - The company sees significant growth potential in the green hydrogen market, driven by government investments and the need for electrolyzers [56][57][59] - The company's technology is well-positioned to benefit from the growing demand for green hydrogen production [60][61] Question: Q3 Revenue Guidance - The company expects Q3 revenue to be similar to Q2, with potential for delayed shipments to shift into Q3 [68] Question: Operating Expenses - Operating expenses have increased due to higher employee compensation, but the company expects this trend to stabilize as pricing adjustments take effect [70][71] Question: Tax Rate - The drop in the tax rate is due to the application of R&D tax credits and a decrease in earnings before taxes [74][75] Question: Receivables and Inventory - The company expects inventory to grow in the second half of the year as it builds up stock to mitigate supply chain issues [89] - Receivables increased due to customer agreements requiring payment upon installation, but the company expects this to normalize [83][85] Question: Roll-to-Roll Technology - Roll-to-roll technology is used in industries like clean energy and medical devices to increase production efficiency [96][97][99] - The company is investing in this technology to meet growing customer demand for high-volume production [98]

[Part I - Financial Information](index=3&type=section&id=Part%20I%20-%20Financial%20Information) This section provides an overview of Sono-Tek Corporation's financial performance and position, including condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls [Item 1 – Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201%20%E2%80%93%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Sono-Tek Corporation for the three and six months ended August 31, 2022, compared with the same periods in 2021, including balance sheets, statements of income, stockholders' equity, and cash flows [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of August 31, 2022, total assets increased to $18.80 million from $17.63 million at February 28, 2022, driven by increases in accounts receivable, inventories, and marketable securities, while total liabilities rose to $4.47 million and stockholders' equity grew to $14.32 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | August 31, 2022 ($) | February 28, 2022 ($) | | :--- | :--- | :--- | | **Total Current Assets** | $15,670,008 | $14,497,599 | | **Total Assets** | **$18,796,356** | **$17,625,534** | | **Total Current Liabilities** | $4,309,254 | $3,715,381 | | **Total Liabilities** | $4,474,883 | $3,884,221 | | **Total Stockholders' Equity** | $14,321,473 | $13,741,313 | | **Total Liabilities and Stockholders' Equity** | **$18,796,356** | **$17,625,534** | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For the six months ended August 31, 2022, net sales slightly increased to $7.81 million, but net income significantly decreased to $467,759 due to a prior-year PPP loan forgiveness, while the three-month period saw a decrease in both net sales and net income Six Months Ended August 31, (Unaudited) | Metric | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net Sales | $7,814,864 | $7,714,935 | | Gross Profit | $4,002,626 | $3,898,164 | | Operating Income | $558,103 | $791,484 | | Net Income | $467,759 | $1,610,576 | | Diluted EPS | $0.03 | $0.10 | Three Months Ended August 31, (Unaudited) | Metric | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net Sales | $3,763,329 | $4,070,467 | | Gross Profit | $1,895,613 | $2,073,999 | | Operating Income | $177,578 | $448,576 | | Net Income | $162,123 | $343,824 | | Diluted EPS | $0.01 | $0.02 | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased from $13.74 million at February 28, 2022, to $14.32 million at August 31, 2022, primarily driven by net income and stock-based compensation expense for the six-month period - Stockholders' equity grew to **$14,321,473** at August 31, 2022, up from **$13,741,313** at February 28, 2022[14](index=14&type=chunk) - The increase in equity for the six months ended August 31, 2022, was mainly due to net income (**$467,759**) and stock-based compensation (**$112,401**)[14](index=14&type=chunk)[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended August 31, 2022, net cash provided by operating activities significantly decreased to $223,629, while net cash used in investing activities was $755,130, resulting in a net decrease in cash and cash equivalents of $531,501, ending the period with a balance of $4.31 million Six Months Ended August 31, (Unaudited) | Cash Flow Activity | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $223,629 | $1,196,912 | | Net Cash (Used in) Provided by Investing Activities | ($755,130) | $862,116 | | Net (Decrease) Increase in Cash | ($531,501) | $2,059,028 | | **Cash and Cash Equivalents, End of Period** | **$4,309,057** | **$6,143,106** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's accounting policies and financial data, covering business description, revenue recognition, inventory, stock-based compensation, EPS, credit facilities, sales concentrations, and uncertainties related to COVID-19 and supply chain challenges - The company is a world leader in designing and manufacturing ultrasonic coating systems for various markets, including microelectronics, alternative energy, and medical[21](index=21&type=chunk) Sales Revenue by Product Line (Six Months Ended Aug 31) | Product Line | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Multi-Axis Coating Systems | $3,470,000 | $3,970,000 | | Other | $1,728,000 | $1,378,000 | | OEM Systems | $1,316,000 | $1,171,000 | | Fluxing Systems | $707,000 | $476,000 | | Integrated Coating Systems | $594,000 | $720,000 | | **TOTAL** | **$7,815,000** | **$7,715,000** | - Export sales accounted for approximately **54%** of total revenues in the first half of fiscal 2023, down from **64%** in the same period of fiscal 2022[64](index=64&type=chunk) - The company faces challenges from global supply chain constraints, particularly for electronic components, and inflationary pressures, which may adversely affect business operations[44](index=44&type=chunk)[45](index=45&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=14&type=section&id=Item%202%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance for the second quarter and first half of fiscal 2023, highlighting the impact of supply chain disruptions, strong sales growth in industrial and medical markets, a significant sales decline in Asia-Pacific, and detailed analysis of sales, gross profit, operating expenses, and net income [Overview and Performance Highlights](index=14&type=section&id=Overview%20and%20Performance%20Highlights) Sono-Tek designs and manufactures ultrasonic coating systems, with a strategic shift towards complete machine solutions, resulting in 1% net sales growth to $7.8 million for H1 FY2023, despite an 8% sales decrease in Q2 due to supply chain delays, with backlog at $5.0 million as of August 31, 2022 - The company's growth strategy focuses on leveraging its technology to provide complete machine solutions and higher-value subsystems, which has increased average unit selling prices[72](index=72&type=chunk)[74](index=74&type=chunk) - Q2 FY2023 net sales decreased **8%** to **$3.76 million**, primarily due to supply chain issues delaying shipments, with these issues expected to continue impacting revenue through Q3[77](index=77&type=chunk) - For H1 FY2023, net sales increased **1%** to **$7.81 million**, driven by strong performance in medical and industrial coating machinery[77](index=77&type=chunk) - Backlog was **$5.05 million** on August 31, 2022, a **19%** increase from the end of Q1 FY2023 but a **5%** decrease from the fiscal year-end 2022[77](index=77&type=chunk) [Results of Operations](index=16&type=section&id=Results%20of%20Operations) For H1 FY2023, total sales grew 1% year-over-year, driven by significant increases in the industrial and medical markets, despite a 46% decline in Asia-Pacific sales due to COVID-19 lockdowns, while gross profit margin improved to 51.2% and operating expenses rose 11% due to R&D and marketing costs, leading to a decrease in operating income Sales by Market (Six Months Ended Aug 31) | Market | 2022 ($) | 2021 ($) | Change % | | :--- | :--- | :--- | :--- | | Electronics/Microelectronics | $3,010,000 | $3,707,000 | (19%) | | Medical | $2,473,000 | $1,814,000 | 36% | | Alternative Energy | $1,306,000 | $1,389,000 | (6%) | | Industrial | $806,000 | $370,000 | 118% | | Emerging R&D and Other | $220,000 | $435,000 | (49%) | Sales by Geography (Six Months Ended Aug 31) | Region | 2022 ($) | 2021 ($) | Change % | | :--- | :--- | :--- | :--- | | U.S. & Canada | $3,591,000 | $2,781,000 | 29% | | Asia Pacific (APAC) | $1,533,000 | $2,853,000 | (46%) | | Europe, Middle East, Asia (EMEA) | $1,826,000 | $1,436,000 | 27% | | Latin America | $865,000 | $645,000 | 34% | - The significant drop in APAC sales was primarily due to decreased shipments to China resulting from COVID-19 related lockdowns and order placement delays[84](index=84&type=chunk) - H1 FY2023 gross profit margin improved to **51.2%** from **50.5%** YoY, attributed to a favorable product mix with increased OEM and medical industry sales[86](index=86&type=chunk) - Total operating expenses for H1 FY2023 increased by **11%** to **$3.45 million**, mainly due to a **24%** rise in R&D costs for growth initiatives and increased travel/trade show expenses[88](index=88&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) As of August 31, 2022, the company's working capital increased to $11.36 million, with combined cash, cash equivalents, and marketable securities totaling $10.66 million, while operating activities generated $224,000 in cash for H1 FY2023, a significant decrease from the prior year, and the company had no outstanding debt with an available credit line of $1.495 million - Working capital increased by **$579,000** to **$11.36 million** at August 31, 2022, from February 28, 2022[105](index=105&type=chunk) Cash and Marketable Securities | Category | August 31, 2022 ($) | February 28, 2022 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $4,309,000 | $4,841,000 | | Marketable securities | $6,348,000 | $5,868,000 | | **Total** | **$10,657,000** | **$10,709,000** | - Cash from operating activities decreased by **$973,000** in H1 FY2023 compared to H1 FY2022, primarily due to increases in accounts receivable and inventories[108](index=108&type=chunk) - Stockholders' equity increased by **$580,000** to **$14.32 million** at August 31, 2022, driven by net income and stock-based compensation[107](index=107&type=chunk) [Item 3 – Quantitative and Qualitative Disclosures about Market Risk](index=21&type=section&id=Item%203%20%E2%80%93%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company does not engage in trading or speculative use of financial instruments or derivatives and is not subject to material foreign currency exchange rate risk as all sales transactions are in U.S. dollars, with market rate risk from interest rate changes also considered not material - The company is not subject to material foreign currency exchange rate risk as all sales transactions are completed in US dollars[117](index=117&type=chunk) - Market rate risk from changing interest rates is not considered material, despite holding **$4.3 million** in cash and **$6.3 million** in marketable securities[118](index=118&type=chunk) [Item 4 – Controls and Procedures](index=21&type=section&id=Item%204%20%E2%80%93%20Controls%20and%20Procedures) The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of August 31, 2022, ensuring timely reporting of SEC-required information, with no material changes to internal controls over financial reporting during the second fiscal quarter of 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of August 31, 2022[119](index=119&type=chunk) - There were no changes in the company's internal controls over financial reporting during the second fiscal quarter of 2023 that have materially affected, or are reasonably likely to materially affect, these controls[120](index=120&type=chunk) [Part II - Other Information](index=22&type=section&id=Part%20II%20-%20Other%20Information) This section provides disclosures on legal proceedings, risk factors, and other standard items such as sales of equity securities, defaults, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that there are no legal proceedings to disclose for the period - None[123](index=123&type=chunk) [Item 1A. Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company states there are no material changes from the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended February 28, 2022 - There are no material changes from risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended February 28, 2022[123](index=123&type=chunk) [Other Items (2, 3, 4, 5, 6)](index=22&type=section&id=Other%20Items) This section covers several standard disclosure items, reporting no unregistered sales of equity securities, no defaults upon senior securities, no mine safety disclosures, and listing the exhibits filed with the report, including officer certifications and financial data in Inline XBRL format - Item 2: No unregistered sales of equity securities[124](index=124&type=chunk) - Item 3: No defaults upon senior securities[126](index=126&type=chunk) - Item 6: Lists exhibits filed, including CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and financial information in Inline XBRL format (101, 104)[124](index=124&type=chunk)[125](index=125&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: May 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-16035 (Exact name of registrant as specified in its charter) New York 14-1568099 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2012 Rt. ...

Financial Data and Key Metrics - Net sales for fiscal year 2022 increased by 16% to $17.1 million compared to $14.8 million in fiscal year 2021 [18] - Gross profit increased by 23% to $8.6 million, with gross profit margin rising by 310 basis points to 50.3% [19] - Operating income grew by 41% to $1.9 million, with operating margin increasing to 11% from 9% in the prior year [19] - Net income was $2.5 million, a 127% increase from $1.1 million in fiscal 2021, driven by higher operating income and PPP loan forgiveness [20] - Cash and cash equivalents increased by $2.1 million to $10.7 million, with no debt on the balance sheet [21] Business Line Performance - Alternative energy market sales grew by 72% to $3.7 million, driven by investments in clean energy sectors such as fuel cells and carbon capture [24] - Medical market sales increased by 29% to $4.3 million, supported by strong demand from China and North America [24] - Electronics market sales rose by 19% to $7.1 million, primarily due to a significant sale of a 6-axis robot in the semiconductor market [25] - Industrial market sales declined by 53% due to the absence of a large textile shipment from the previous year [25] Geographic Performance - 68% of sales originated outside the U.S. and Canada, up from 65% in the prior year [18] - APAC and EMEA regions showed growth ranging from 6% to 27%, while Latin America experienced a 10% decline in sales [29] Strategic Direction and Industry Competition - The company is focusing on expanding its capabilities in roll-to-roll product handling, which addresses approximately 15% of the global coating market [14] - Sono-Tek is targeting growth in microelectronics, clean energy, and medical devices, all of which benefit from its thin-film coating technology [12] - The company is shifting its SIC code to better reflect its technology instrumentation focus, aiding stakeholders in understanding its business [14] Management Commentary on Market Environment and Outlook - Management expects double-digit sales growth for the first quarter and the full fiscal year 2023, driven by strong demand in semiconductors, medical devices, and clean energy [16] - The company is optimistic about the clean energy sector, particularly with government investments in hydrogen and electrolysis programs [26] - Sono-Tek anticipates continued growth in its backlog, which increased by 38% to $5.3 million, driven by product line expansion and full system solution sales [30] Other Important Information - The company paid off its mortgage debt during the year and currently has no debt on its balance sheet [16] - Capital expenditures for fiscal 2022 were $386,000, focused on upgrading manufacturing facilities [21] Q&A Session Summary Question: Market Share and Ultrasonic Coating Equipment Market - The company has seen a shift from R&D-focused machines to larger, more complex production solutions, with 60% of machines now used in production environments [48] - Sono-Tek is focusing on capturing a larger share of the general coating equipment market by addressing customer needs with solutions like roll-to-roll technology [40][41] Question: Fuel Cells and Electrolyzer Markets - The technical requirements for coating equipment in fuel cells and electrolyzers are similar, but the process expertise varies, requiring customized solutions for each application [45] - Fuel cells are in a more mature stage, while carbon capture and electrolyzer applications are still in R&D and pilot phases [47] Question: Customer Diversification - The clean energy sector is seeing an influx of new companies, while the semiconductor and medical markets are dominated by repeat customers from large multinational companies [54][55] Question: Capital Expenditure and Manufacturing Equipment - The company expects a slight increase in CapEx for the coming year, focusing on automation and efficiency improvements to accommodate growth [68][70] - Sono-Tek is investing in advanced manufacturing technologies to maintain its competitive edge in ultrasonic spray systems [71][72]

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 28, 2022 Commission File Number: 000-16035 (Name of registrant as specified in its charter) Incorporation or Organization) NEW YORK 14-1568099 (State or other Jurisdiction of (IRS Employer Identification Number) 2012 Route 9W, Milton, New York 12547 (Address of Principal Executive Offices) (Zip Code) Registr ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: November 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-16035 (Exact name of registrant as specified in its charter) (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) New York 14-1 ...

For the quarterly period ended: August 31, 2021 OR UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No.: 000-16035 (Exact name of registrant as specified in its charter) New York 14-1568099 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification ...

Financial Data and Key Metrics - Net sales for Q2 2022 were $4.1 million, up 17% YoY, driven by strong international sales, with 62% of sales originating outside the US and Canada [13] - Gross profit increased 28% YoY to $2.1 million, with gross profit margin improving to 51% from 46.6% in the prior year period, a 440 basis point increase [14] - Operating income surged 123% to $449,000, with operating margin rising to 11% from 5.8% in the prior year period [15] - Net income increased 93% to $344,000, with earnings per share of $0.02 compared to $0.01 in the prior year [16] - Cash and cash equivalents increased to $9.7 million, up $1.1 million from the fiscal year-end, with no debt on the balance sheet [16] Business Line Performance - Sales growth was primarily driven by multi-axis coating systems, including systems used for coating electronic diagnostic devices for rapid COVID test kits [19] - OEM sales increased by 264% ($613,000), driven by strong sales from semiconductor and PCB fluxing partners [20] - The electronics market saw a 79% increase in sales, driven by strong demand from China for OEM systems used in the semiconductor market and COVID test kits [20] - The alternative energy market also showed strength, with growing investments in clean energy driving demand for machines used in fuel cells and carbon capture applications [21] Geographic Performance - 62% of sales originated outside the US and Canada, up from 38% in the prior year, with strong sales in APAC, particularly China, as manufacturing operations resumed post-COVID lockdowns [22] - Sales to China included stent coating machines, a new specialty medical device coating system, and strong OEM semiconductor orders [23] - Sales to the US and Canada declined YoY due to the absence of a large float glass coating line shipment, which was present in the prior year [25] Strategic Direction and Industry Competition - The company has shifted towards offering more complex, complete solutions rather than component sales, broadening its addressable market and increasing average selling prices [10] - Demand for Sono-Tek's technology is expected to grow as electronic devices become more miniaturized and the use of implantable medical devices increases globally [10] - The company is focusing on high-tech markets such as semiconductors, medical devices, and clean energy, with significant growth opportunities in these sectors [11] Management Commentary on Operating Environment and Future Outlook - Management highlighted the company's strong balance sheet, with nearly $10 million in cash and zero debt, and expects double-digit sales growth for the fiscal year [11] - The company's backlog reached a record high of $6.3 million, a 45% increase from the previous quarter, driven by expanding product lines and application development labs [27] - Sales growth guidance for the second half of the fiscal year is for double-digit increases over the comparable periods of the prior year, with the fiscal year expected to achieve the highest annual sales in corporate history [29] Other Important Information - The company was approved to uplist its common stock to the NASDAQ Capital Markets in August, increasing visibility and trading volume among institutional investors [12] - CapEx for Q2 was $147,000, with full-year CapEx projected to be between $300,000 and $350,000 [16] Q&A Session Summary Question: Backlog and Order Details - The backlog includes a 6-axis robot system for the semiconductor market, expected to ship in Q4, with $1 million to $1.5 million of the backlog likely to ship in the next fiscal year [32] - Orders in Q2 were solid, with no cancellations, and the backlog reflects strong demand, particularly for larger, high-value machines [33] Question: Sales and Margin Guidance - Gross margins were higher than usual in Q2 due to strong OEM sales, particularly in Asia, but are expected to normalize to the high 40s range in the long term [34] - The company anticipates continued strong demand from OEM customers in Asia, particularly in the semiconductor sector, for at least another quarter [35] Question: Alternative Energy and Roll-to-Roll Technology - The company is leveraging its expertise in fuel cell membrane coating to expand into carbon capture applications, with customers transitioning to higher-volume manufacturing and roll-to-roll technology [37] - A partnership with an industry expert in roll-to-roll technology is helping develop a new coating machine for membranes, with potential applications in fuel cells, carbon capture, and other markets [38] Question: Capacity and Revenue Potential - The company's existing facilities can support sales of up to $23-24 million, with potential to expand to $40 million by utilizing additional buildings in its complex [46] - Employee recruitment and retention are critical, with the company focusing on internships and word-of-mouth referrals to attract and train engineers familiar with its unique technology [47]