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

Inventories consist of the following:

The denominator for the calculation of diluted earnings per share at MayAugust 31, 2010 and 2009 are calculated as follows:

Due to the net loss for the three monthssix month period ended MayAugust 31, 2009, the effect of stock options is not used in the calculation of diluted earnings per share. The inclusion of stock options in the calculation would have an anti-dilutive effect.

The Company has a $500,000$750,000 revolving line of credit at prime which was 3.25% at MayAugust 31, 2010. The loan is collateralized by all of the assets of the Company. The line of credit is payable on demand and must be retired for a 30 day period once annually. If the Company fails to perform the 30 day annual pay down or if the bank elects to terminate the credit line, the bank may at its option convert the outstanding balance to a 36 month term note with payments including interest in 36 equal installments. As of MayAugust 31, 2010, the Company’s outstanding balance was $350,000, and the unused credit line was $150,000.$400,000.

TheIn September 2010, the Company has evaluated subsequent events through July 6, 2010 for disclosure purposes.repaid the outstanding balance of $350,000 on the line of credit.

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

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

Sono-Tek has developed a unique and proprietary series of ultrasonic atomizing nozzles, which are being used in an increasing variety of electronic, advanced energy, medical, industrial, and nanotechnology 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.

We have a well established position in the electronics industry with our SonoFlux spray fluxing equipment. It saves customers from 40% to 80% of the liquid flux required to solder printed circuit boards over more labor intensive methods, such as foam fluxing.  Less flux equates to less material cost, fewer chemicals in the workplace, and less clean-up.  Also, the SonoFlux equipment reduces the number of soldering defects, which reduces the amount of rework.

In recent years we have diversified our product lines.  For example, we have successfully entered into the medical device market.  To accomplish this goal, we have focused engineering resources on the medical device market, with an emphasis on providing coating solutions for the newest generations of drug coated stents and other implantable devices.  We have sold a significant number of specialized ultrasonic nozzles and MediCoat stent coating systems to large medical device customers.  Sono-Tek’s stent coating systems are superior compared to pressure nozzles in their ability to uniformly coat the very small arterial stents without creating webs or gaps in the coatings.  We sell a bench-top, fully outfitted stent coating system to a wide range of cus tomerscustomer s that are manufacturing stents and/or applying coatings to be used in developmental trials.  We have also introduced and sold a production oriented stent coater known as Medicoat II.  WeIn addition, we are also selling an increasing number of specialized medical implant coating devices now.

Another effort that has stimulated an increase in business has been the development of the WideTrack coating system, a broad-based platform for applying a variety of coatings to moving webs of glass, textiles, plastic, metal, food products and packaging materials.  The WideTrack is a long-term product and market development effort.  Thus far, we have made successful inroads with WideTrack systems into the glass, medical textile (bandages), textiles and food industries.  Some of these applications involve nano-technology based liquids.  We believe there is an excellent fit between the thin, precise films required in nano-technology coating applications and our ultrasonic nozzle systems, as employed in the WideTrack system.

More recently, we have also invested time and money in developing equipment solutions for applications in the solar cell and fuel cell clean energy markets.  We have seen significant growth in these markets and are serving them with our Exactacoat, Flexicoat and Hypersonic products.  We now have four diversified market/application areas, which creates a stable base for all of our business.

In our four core areas: the electronics, medical device, advanced energy and WideTrack coating markets, it has been incumbent upon us to focus our attention and resources on the development of a much greater international presence.  We believe we have accomplished this and plan to continue our marketing efforts.  Our international sales have risen from approximately 20% of total revenues in Fiscal Year 2003 to approximately 60% today.  This geographic market diversity in North America, Europe, Latin America and Asia is expected to provide us with additional business stability going forward.

The creation of technological innovations and markets and the expansion into new geographical markets requires the investment of both time and capital. Although there is no guarantee of success, we expect that over time, these newer markets will be the basis for Sono-Tek’s continued growth and will contribute to future profitability.

For the threesix months ended MayAugust 31, 2010, our sales increased $819,000$1,567,000 or 56%50% to $2,284,000$4,716,000 as compared to $1,465,000$3,149,000 for the six months ended August 31, 2009. For the three months ended August 31, 2010, our sales increased $748,000 to $2,432,000 or 44% as compared to $1,684,000 for the three months ended MayAugust 31, 2009.  During the three month period ended MayAugust 31, 2010, we experienced an increase in sales in all of our product lines, except for Selecta FluxWidetrack units and Hypersonic units (a new product).Stent Coating units.  Noteworthy sales increases took place in fluxerour programmable XYZ units EZ Flux units, Servo units, Solder Recovery Systems and Widetrack units.during the current quarter.

OurFor the six months ended August 31, 2010, our gross profit increased $460,000$669,000 to $1,117,000$2,233,000 from $1,565,000 for the threesix months ended May 31, 2010 from $657,000 for the three months ended MayAugust 31, 2009.  The gross profit margin was 49%47% of sales for the six months ended August 31, 2010 and 50% of sales for the six months ended August 31, 2009.  The decrease in our gross profit margin for the six months ended August 31, 2010 is due to a decrease in our stent coater sales, an increase in our programmable XYZ units which have a lower profit margin than our stent coaters, an increase in Service personnel and expenses and an increase in freight costs.

Our gross profit increased $209,000 to $1,116,000 for the three months ended August 31, 2010 from $907,000 for the three months ended August 31, 2009.  The gross profit margin was 46% of sales for the three months ended MayAugust 31, 2010 and 45%54% of sales for the three months ended MayAugust 31, 2009. The improvementdecrease in our gross profit margin for the three months ended MayAugust 31, 2010 was due to an increase inthree major factors: approximately 30% of this quarter’s sales were from our programmable XYZ units which have a more profitable mix of products being soldlower gross profit margin, our stent coater sales decreased this quarter when compared to the three months ended May 31, 2009.same period last year and we had additional service personnel and service expenses related to new product installations when compared to the same period last year.

Research and product development costs increased $39,000$57,000 to $210,000$398,000 for the six months ended August 31, 2010 from $341,000 for the six months ended August 31, 2009 and $19,000 to $189,000 for the three months ended MayAugust 31, 2010 from $171,000$170,000 for the three months ended MayAugust 31, 2009.  The increase wasincreases were principally due to an increaseincreases in salary expense relateddue to an increaseadditional engineering personnel in engineering personnel.the current periods.

Marketing and selling costs increased $113,000$167,000 to $522,000$1,033,000 for the six months ended August 31, 2010 from $866,000 for the six months ended August 31, 2009 and $54,000 to $511,000 for the three months ended MayAugust 31, 2010 from $409,000$457,000 for the three months ended MayAugust 31, 2009.  During the six months ended August 31, 2010, we experienced increases in international commission expense, salary expense due to the addition of personnel, travel expense and depreciation related to sales equipment.  For the three months ended MayAugust 31, 2010, we saw an increaseexperienced increases in salary expense, international commissiontravel expense and travel and trade showsdepreciation expense.

General and administrative costs increased $39,000$88,000 to $287,000$576,000 for the six months ended August 31, 2010 from $488,000 for the six months ended August 31, 2009 and $49,000 to $289,000 for the three months ended MayAugust 31, 2010 from $248,000$240,000 for the three months ended MayAugust 31, 2009.  The increase wasincreases were principally due to increased salary expense and an increase in officer salaries and other corporate expenses. In the prior periods, officer salaries were lower due to a voluntary decrease taken by the officers.

We had net income of $95,000$221,000 for the threesix months ended MayAugust 31, 2010 as compared to a net loss of $169,000$129,000 for the six months ended August 31, 2009.  During the three months ended August 31, 2010 we  had net income of $126,000 as compared to net income of $41,000 for the three months ended MayAugust 31, 2009.  Our results for the three months ended MayAugust 31, 2010 were improved over the same period last year due to an increase in sales and an improvement in our gross profit margin due to the mix of products that were sold.  Our net income for the current period does not reflect any deferred tax adjustments.profit.

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

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions.  The Company believes that critical accounting policies are limited to those described below.  For a detailed discussion on the application of these and other accounting policies see Note 2 to the Company’s consolidated financial statements included in Form 10-K for the year ended February 28, 2010.

As part of the process of preparing the Company’s consolidated financial statements, the Company is required to estimate its income taxes.  Management judgment is required in determining the provision for the deferred tax asset.  During the fiscal year ended February 28, 2009 the Company increased the valuation reserve for the deferred tax asset. In the event that actual results differ from these estimates, the Company may need to again adjust such valuation reserve.

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

Accounting pronouncements issued but not yet effective have been deemed to be not applicable or the adoption of such accounting pronouncements are not expected to have a material impact on the financial statements of the Company.

The Company does not issue or invest in financial instruments or derivatives for trading or speculative purposes. Substantially all of the operations of the Company are conducted in the United States, and, as such, are not subject to material foreign currency exchange rate risk. Although the Company's assets included $1,890,000$1,803,000 in cash, the market rate risk associated with changing interest rates in the United States is not material.

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: July 7,October 5, 2010