UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


10-Q/A

(Amendment No. 1)

[X]☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:August 31, 2012

For the quarterly period ended:  August 31, 2010

OR


[   ]☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No.:0-16035


SONO-TEK CORPORATION

(Exact name of registrant as specified in its charter)


New York14-1568099
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)

2012 Rt. 9W, Milton, NY 12547

(Address of Principal Executive Offices) (Zip Code)


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


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 |X|☒   NO |_|☐


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


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


Large Accelerated Filer |_|☐ Accelerated Filer  |_|☐ Smaller reporting company  |X☒|

Non Accelerated Filer   |_|☐ (Do not check if a smaller reporting company)


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES |_|   NO |X|


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:


 Outstanding as of
ClassSeptember 20, 2010October 4, 2012
Common Stock, par value $.01 per share14,437,51114,483,010

EXPLANATORY NOTE

This Amendment No. 1 to Form 10-Q amends our quarterly report on Form 10-Q for the quarter ended August 31, 2012, filed with the Securities and Exchange Commissionon October 11, 2012, to correct the date of the signatures set forth in such report and the dates of the Certifications annexed thereto as exhibits 31.1 – 31.2 and 32.1 – 32.2.

Except as described above, no change has been made to the financial statements or any other portion of the Quarterly Report on Form 10-Q as filed on October 11, 2012. The filing of this Amendment does not, and does not purport to, amend, update or restate the information in any other item of the quarterly report on Form 10-Q as filed on October 11, 2012 or reflect any events that have occurred after such date.



SONO-TEK CORPORATION



INDEX



Part I - Financial InformationPage
  
Item 1 – Consolidated Financial Statements:1 - 3
  
Consolidated Balance Sheets – August 31, 20102012 (Unaudited) and February 28, 201029, 20121
  
Consolidated Statements of Income – Six Months and Three Months Ended August 31, 20102012 and 20092011 (Unaudited)2
  
Consolidated Statements of Cash Flows – Six Months Ended August 31, 20102012 and 20092011 (Unaudited)3
  
Notes to Consolidated Financial Statements4 - 78
  
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations89 – 1217
  
Item 3 – Quantitative and Qualitative Disclosures about Market Risk1217
  
Item 4 – Controls and Procedures1217
  
  
Part II - Other Information1318
  
Signatures and Certifications14 -1919 -23






SONO-TEK CORPORATION

CONSOLIDATED BALANCE SHEETS



ASSETS      
  August 31,  February 28, 
  2010  2010 
Current Assets: Unaudited    
Cash and cash equivalents $1,803,484  $1,787,516 
Accounts receivable (less allowance of $20,000 and $16,000 at August 31 and February 28, respectively)  948,355   974,429 
Inventories  1,899,490   1,757,153 
Prepaid expenses and other current assets  118,542   57,775 
Total current assets  4,769,871   4,576,873 
         
         
Equipment, furnishings and leasehold improvements (less accumulated depreciation of $1,691,135 and $1,551,532 at August 31 and February 28, respectively)  434,826   514,623 
Intangible assets, net  80,185   76,913 
Other assets  7,171   7,171 
         
TOTAL ASSETS $5,292,053  $5,175,580 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Current Liabilities:        
Accounts payable $360,801  $595,174 
Accrued expenses  285,288   466,656 
Customer Deposits  368,171   73,954 
Line of Credit - Bank  350,000   350,000 
Current maturities of long term debt  10,178   15,727 
Total current liabilities  1,374,438   1,501,511 
         
Long term debt, less current maturities  -   3,622 
Total liabilities  1,374,438   1,505,133 
         
Commitments and Contingencies  -   - 
Stockholders’ Equity        
Common stock, $.01 par value; 25,000,000 shares authorized, 14,437,511 shares issued and outstanding, at August 31 and February 28  144,376   144,376 
Additional paid-in capital  8,573,452   8,546,924 
Accumulated deficit  (4,800,213)  (5,020,853)
Total stockholders’ equity  3,917,615   3,670,447 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $5,292,053  $5,175,580 


ASSETS      
  August 31,    
  2012  February 29, 
Current Assets: (Unaudited)  2012 
Cash and cash equivalents $1,430,048  $2,531,689 
Marketable Securities  958,364   253,987 
Accounts receivable (less allowance of $16,380 and $26,000 at
August 31 and February 29, respectively)		  1,034,879   754,605 
Inventories, net  2,427,113   2,559,128 
Prepaid expenses and other current assets  192,812   112,392 
Total current assets  6,043,216   6,211,801 
         
Land  250,000   250,000 
Buildings, net  2,192,924   2,229,650 
Equipment, furnishings and leasehold improvements (less accumulated depreciation of $2,225,636 and $2,156,136 at August 31 and February 29, respectively)  550,041   617,200 
Intangible assets, net  110,848   83,455 
Deferred tax asset  86,167   86,167 
         
TOTAL ASSETS $9,233,196  $9,478,273 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
         
Current Liabilities:        
Accounts payable $313,347  $552,979 
Accrued expenses  594,426   529,732 
Customer deposits  194,866   316,246 
Current maturities of long term debt  123,573   120,303 
Income taxes payable  35,642   37,250 
Total current liabilities  1,261,854   1,556,510 
         
Long term debt, less current maturities  2,050,935   2,114,196 
Total liabilities  3,312,789   3,670,706 
         
Commitments and Contingencies  -   - 
Stockholders’ Equity        
Common stock, $.01 par value; 25,000,000 shares authorized, 14,483,010 and 14,455,444 shares issued and outstanding, at August 31 and February 29, respectively  144,830   144,553 
Additional paid-in capital  8,699,356   8,657,629 
Accumulated deficit  (2,923,779)  (2,994,615)
Total stockholders’ equity  5,920,407   5,807,567 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $9,233,196  $9,478,273 

See notes to consolidated financial statements.

1



SONO-TEK CORPORATION


CONSOLIDATED STATEMENTS OF INCOME


  Six Months Ended August 31  Three Months Ended August 31 
  Unaudited  Unaudited 
  2010  2009  2010  2009 
             
Net Sales $4,715,788  $3,148,612  $2,432,137  $1,683,883 
Cost of Goods Sold  2,482,488   1,584,089   1,315,865   776,743 
        Gross Profit  2,233,300   1,564,522   1,116,272   907,141 
                 
Operating Expenses                
    Research and product development costs  398,349   340,550   188,803   169,519 
    Marketing and selling expenses  1,033,254   865,824   510,833   456,528 
    General and administrative costs  576,226   488,058   289,061   240,443 
            Total Operating Expenses  2,007,829   1,694,432   988,697   866,490 
                 
Operating Income (Loss)  225,471   (129,910)  127,575   40,651 
                 
Interest Expense  (5,835)  (5,532)  (2,397)  (3,286)
Interest Income  1,220   1,243   760   694 
Other Income  -   3,775   -   944 
                 
Income (Loss) from Operations Before Income Taxes  220,856   (130,424)  125,938   39,003 
                 
Income Tax Expense (Benefit)  216   (1,543)  50   (1,543)
                 
Net Income (Loss) $220,640  $(128,881) $125,888  $40,546 
                 
                 
Basic Earnings (Loss) Per Share $0.02  $(0.01) $0.01  $0.00 
                 
Diluted Earnings (Loss) Per Share $0.02  $(0.01) $0.01  $0.00 
                 
Weighted Average Shares - Basic  14,437,511   14,414,728   14,437,511   14,414,741 
                 
Weighted Average Shares - Diluted  14,594,030   14,414,728   14,568,332   14,476,241 


  Six Months Ended August 31  Three Months Ended August 31 
  Unaudited  Unaudited 
  2012  2011  2012  2011 
             
Net Sales $5,230,809  $6,139,028  $2,391,107  $3,149,960 
Cost of Goods Sold  2,715,739   3,027,484   1,225,735   1,471,513 
Gross Profit  2,515,070   3,111,544   1,165,373   1,678,447 
                 
Operating Expenses                
Research and product development costs  486,787   539,941   232,717   284,885 
Marketing and selling expenses  1,205,723   1,148,253   552,811   580,617 
General and administrative costs  674,388   627,037   315,842   323,853 
Rental operations expense  57,630   63,793   28,610   23,965 
Total Operating Expenses  2,424,528   2,379,024   1,129,981   1,213,320 
                 
Operating Income  90,542   732,520   35,392   465,127 
                 
Interest Expense  (57,648)  (59,367)  (28,678)  (29,594)
Other (expense) income  (1,705)  3,220   6,234   2,973 
                 
Income from Operations Before Income Taxes  31,189   676,373   12,948   438,506 
                 
Income Tax (Benefit) Expense  (39,647)  253   (46,787)  980 
                 
Net Income $70,836  $676,120  $59,735  $437,526 
                 
Basic Earnings Per Share $0.00  $0.05  $0.00  $0.03 
                 
Diluted Earnings Per Share $0.00  $0.05  $0.00  $0.03 
                 
Weighted Average Shares - Basic  14,466,892   14,441,921   14,472,849   14,442,211 
                 
Weighted Average Shares - Diluted  14,582,873   14,759,663   14,576,509   14,784,319 

See notes to consolidated financial statements.

2



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SONO-TEK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


  Six Months Ended August 31, 
  Unaudited 
  2010  2009 
       
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net Income (Loss) $220,640  $(128,881)
         
Adjustments to reconcile net income (loss) to net cash        
provided by (used in) operating activities:        
Depreciation and amortization  143,129   154,723 
Stock based compensation expense  26,528   27,477 
Allowance for doubtful accounts  4,000   - 
Decrease (Increase) in:        
Accounts receivable  22,074   102,300 
Inventories  (142,337)  (10,637)
Prepaid expenses and other current assets  (60,767)  41,482 
(Decrease) Increase in:        
Accounts payable and accrued expenses  (415,741)  (93,387)
Customer Deposits  294,217   20,125 
Net Cash Provided by Operating Activities  91,743   113,202 
         
         
CASH FLOW FROM INVESTING ACTIVITIES:        
Patent application costs  (6,797)  (7,983)
Sale of equipment  -   53,309 
Purchase of equipment and furnishings  (59,807)  (115,069)
Net Cash (Used In) Investing Activities  (66,604)  (69,743)
         
CASH FLOW FROM FINANCING ACTIVITIES:        
Proceeds from exercise of stock options and warrants  -   210 
Repayments of notes payable and loans  (9,171)  (11,520)
Net Cash (Used In) Financing Activities  (9,171)  (11,310)
         
         
NET INCREASE IN CASH AND CASH EQUIVALENTS  15,968   32,149 
         
CASH AND CASH EQUIVALENTS        
Beginning of period  1,787,516   1,472,054 
End of period $1,803,484  $1,504,203 
         
SUPPLEMENTAL DISCLOSURE:        
Interest paid $5,819  $4,722 
Taxes Paid $216  $0 


  Six Months Ended August 31, 
  Unaudited 
  2012  2011 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net Income $70,836  $676,120 
         
Adjustments to reconcile net income to net cash        
provided by operating activities:        
Depreciation and amortization  155,634   154,420 
Stock based compensation expense  21,658   25,829 
Allowance for doubtful accounts  6,000   6,000 
Inventory reserve  30,000   36,000 
Decrease (Increase) in:        
Accounts receivable  (273,528)  30,462 
Inventories  102,015   (835,330)
Prepaid expenses and other current assets  (80,420)  (40,531)
(Decrease) Increase in:        
Accounts payable and accrued expenses  (174,938)  81,421 
Customer Deposits  (121,380)  168,668 
Net Cash (Used in) Provided by Operating Activities  (264,123)  303,059 
         
         
CASH FLOW FROM INVESTING ACTIVITIES:        
Patent application costs  (32,218)  (4,760)
Purchase of equipment and furnishings  (61,277)  (112,563)
Purchase of marketable securities  (704,377)  - 
Net Cash Used In Investing Activities  (797,872)  (117,323)
         
CASH FLOW FROM FINANCING ACTIVITIES:        
Proceeds from exercise of stock options  20,346   358 
Proceeds from equipment financing - bank  -   237,000 
Repayments of notes payable and loans  (59,992)  (41,033)
Net Cash Provided by (Used In) Financing Activities  (39,646)  196,325 
         
         
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS  (1,101,641)  382,061 
         
CASH AND CASH EQUIVALENTS        
Beginning of period  2,531,689   1,683,801 
End of period $1,430,048  $2,065,862 
         
SUPPLEMENTAL DISCLOSURE:        
Interest paid $57,648  $59,368 
Taxes Paid $-  $253 

See notes to consolidated financial statements.

3



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SONO-TEK CORPORATION

Notes to Consolidated Financial Statements

Six Months Ended August 31, 20102012 and 2009



2011

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES


Consolidation- The accompanying consolidated financial statements of Sono-Tek Corporation, a New York Corporationcorporation (the “Company”), include the accounts of the Company and its wholly owned subsidiary,subsidiaries, Sono-Tek Cleaning Systems Inc. and Sono-Tek Industrial Park, LLC. Sono-Tek Cleaning Systems, Inc., a New Jersey Corporation, (“SCS”), whoseceased operations have been discontinued.  There have been no operations of this subsidiary sinceduring the Fiscal Year Ended February 28, 2002.


Sono-Tek Industrial Park, LLC operates as a real estate holding company for the Company’s real estate operations.

Cash and Cash Equivalents –Cash and cash equivalents consist of money market mutual funds, short term commercial paper and short termshort-term certificates of deposit with original maturities of 90 days or less.  The Company occasionally has cash or cash equivalents on hand in excess of the $250,000 insurable limits at a given bank.  At August 31, 2010 and February 28, 2010, the Company had $1,302,869 and $1,286,917 over the insurable limit, respectively.


Fair Value of Financial Instruments -The carrying amounts reportedThe Company adopted the guidance in the balance sheetFair Value Measurements and Disclosure Topic of the Accounting Standards Codification for cash, receivables, accounts payableassets and accrued expenses approximateliabilities measured at fair value basedon 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, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of this guidance did not have an impact on the short-term maturityCompany’s financial position or operating results, but did expand certain disclosures. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, the guidance requires the use of these instruments.valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Level 1: Quoted prices in active markets.

Level 2:  Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3:Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The fair values of financial assets of the Company were determined using the following categories at August 31, 2012:

  Quoted Prices in Active Markets 
   (Level 1) 
   August 31,
2012		   February 29,
2012		 
         
Marketable Securities $958,364  $253,987 

Marketable Securitiesinclude mutual funds of $958,364, that are considered to be highly liquid and easily tradeable as of August 31, 2012. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the Company’s fair value hierarchy.

4

Interim Reporting - The attached summary 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, 2010,29, 2012, 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 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.


Intangible Assets – Include cost of patent applications that are deferred and charged to operations over seventeen years for domestic patents and twelve years for foreign patents. The accumulated amortization is $74,377$90,808 and $70,852$85,983 at August 31, 20102012 and February 28, 2010,29, 2012, respectively. Annual amortization expense of such intangible assets is expected to be $6,700$9,100 per year for the next five years.



-4-

Reclassifications – Certain reclassifications have been made to the prior period to conform to the presentations of the current period.


Impact of New Accounting Pronouncements - 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 isare not expected to have any impact on the Company.



NOTE 2: INVENTORIES


Inventories consist of the following:


  August 31,  February 28, 
  2010  2010 
       
Finished goods $869,450  $951,671 
Work in process  664,626   527,553 
Consignment  19,725   9,042 
Raw materials and subassemblies  572,647   477,845 
Total  2,126,448   1,966,111 
Less: Allowance  (226,958)  (208,958)
Net inventories $1,899,490  $1,757,153 


  August 31,  February 29, 
  2012  2012 
       
Finished goods $847,720  $905,142 
Work in process  629,256   544,805 
Consignment  6,191   7,127 
Raw materials and subassemblies  1,167,830   1,295,938 
Total  2,650,997   2,753,012 
Less: Allowance  (223,884)  (193,884)
Net inventories $2,427,113  $2,559,128 

NOTE 3: STOCK OPTIONS AND WARRANTS


Stock Options- Under the 2003 Stock Incentive Plan, as amended ("2003 Plan"), options can be granted to officers, directors, consultants and employees of the Company and its subsidiaries to purchase up to 1,500,000 of the Company's common shares. The 2003 Plan supplemented and replaced the 1993 Stock Incentive Plan (the “1993 Plan”), under which no further options may be granted. Options granted under the 1993 Plan expire on various dates through 2013. As of August 31, 2010,2012, there were 42,50040,000 options outstanding under the 1993 Plan and 1,174,2681,263,218 options outstanding under the 2003 plan.

5

Under both the 1993 and 2003 Stock Incentive Plans, option prices must be at least 100% of the fair market value of the common stock at time of grant. For qualified employees, except under certain circumstances specified in the plans or unless otherwise specified at the discretion of the Board of Directors, no option may be exercised prior to one year after date of grant, with the balance becoming exercisable in cumulative installments over a three year period during the term of the option, and terminating at a stipulated period of time after an employee's termination of employment.


-5-

NOTE 4: STOCK BASED COMPENSATION


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


 20112010
Expected life4 years4 years
Risk free interest rate1.51% - 2.7%1.39% - 2.7%
Expected volatility63% - 96%66% - 96%
Expected dividend yield0%0%

 20132012
Expected life4 years4 years
Risk free interest rate.29%.57% - 1.17%
Expected volatility53%37% - 53%
Expected dividend yield0%0%

In computing the impact, the fair value of each option is estimated on the date of grant based on the 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’ ;sCompany’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 six months ended August 31, 20102012 and 2009,2011, net income and earnings per share reflect the actual deduction for stock-based compensation expense. The impact of applying ASC 718 approximated $26,528$21,658 and $27,477$25,829 in additional compensation expense during the six months ended August 31, 20102012 and 2009,2011, respectively. Such amounts are included in general and administrative expenses on the statement of operations. The expense for stock-based compensation is a non-cash expense item.



NOTE 5: EARNINGS PER SHARE


The denominator for the calculation of diluted earnings per share at August 31, 20102012 and 20092011 are calculated as follows:


 Six Months Ended August 31, Three Months Ended August 31,
 20102009 20102009
      
Denominator for basic earnings per share14,437,51114,414,728 14,437,51114,414,741
      
Dilutive effect of stock options156,519- 130,82161,500
      
Denominator for diluted earnings per share14,594,03014,414,728 14,568,33214,476,241

Due to

  Six Months Ended August 31,  Three Months Ended August 31, 
  2012  2011  2012  2011 
             
Denominator for basic earnings per share  14,466,892   14,441,921   14,472,849   14,442,211 
                 
Dilutive effect of stock options  115,981   317,742   103,660   342,108 
                 
Denominator for diluted earnings per share  14,582,873   14,759,663   14,576,509   14,784,319 

NOTE 6: LONG TERM DEBT

Long-term debt consists of the net loss for the six month period ended August 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.


-6-

following:

  August 31,  February 29, 
  2012 
Note payable, individual, collateralized by land and buildings, payable in monthly installments of principal and interest of $14,446 through January 2031.  Interest rate 5.5%.  20 year term. $2,004,529  $2,035,579 
         
Equipment loan, bank, collateralized by related office equipment, payable in monthly installments of principal and interest of $5,154 through June 2015.  Interest rate 2.12%.  48 month term.  169,979   198,920 
         
Total long term debt  2,174,508   2,234,499 
         
Due within one year  123,573   120,303 
         
Due after one year $2,050,935  $2,114,196 

NOTE 6:7: REVOLVING LINE OF CREDIT


The Company has a $750,000 revolving line of credit at prime which was 3.25% at August 31, 2010.2012. The loan is collateralized by all of the assets of the Company.Company, except for the land and buildings. 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 August 31, 2010,2012, the Company’s outstanding balance was $350,000,$0, and the unused credit line was $400,000.$750,000.

7


NOTE 7:8: SEGMENT INFORMATION

The company operates in two segments: ultrasonic spraying systems and rental real estate operations.

All inter-company transactions are eliminated in consolidation. For the six and three months ended August 31, 2012 and 2011, segment information is as follows:

  Six Months Ended August 31, 2012  Three Months Ended August 31, 2012 
  Ultrasonic
Spraying		  Rental
Real Estate
Operations		  Eliminations  Consolidated  Ultrasonic
Spraying		  Rental
Real Estate
Operations		  Eliminations  Consolidated 
Net Sales $5,201,514  $97,164  $67,869  $5,230,809  $2,382,657  $42,385  $33,935  $2,391,107 
Rental Expense $67,869  $57,630  $(67,869) $57,630  $33,935  $28,610  $(33,935) $28,610 
Interest Expense $2,023  $55,625      $57,648  $972  $27,706      $28,678 
Net Income (Loss) $86,926  ($16,090)     $70,836  $73,666  $(13,931)     $59,735 
Assets $6,725,311  $2,507,885      $9,233,196  $6,725,311  $2,507,885      $9,233,196 
Debt $169,979  $2,004,529      $2,174,508  $169,979  $2,004,529      $2,174,508 

  Six Months Ended August 31, 2011  Three Months Ended August 31, 2011 
  Ultrasonic
Spraying		  Rental
Real Estate
Operations		  Eliminations  Consolidated  Ultrasonic
Spraying		  Rental
Real Estate
Operations		  Eliminations  Consolidated 
Net Sales $6,094,342  $112,558  $67,872  $6,139,028  $3,127,614  $56,279  $33,933  $3,149,960 
Rental Expense $67,872  $63,793  $(67,872) $63,793  $33,933  $23,965  $(33,933) $23,965 
Interest Expense $2,086  $57,282      $59,368  $1,054  $28,540      $29,594 
Net Income (Loss) $684,637  $(8,517)     $676,120  $433,749  $3,777      $437,526 
Assets $6,550,462  $2,536,816      $9,087,278  $6,550,462  $2,536,816      $9,087,278 
Debt $228,055  $2,065,788      $2,293,843  $228,055  $2,065,788      $2,293,843 

NOTE 9: SUBSEQUENT EVENTS

The Company has evaluated subsequent events for disclosure purposes.

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In September 2010, the Company repaid the outstanding balance of $350,000 on the line of credit.

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


Forward-Looking Statements


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


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


Overview


Sono-Tek has

We have developed a unique and proprietary series of ultrasonic atomizing nozzles, which are being used in an increasing variety of electronic,electronics, advanced energy (solar and fuel cells), medical industrial,device, glass, textiles and nanotechnologyfood 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.


Market Diversity

During the past four years we have invested significant time, monies and efforts to enhance our market diversity. Based on our core ultrasonic coating technology, we increased our portfolio of products, the industries we serve and the countries in which our products are marketed and sold.

Today we serve six major industries: electronics, advanced energy (solar and fuel cells), medical device, glass, textiles and food.

Most of our sales now originate outside the United States, and we are geographically present directly and through distributors and trade representatives in North and Latin America, Europe and Asia. The infrastructure upon which this diversified market approach is based, includes a newly equipped process development laboratory, a strengthened sales organization with application engineers, an engineering team with additional talent and the latest, most sophisticated design software tools, as well as an expanded, highly trained installation and service organization.

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The new products which were introduced, the new markets that were penetrated, and the regions in which we now conduct marketing and sales, are a strong foundation for our future sales growth and enhanced profitability.

Products

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

1.SonoFlux 2000F – spray fluxer product – designed for high volume operations with standard width lines requiring low maintenance using a variety of solder fluxes, including rosin flux. It is designed to be used by electronic circuit board manufacturers to apply solder flux to fixed width circuit boards. The major customers for the SonoFlux 2000F are original equipment manufacturers that produce their own electronic circuit boards.

2.SonoFlux 2000FP, SonoFlux XL and SonoFlux EZ- spray fluxer product - applies solder flux to electronic printed circuit boards that vary from two inches to up to 24 inches in width in a cost-effective and uniform manner. They are designed to be used by either OEMs or contract manufacturers of electronic circuit assemblies. All SonoFlux products provide substantial benefits in terms of reduced use of fluxing agents, reduced need for maintenance and reduced cost of operations compared to foam fluxers and competitive pressure nozzle fluxing products.

3.SonoFlux Servo – a new spray fluxer capable of providing flux to both wide areas of a circuit board as well as selective fluxing. We also sell a selective fluxing apparatus known as Selectaflux.

4.MediCoat and MediCoat II for stent coating – table-top and stand alone, fully-contained systems designed to apply 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 nozzle systems, which are precision nozzle configurations used in applications where precise patterns and coatings are required. These products provide customers the ability to achieve a minimal amount of waste of expensive drug polymer coatings and high uniformity of drug addition from stent to stent. MediCoat II is similar to the MediCoat, but it has higher throughput capabilities more suited for a production environment. We have recently developed additional medical coating platforms to address developing market segments for drug coated balloons, catheters and other implantable devices.

5.WideTrack – Wide area modular coating system – One module can cover substrates from 6 inches to 24 inches wide, depending on the application. Much greater widths can be achieved by linking modules together, and these systems have been applied in glass lines of up to four meters wide. A number of systems have been sold over the past four years, and this application holds promise for the future due to cost and environmental savings demonstrated at customer sites. It uses non-clogging ultrasonic atomizing nozzles to produce a low velocity, highly controllable spray. It is designed to be used in applications that require efficient web-coating or wide area spraying capability. The WideTrack System offers significant advantages over conventional pressure-spray methods in a broad range of applications such as non-woven fabrics, float glass, or odd-shaped industrial or consumer products. Since the ultrasonic spray can be easily controlled, it is possible 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

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6.Advanced Energy Applications – We now offer a line of equipment for applications involving coatings for fuel cell membranes and solar energy panels. This equipment is offered in bench-top configurations as our Exactacoat product and standalone as our Flexicoat product. These are robotic XYZ platforms that position and move our nozzle systems in a precise application pattern. We have also introduced a new product, the Hypersonic, a high speed reciprocator spraying system for this market. We have seen increasing sales in these growing industries, especially when combined with a novel ultrasonic syringe pump (patent pending) to agitate and suspend the carbon based suspensions needed in fuel cell applications.

Other Product Offerings

We have an exclusive distribution relationship with EVS International. Ltd. (“EVS”), a well established positionU.K. Company, to distribute EVS’s line of solder recovery systems and spares parts. The territory for this distribution relationship is the United States and Canada. EVS manufactures the EVS6000, EVS3000 and the EVS1000 solder recovery systems which are used to reclaim solder from the dross which accumulates in the wave-solder equipment of circuit board manufacturers. The customer base for distribution of these systems is synergistic with Sono-Tek’s existing customer base for spray fluxer sales in the printed circuit board industry.

Markets

During the past four years we have invested significant time, monies and efforts to enhance our market diversity. Based on our core ultrasonic coating technology, we increased our portfolio of products, the industries we serve and the countries in which we market and sell our products. An outcome of our rapid growth and diversification program, is that we are now capable of offering a unique and superior family of customized products to the six major industries we serve.

All of these systems are based on our core technology of ultrasonic spray coating. Many of these systems have been commercially proven in 24/7 working schedules, under harsh and challenging industrial manufacturing environments, where they provide value in a continuous and reliable fashion.

Today we offer products to six major industries: electronics, advanced energy (solar and fuel cells), medical device, glass, textiles and food.

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1.Electronics Industry.

We serve this industry by providing manufacturers of electronic printed circuit boards with state-of-the-art solder fluxers. Our ultrasonic spray fluxers reduce the amount of fluxing chemical needed, enhance the quality of the boards, and provide our customers with a better product at reduced costs of operations, when compared with conventional foam fluxers and pressure assisted fluxers.

We are recognized as a standard setter in the industry, and our systems are incorporated by various original equipment manufacturers (OEM), in their own manufacturing lines for making electronic printed circuit boards. Some examples include: SonoFlux spray fluxing equipment. It saves customers from 40%2000F, SonoFlux 2000FP, SonoFlux XL, SonoFlux EZ and SonoFlux Servo. We also offer the EVS solder recovery systems to the same customer base

2.Advanced Energy Industry.

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

Our precision coating systems are now presented in scientific conferences and trade shows around the world for the superior surface uniformity and density they provide, which are directly related to enhanced energy efficiency. Our systems also afford our energy industry clients with the capabilities of saving up to 80% of the liquid flux requiredexpensive catalysts and nano-materials used in these manufacturing processes. Some examples include: ExactaCoat, FlexiCoat, Hypersonic and SonoFlow CSP.

3.Medical Device Industry.

Our ultrasonic coating technology is being used by medical device manufacturers worldwide. The leading applications for this industry are coating of arterial stents with precise and uniform micronic layers of polymers and drugs; coating of various implantable devices with lubricous 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 include: MediCoat I; Medicoat II; Medicoat SPI; AccuMist; MicroMist.

4.Glass Industry.

The manufacture of float glass occurs under extremely harsh conditions of elevated temperatures. Our ultrasonic coating technology provides this manufacturing process with the means of precise and uniform application of 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 global glass manufacturers as their equipment of choice.

The equipment we offer to solder printed circuit boards over more labor intensive methods,the glass industry is the WideTrack – wide area modular coating system.

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5.Textiles Industry.

The textiles industry has yet to recover from the recent economic downturn related to the declines in new housing construction (carpets), automotive and clothing (fabrics).

This industry coats expensive chemicals such as foam fluxing.  Less flux equates to lessflame retardant, anti-stain, anti-microbial as well as moisture barriers, which are currently applied using inefficient dip or padding methods, resulting in significant waste of material, cost, fewer chemicals in the workplace,energy 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.water. We have solddemonstrated to a significant numberfew leading textile manufacturers the technical advantages and financial benefits of specializedour WideTrack coating system for their specific operations, and we are hopeful that these manufacturers will prioritize the WideTrack in their capital investment budgets, as soon as the general economy improves.

6.Food Industry.

The food industry is traditionally a slow adapter to new technologies. Accordingly, we focus our efforts on a select few global food companies, where our technical advantages and economic benefits could translate into successful market penetration and sales growth. We have introduced our 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 customer 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.  In addition, we are selling an increasing number of specialized medical implant coating devices now.


Another effort that has stimulated an increase in business has been the developmentvarious segments of the food industry. These include: baked goods, dairy, meat and biodegradable food packaging. The leading applications are coating of flavors, oils, nutriceuticals, anti-microbial agents, decorative glazes and coating of moisture barrier compounds on films, trays and cups. Most of our food industry equipment is designed on 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.platform.

Rental Real Estate Operations

In December 2010, we purchased the industrial park where our facilities are located in Milton, NY. 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 therepark is an excellent fit betweenimproved 3.13 acre parcel of land comprised of five buildings of office/industrial space, with 50,000 square feet of gross leasable floor area. We currently utilize 24,000 square feet of the thin, precise films required in nano-technology coating applicationspark for our operations. We presently lease 16,000 square feet of the park to unrelated third parties and our ultrasonic nozzle systems,10,000 square feet is currently vacant and available for rent.

For financial reporting purposes, we report the results of the park as employed in the WideTrack system.


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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.


rental real estate operations.

Liquidity and Capital Resources


Working Capital –Our working capital increased $320,000$126,000 from a working capital of $3,075,000$4,655,000 at February 28, 201029, 2012 to $3,395,000$4,781,000 at August 31, 2010.2012. The increase in working capital is primarily a result of the current period’s net income.income of $71,000, depreciation and amortization of $156,000, equipment acquisitions and patent costs of $93,000, long term debt reduction of $60,000 and proceeds from stock options of $20,000. The Company’s current ratio is 3.54.8 to 1 at August 31, 20102012 as compared to 34 to 1 at February 28, 2010.


29, 2012.

Stockholders’ Equity – Stockholder’s Equity increased $248,000$112,000 from $3,670,000$5,808,000 at February 28, 201029, 2012 to $3,918,000$5,920,000 at August 31, 2010.2012. The increase is a result of net income of $221,000,$71,000, and an adjustment for stock based compensation expense of $27,000.$21,000 and the proceeds from stock option exercises of $20,000.

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Operating Activities – Our We used $264,000 in our operating activities provided $92,000 of cash for the six months ended August 31, 20102012 as compared to providing $113,000$303,000 for the six months ended August 31, 2009.2011. During the six months ended August 31, 2010,2012, accounts receivable increased $274,000, inventory decreased $22,000, inventory increased $142,000,$102,000, prepaid expenses increased $61,000,$80,000, accounts payable and accrued expenses decreased $416,000$175,000 and customer deposits increased $294,000.decreased $121,000. In addition, we incurred non-cash expenses of $143,000$156,000 for depreciation and amortization, $27,000$21,000 for stock based compensation expense, and $4,000$6,000 for bad debt expense.


expense and increased our inventory reserve by $30,000.

The increase in our accounts receivable balance during the six months ended August 31, 2012 is due to an increased number of sales in August 2012. In addition, our customer deposits decreased during the six months ended August 31, 2012 which increased our accounts receivable balance and decreased our cash balance.

Our prepaid expenses increased primarily due to a New York State research and development tax credit.

Investing Activities – During the six months ended August 31, 2010,2012, we used $60,000$61,000 for the purchase of capital equipment, $32,000 for patent application costs and $704,000 for the purchase of marketable securities. During the six months ended August 31, 2011, we used $113,000 for the purchase of capital equipment and $7,000$5,000 for patent application costs.

Financing Activities – During the six months ended August 31, 2009,2012, we used $115,000$60,000 for the purchaserepayment of capital equipmentour notes payable and $8,000 for patent application costs, in addition we sold capital equipment for $53,000.


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Financing Activities –had proceeds from stock option exercises of $20,000. For the six months ended August 31, 20102011, we had proceeds from equipment financing of $237,000 and 2009, we used $9,000 and $11,000, respectively for the repaymentrepayments of our notes payable.
Resultspayable of Operations

$41,000.

Net Decrease in Cash –For the six months ended August 31, 2010,2012, our cash balance decreased $1,102,000. During the six months ended August 31, 2012, we used $264,000 in our operating activities, $798,000 in our investing activities and $40,000 in our financing activities. It should be noted that we purchased $704,000 of marketable securities during the six months ended August 31, 2012. This purchase is included in the investing activities noted above.

Results of Operations

For the six months ended August 31, 2012, our sales increased $1,567,000decreased $908,000 or 50%15% to $4,716,000$5,231,000 as compared to $3,149,000$6,139,000 for the six months ended August 31, 2009. 2011. During the six month period ended August 31, 2012, we experienced a decrease in sales of our nozzles and generators, fluxers, stent coating units, XYZ units and hypersonic units. We did, however, see an increase in sales of our servo units and a small increase in our widetrack sales.

For the three months ended August 31, 2010,2012, our sales increased $748,000decreased $759,000 to $2,432,000$2,391,000 or 44%24% as compared to $1,684,000$3,150,000 for the three months ended August 31, 2009.2011. During the three month period ended August 31, 2010,2012, we experienced a decrease in sales of our stent coating units, XYZ units, nozzles and generators and EVS systems. The decrease in these sales was offset by an increase in sales in all of our product lines, except for Widetrackfluxer units and Stent Coatingservo units.  Noteworthy sales increases took place

During the three months ended August 31, 2012 we have experienced a softening in the markets we serve in Asia and Europe due to the worldwide economic slowdown. We have seen several European governments reduce or eliminate their investments in high tech sectors where our programmable XYZ units during the current quarter.coatings systems are commonly used. Our ultrasonic systems are often directly or indirectly funded by these governmental agencies.

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For the six months ended August 31, 2010,2012, our gross profit increased $669,000decreased $597,000 to $2,233,000$2,515,000 from $1,565,000$3,112,000 for the six months ended August 31, 2009.2011. The gross profit margin was 47%48% of sales for the six months ended August 31, 20102012 and 50%51% of sales for the six months ended August 31, 2009.2011. The decrease in our gross profit margin for the six months ended August 31, 20102012 is due to a decrease in sales of our nozzles and generators, fluxers, stent coater sales, an increase in our programmablecoating units, XYZ units which have a lower profit margin thanand hypersonic units.

For the three months ended August 31, 2012, our stent coaters, an increase in Service personnel and expenses and an increase in freight costs.


Our gross profit increased $209,000decreased $513,000 to $1,116,000$1,165,000 from $1,678,000 for the three months ended August 31, 2010 from $907,000 for the three months ended August 31, 2009.2011. The gross profit margin was 46%49% of sales for the three months ended August 31, 20102012 and 54%53% of sales for the three months ended August 31, 2009.2011. The decrease in our gross profit margin for the three months ended August 31, 2010 was2012 is due to three major factors: approximately 30%a decrease in sales of this quarter’s sales were from our programmablestent coating units, XYZ units, which have a lower gross profit margin, our stent coater sales decreased this quarter when compared to the same period last yearnozzles and we had additional service personnelgenerators and service expenses related to new product installations when compared to the same period last year.

EVS systems.

Research and product development costs increased $57,000decreased $53,000 to $398,000$487,000 for the six months ended August 31, 20102012 from $341,000$540,000 for the six months ended August 31, 20092011 and $19,000$52,000 to $189,000$233,000 for the three months ended August 31, 20102012 from $170,000$285,000 for the three months ended August 31, 2009.2011. The increasesdecreases were principally due to increases inreduced salary expense due to additional engineering personneland research and development materials in the current periods.


Marketing and selling costsexpenses increased $167,000$58,000 to $1,033,000$1,206,000 for the six months ended August 31, 20102012 from $866,000$1,148,000 for the six months ended August 31, 20092011. During the six months ended August 31, 2012, we experienced an increase in international commission expense which was offset by a decrease in insurance and $54,000depreciation. The increase in international commission expense is due to $511,000four large sales orders that were shipped to Asia during the first quarter of this fiscal year. These Asian sales were subject to a higher commission rate, but the increase is partially offset by a reduction in in-house installation expense.

For the three months ended August 31, 2012, marketing and selling expenses decreased $28,000. During the three months ended August 31, 2012, we experienced decreases in salaries, commissions and depreciation.

General and administrative costs increased $47,000 to $674,000 for the six months ended August 31, 2012 from $627,000 for the six months ended August 31, 2011 and were flat for the three months ended August 31, 2010 from $457,0002012 compared to the three months ended August 31, 2011. The increase for the six months ended August 31, 2012 was due to increased corporate expenses, increased salaries and bonuses and outside consulting fees related to the consideration of strategic opportunities and enhanced growth opportunities.

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Rental Real Estate Operations:

For the six and three months ended August 31, 2012, the results of our rental real estate operations are as follows:

  Six months ended  Three months ended 
  August 31, 2012 
Rental Income $29,295  $8,450 
         
Depreciation $28,706  $14,353 
Insurance $4,500  $2,250 
Grounds and Landscaping $3,788  $1,703 
Property taxes $20,442  $10,226 
Miscellaneous $194  $77 
         
Loss before Interest $(28,335) $(20,159)
         
Interest expense $55,625  $28,540 
         
Net Loss $(83,960) $(48,699)

Consolidated Results:

We had net income of $71,000 for the six months ended August 31, 2012 as compared to net income of $676,000 for the six months ended August 31, 2011. During the three months ended August 31, 2012 we had net income of $60,000 as compared to net income of $437,000 for the three months ended August 31, 2009.2011. 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 August 31, 2010, we experienced increases in salary expense, travel expense and depreciation expense.


General and administrative costs increased $88,000 to $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 August 31, 2010 from $240,000 for the three months ended August 31, 2009.  The increases2012, our results were principally due to an increase in officer salaries and other corporate expenses. In the prior periods, officer salaries were lower due tonegatively affected by a voluntary decrease taken by the officers.

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We had net income of $221,000 for the six months ended August 31, 2010 as compared to a net loss of $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 August 31, 2009.  Our results for the three months ended August 31, 2010 were improved over the same period last year due to an increase in sales andof our products combined with a decrease in our gross profit.
profit margin.

Critical Accounting Policies


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, 2010.29, 2012.

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Accounting for Income Taxes

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.


Stock-Based Compensation

The computation of the expense associated with stock-based compensation requires the use of a valuation model. ASC 718 is a complex accounting standard, the application of which requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. 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 efuture 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 ourthe Company’s 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.


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Impact of New Accounting Pronouncements


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.


ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk


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 $1,803,000$1,430,000 in cash, the market rate risk associated with changing interest rates in the United States is not material.

ITEM 4 – Controls and Procedures

The Company has established and maintains “disclosure controls and procedures” (as those terms are defined in Rules 13a –15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act’). Christopher L. Coccio, Chief Executive Officer (principal executive) and Stephen J. Bagley, Chief Financial Officer (principal accounting officer) of the Company, have evaluated the Company’s disclosure controls and procedures as of August 31, 2010.2012. Based on this evaluation, they have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported with inwithin the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to Management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding timely disclosure.

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In addition, there were no changes in the Company’s internal controls over financial reporting during the second fiscal quarter of 20112013 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.


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PART II - OTHER INFORMATION


 Item 1.Legal Proceedings
  None
   
 Item 1A.Risk Factors
  NoteNone Required for Smaller Reporting Companies
   
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
  None
   
 Item 3.Defaults Upon Senior Securities
  None
   
 Item 4.ReservedMine Safety Disclosures
None
   
 Item 5.Other Information
  None
   
 Item 6.Exhibits and Reports
   
  10.1  - Amended and Restated Revolving Demand Note in the Form of Exhibit 10.1
10.2 – Equipment Loan Agreement in the Form of Exhibit 10.2
31.1 – 31.2 –— Rule 13a - 14(a)/15d –- 14(a) Certification
   
  32.1 – 32.2 –— Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS — XBRL Instance Document.
101.SCH — XBRL Taxonomy Extension Schema Document
101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF — XBRL Taxonomy Extension Definition Linkbase Document
101.LAB — XBRL Taxonomy Extension Label Linkbase Document
101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES



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: October 5, 2010



11, 2012

  SONO-TEK CORPORATION
  (Registrant)
   
   
 By:/s/ Christopher L. Coccio
  Christopher L. Coccio
  Chief Executive Officer
   
   
   
 By:/s/ Stephen J. Bagley
  Stephen J. Bagley
  Chief Financial Officer

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