SOTK 10-Q Quarterly Report Aug. 31, 2010

SONO TEK CORP

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10-Q 1 eps3942.htm SONO-TEK CORPORATION eps3942.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: August 31, 2010

[ ]	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 York	14-1568099
(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
Class	September 20, 2010
Common Stock, par value $.01 per share	14,437,511

SONO-TEK CORPORATION

INDEX

Part I - Financial Information	Page

Item 1 – Consolidated Financial Statements:	1 - 3

Consolidated Balance Sheets – August 31, 2010 (Unaudited) and February 28, 2010	1

Consolidated Statements of Income – Six Months and Three Months Ended August 31, 2010 and 2009 (Unaudited)	2

Consolidated Statements of Cash Flows – Six Months Ended August 31, 2010 and 2009 (Unaudited)	3

Notes to Consolidated Financial Statements	4 - 7

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	8 – 12

Item 3 – Quantitative and Qualitative Disclosures about Market Risk	12

Item 4 – Controls and Procedures	12


Part II - Other Information	13

Signatures and Certifications	14 -19

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

See notes to consolidated financial statements.

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

See notes to consolidated financial statements.

-2-

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

See notes to consolidated financial statements.

-3-

SONO-TEK CORPORATION

Notes to Consolidated Financial Statements

Six Months Ended August 31, 2010 and 2009

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

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

Cash and Cash Equivalents – Cash and cash equivalents consist of money market mutual funds, short term commercial paper and short term certificates of deposit with original maturities of 90 days or less. 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 reported in the balance sheet for cash, receivables, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments.

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, 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 and $70,852 at August 31, 2010 and February 28, 2010, respectively. Annual amortization expense of such intangible assets is expected to be $6,700 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 is 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

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, there were 42,500 options outstanding under the 1993 Plan and 1,174,268 options outstanding under the 2003 plan.

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:

	2011	2010
Expected life	4 years	4 years
Risk free interest rate	1.51% - 2.7%	1.39% - 2.7%
Expected volatility	63% - 96%	66% - 96%
Expected dividend yield	0%	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’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, 2010 and 2009, net income and earnings per share reflect the actual deduction for stock-based compensation expense. The impact of applying ASC 718 approximated $26,528 and $27,477 in additional compensation expense during the six months ended August 31, 2010 and 2009, 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, 2010 and 2009 are calculated as follows:

	Six Months Ended August 31,		Three Months Ended August 31,
	2010	2009	2010	2009

Denominator for basic earnings per share	14,437,511	14,414,728	14,437,511	14,414,741

Dilutive effect of stock options	156,519	-	130,821	61,500

Denominator for diluted earnings per share	14,594,030	14,414,728	14,568,332	14,476,241

Due to 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-

NOTE 6: REVOLVING LINE OF CREDIT

The Company has a $750,000 revolving line of credit at prime which was 3.25% at August 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 August 31, 2010, the Company’s outstanding balance was $350,000, and the unused credit line was $400,000.

NOTE 7: SUBSEQUENT EVENTS

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

-7-

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 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 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.

Market Diversity

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 customers 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 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.

-8-

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.

Liquidity and Capital Resources

Working Capital – Our working capital increased $320,000 from a working capital of $3,075,000 at February 28, 2010 to $3,395,000 at August 31, 2010. The increase in working capital is primarily a result of the current period’s net income. The Company’s current ratio is 3.5 to 1 at August 31, 2010 as compared to 3 to 1 at February 28, 2010.

Stockholders’ Equity – Stockholder’s Equity increased $248,000 from $3,670,000 at February 28, 2010 to $3,918,000 at August 31, 2010. The increase is a result of net income of $221,000, and an adjustment for stock based compensation expense of $27,000.

Operating Activities – Our operating activities provided $92,000 of cash for the six months ended August 31, 2010 as compared to providing $113,000 for the six months ended August 31, 2009. During the six months ended August 31, 2010, accounts receivable decreased $22,000, inventory increased $142,000, prepaid expenses increased $61,000, accounts payable and accrued expenses decreased $416,000 and customer deposits increased $294,000. In addition, we incurred non-cash expenses of $143,000 for depreciation and amortization, $27,000 for stock based compensation expense and $4,000 for bad debt expense.

Investing Activities – During the six months ended August 31, 2010, we used $60,000 for the purchase of capital equipment and $7,000 for patent application costs. During the six months ended August 31, 2009, we used $115,000 for the purchase of capital equipment and $8,000 for patent application costs, in addition we sold capital equipment for $53,000.

-9-

Financing Activities – For the six months ended August 31, 2010 and 2009, we used $9,000 and $11,000, respectively for the repayment of our notes payable.

Results of Operations

For the six months ended August 31, 2010, our sales increased $1,567,000 or 50% to $4,716,000 as compared to $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 August 31, 2009. During the three month period ended August 31, 2010, we experienced an increase in sales in all of our product lines, except for Widetrack units and Stent Coating units. Noteworthy sales increases took place in our programmable XYZ units during the current quarter.

For the six months ended August 31, 2010, our gross profit increased $669,000 to $2,233,000 from $1,565,000 for the six months ended August 31, 2009. The gross profit margin was 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 August 31, 2010 and 54% of sales for the three months ended August 31, 2009. The decrease in our gross profit margin for the three months ended August 31, 2010 was due to three major factors: approximately 30% of this quarter’s sales were from our programmable XYZ units which have a lower gross profit margin, our stent coater sales decreased this quarter when compared to the 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 $57,000 to $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 August 31, 2010 from $170,000 for the three months ended August 31, 2009. The increases were principally due to increases in salary expense due to additional engineering personnel in the current periods.

Marketing and selling costs increased $167,000 to $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 August 31, 2010 from $457,000 for the three months ended August 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 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 increases were principally due to 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.

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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 and gross profit.

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.

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 future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards. ASC 718 requires the recognition of the fair value of stock compensation in net income. Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.

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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 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. 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 within 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.

In addition, there were no changes in the Company’s internal controls over financial reporting during the second fiscal quarter of 2011 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
		Note 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.	Reserved

	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.

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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

		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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TABLE OF CONTENTS

Part I - Financial Information Item 1 Consolidated Financial Statements: 1 - 3 Item 1 Consolidated Financial Statements:Item 2 - Management's Discussion and Analysis Of Financial Condition and Results Of Operations 8 12 Item 2 - Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3 Quantitative and Qualitative Disclosures About Market Risk 12 Item 3 Quantitative and Qualitative Disclosures About Market Risk Item 4 Controls and Procedures 12 Item 4 Controls and Procedures Part II - Other Information 13 Part II - Other Information Note 1: Significant Accounting Policies Note 2: Inventories Note 3: Stock Options and Warrants Note 4: Stock Based Compensation Note 5: Earnings Per Share Note 6: Revolving Line Of Credit Note 7: Subsequent Events Item 2 Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Reserved Item 5. Other Information Item 6. Exhibits and Reports

SOTK 10-Q Quarter ended Aug. 31, 2010