Edgar Filing: SONO TEK CORP

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended: February 28, 2005

Commission File Number: 0-16035

SONO-TEK CORPORATION
(Name of Small Business Issuer in its Charter)

NEW YORK 14-1568099
(State or other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)

2012 Route 9W, Milton, New York 12547
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (845) 795-2020

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)

Check whether the Issuer (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. |X| Yes |_| No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|

The Issuer had revenues of $5,803,586 for Fiscal Year ended February 28,
2005

As of May 16, 2005 the aggregate market value of the Registrant's Common
Stock held by non-affiliates of the Registrant was approximately $30,550,329
computed by reference to the average of the bid and asked prices of the Common
Stock on said date, which average was $2.65.

The Registrant had 14,168,497 shares of Common Stock outstanding as of May
16, 2005.

PART I

ITEM 1 BUSINESS

Organization and Business.

Sono-Tek Corporation (the "Company" or "Sono-Tek") was incorporated in New York
on March 21, 1975 for the purpose of engaging in the development, manufacture
and sale of ultrasonic liquid atomizing nozzles. Ultrasonic nozzle systems
atomize low to medium viscosity liquids by converting electrical energy into
mechanical motion in the form of high frequency ultrasonic vibrations that break
liquids into minute drops that can be applied to surfaces at low velocity.

The Company operates in one business segment, spraying systems. Since inception,
the spraying systems business has had periods of sales growth and financial
stability, but has had sales declines when the electronics industry, a principal
market for the Company's products, has had downturns due to lower levels of
printed circuit boards being made. To offset this, the Company has diversified
its product offerings to provide coating systems to medical device
manufacturers, to provide spray drying systems for nanotechnology applications,
and to provide wide area industrial precision coating equipment, including the
manufacture of float glass.

Product Development

The Company has core technology and has developed the following products that
have expanded its market opportunities:

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 (OEMs) that
produce their own electronic circuit boards.

2. SonoFlux XL - 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. It is
designed to be used by either OEMs or contract manufacturers of
electronic circuit assemblies.

3. MediCoat for stent coating - A new table-top, fully-contained system
designed to apply thin layers of expensive 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 uses either the
Accumist or MicroMist nozzle systems, which are precision nozzle
configurations used in applications where precise patterns of lines
and dots are required.

4. WideTrack - Wide area modular coating system - One module can cover
substrates up to 24 inches wide. Much greater widths can be achieved
by linking modules together. 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, such as
float glass manufacturing.

5. SonoDry - New spray drying nozzle for nanotechnology,
pharmaceutical, ceramics, and other applications. It is incorporated
into a laboratory sized spray dryer and marketed to research
institutions and small volume producers of spray-dried materials.

Other New Product Offerings

The Company established an exclusive distribution relationship, during the
most recent fiscal year, with EVS International. Ltd. ("EVS"), a U.K.
Company, to distribute EVS's line of solder recovery systems and spares
parts. The territory for this distribution is the United States and
Canada. EVS manufacturers the EVS6000 and the EVS3000 solder recovery
systems which are used to reclaim usable 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.

Management believes that the Company's long-term growth and stability is
linked to the development and release of products that provide solutions
to customer needs across a wide spectrum of industries, while advancing
the utility of the Company's core technology. The Company expended
approximately 8.9% and 10.4% of its Fiscal Years 2005 and 2004 total
revenues, respectively, on new engineering and product development.

Manufacturing

The Company purchases circuit board assemblies and sheet metal components from
outside suppliers. These materials are available from a wide range of suppliers
throughout the world. All raw materials used in the Company's products are
readily available from many different domestic suppliers. The Company provides a
limited warranty on all of its products covering parts and labor for a period of
one year from the date of sale. The Company has a business and quality control
system that meets the qualifications of ISO 9001/2000. The Company was ISO 9001
registered in September 1998 and has been recertified annually since then.

Patents

The Company's business is based in part on the technology covered by United
States patents held by the Company. Patent applications, based on the United
States applications, covering fundamental aspects of the ultrasonic technology
developed by the Company, have been issued in several foreign jurisdictions. The
Company's effective patents will expire in December 2007. The Company's patent
on its central bolt design, used in current product offerings, expired in July
2004. However, the Company also relies on unpatented know-how in the production
of its nozzle systems. The Company has executed non-disclosure, non-compete
agreements with all of its employees to safeguard its intellectual property. The
Company executes reciprocal non-disclosure agreements with its key customers to
safeguard any jointly developed know-how.

The Company has a patent pending on a batch coating process for coating stents,
substrates or other objects with thin organic films.

Marketing and Distribution

The Company markets and distributes its products through independent sales
representatives or sales representative companies, OEMs and through an in-house
direct sales force. Many of the Company's sales leads are generated from the
Company's Internet web site and from attendance at major industry trade shows.

Competition

The Company operates in a highly competitive environment for its electronics
manufacturing equipment. The Company maintains its competitive position by
providing highly effective solutions that meet its customers' requirements.

Significant Customers

Two customers accounted for 11% and 9%, respectively, of the Company's sales for
Fiscal Year ended February 28, 2005.

Foreign and Export Sales

During Fiscal Years 2005 and 2004, sales to foreign customers accounted for
approximately $2,393,000 and $855,000, or 41% and 24% respectively, of total
revenues.

Employees

As of May 13, 2005, the Company had 39 full-time employees and three part-time
employees. The Company believes that its relationship with its employees is
good.

ITEM 2 PROPERTIES

The Company's offices, product development, manufacturing and assembly
facilities are located in a building in Milton, New York, consisting of 13,000
square feet pursuant to a lease that expires on November 30, 2005. The Company's
current manufacturing areas consist of (i) a machine shop, (ii) a nozzle
assembly/test area, (iii) an electronics assembly area, and (iv) a receiving and
shipping area.

ITEM 3 LEGAL PROCEEDINGS

None.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5 MARKET FOR COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

(a) The Company's Common Stock trades in the over-the-counter market on the
OTC Bulletin Board. The following table sets forth the range of high and
low closing bid quotations for the Company's Common Stock for the periods
indicated.

FISCAL YEAR ENDED FEBRUARY 28, FEBRUARY 29,
2005 2004
HIGH LOW HIGH LOW
---------------- ------------------
First Quarter $1.65 $0.60 $0.30 $0.10
Second Quarter 1.26 0.94 0.30 0.16
Third Quarter 2.14 1.15 0.70 0.19
Fourth Quarter 3.00 2.10 0.89 0.40

The above quotations are believed to represent inter-dealer quotations without
retail markups, markdowns or commissions and may not represent actual
transactions. The Company believes that, although limited or sporadic quotations
exist, there is no established public trading market for the Company's Common
Stock.

(b) As of May 13, 2005, there were 308 holders of record of the Company's
Common Stock.

(c) The Company has not paid any cash dividends on its Common Stock since its
inception, and intends to retain earnings, if any, for use in its business
and for other corporate purposes.

(d) Recent Sales of Unregistered Securities

Certain recent sales of unregistered securities, during the year ended February
28, 2005, have been previously disclosed in Reports on Form 8-K and Form 10-QSB.

ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Forward-Looking Statements

Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Federal Securities Laws. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management, and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following:

- The Company's ability to respond to competition in its markets;

- General economic conditions in the Company's markets;

The Company undertakes no obligation to update publicly 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, 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.

The Company has a well established position in the electronics industry with its
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 level of rework. The
Company experienced a dramatic recovery of this market towards the latter part
of Fiscal Year 2004 and throughout Fiscal Year 2005, resulting in increased
orders for the Company's equipment.

In the past two years, the Company has focused engineering resources on the
medical device market, with emphasis on providing coating solutions for the new
generation of drug coated stents. The Company has sold a significant number of
specialized ultrasonic nozzles and MediCoat stent coating systems to large
pharmaceutical and 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. The
Company has begun to 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.

The Company also committed engineering resources to develop a general industrial
coating product, the WideTrack coating system, which is finding increasing
applications in the glass, food and textile manufacturing industries. The
WideTrack is saving customers money by reducing the use of materials and
lessening the environmental impact by significantly reducing overspray, which is
common with other types of coating systems.

In conclusion, the Company's sales levels have increased as the result of an
improved economy, product development efforts, and related marketing thrusts
which have had the effects of improving operating and net income, reducing debt,
and increasing shareholders' equity.

Liquidity and Capital Resources

The Company's working capital increased $886,000 from a working capital of
$786,000 at February 29, 2004 to $1,667,000 at February 28, 2005. The increase
in working capital was principally the result of increases in inventory of
$433,000, cash of $231,000 and payments of liabilities and debt of $189,000.
Stockholders' equity increased $1,719,000 to $2,306,000 at February 28, 2005
compared to $587,000 at February 29, 2004. The increase in stockholders' equity
was the result of markedly improved operating income, which went from $360,000
to $836,000, resulting in net income of $795,000, proceeds from a private
placement of $522,000, other stock issuances of $42,000, and exercises of stock
options and warrants of $359,000. The Company has operated profitably for the
last three fiscal years.

Inventory increased $433,000, or 48%, from $905,000 to $1,338,000 as the result
of new orders received towards the end of the fiscal year and the
diversification of the Company's product lines.

The increase in cash of $231,000 is due to better cash management, increased
revenues and collections and the result of equity infusions this year.

The Company currently has a revolving credit line of $500,000 with a bank and a
$150,000 equipment purchase facility. At February 28, 2005, $350,000 was
outstanding under this line. The revolving credit line is collateralized by all
of the assets of the Company and requires a 30 day annual payoff, which took
place between April 12, 2005 and May 12, 2005.

Results of Operations

For the year ended February 28, 2005, the Company's sales increased $2,302,000
or 65% to $5,804,000 as compared to $3,502,000 for the year ended February 29,
2004. The increase was the result of an increase in nozzle-spraying system and
specialty coating system sales, and the addition of WideTrack system sales for
glass coating. Foreign sales levels increased to 41% in 2005 versus 24% in
fiscal year 2004. This increase was primarily due to sales of coating systems
for newly installed plate glass manufacturing lines and for medical coating
systems.

The Company's gross profit increased $1,166,000, to $3,163,000 for the year
ended February 28, 2005 from $1,997,000 for the year ended February 29, 2004.
The increase was primarily a result of higher sales of the Company's products.
The mix of the Company's products sold slightly affected the gross margin
percentage, which changed from 57% for the year ended February 29, 2004, to 55%
for the year ended February 28, 2005.

Marketing and selling costs increased $331,000 to $1,031,000 for the year ended
February 28, 2005 from $700,000, for the year ended February 29, 2004. The
increase was principally a result of increased commissions of $218,000, and
increased labor and fringe benefit costs of $78,000. These increases were the
direct result of increased sales levels during the current fiscal year.

General and Administrative expense increased $208,000 to $779,000 for the year
ended February 28, 2005 from $571,000, as compared to the year ended February
29, 2004 as a result of increased payroll, legal, consulting and accounting
costs due to higher sales levels during the current fiscal year.

Research and product development costs increased $152,000 to $518,000 for the
year ended February 28, 2005 as compared to $366,000 for the year ended February
29, 2004. The increase was principally due to an increase in engineering
personnel and increased purchases of research and development materials in the
current fiscal year.

The Company's operating income increased from $360,000 for the year ended
February 29, 2004 to $836,000 for the year ended February 28, 2005. Net income
increased $10,000 to $795,000 or $.07 per share on a diluted basis for the year
ended February 28, 2005 from $785,000 or $0.07 per share for the year ended
February 29, 2004. The prior year's net income included an income tax benefit of
$585,000 as the result of recording a deferred tax asset relating to the tax
effect of recognizing $1,500,000 of the Company's prior year's net operating
loss carryforwards.

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and results of
operations are based upon the Company's 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 its critical accounting policies are limited to the one
described below. For a detailed discussion on the application of this and other
accounting policies see note 2 to the Company's consolidated financial
statements.

Accounting for Income Taxes

As part of the process of preparing the consolidated financial statements, the
Company is required to estimate income taxes. Management judgment is required in
determining the provision for the deferred tax asset. During the fourth quarter
of the year ended February 29, 2004, the Company reduced the valuation reserve
for the deferred tax asset resulting from the net operating losses carried
forward due to the Company having demonstrated consistent profitable operations.
In the event that actual results differ from these estimates, the Company may
need to again adjust such valuation reserve.

Stock-Based Compensation

SFAS 123, Accounting for Stock-Based Compensation, as amended by SFAS 148,
Accounting for Stock-Based Compensation -- Transition and Disclosure,
encourages, but does not require, companies to record compensation cost for
stock based employee compensation plans at fair value. The Company has chosen to
continue, until March 1, 2006, to account for stock-based employee compensation
using the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and Related
Interpretations. Accordingly, compensation cost for stock options granted to
employees is measured as the excess, if any, of the quoted market price of our
stock at the date of the grant over the amount an employee must pay to acquire
the stock.

Impact of New Accounting Pronouncements

FASB 151 - Inventory Costs

In November 2004, the Financial Accounting Standards Board "FASB" issued FASB
Statement No. 151, which revised ARB No.43, relating to inventory costs. This
revision is to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material (spoilage). This Statement
requires that these items be recognized as a current period charge regardless of
whether they meet the criterion specified in ARB 43. In addition, this Statement
requires the allocation of fixed production overheads to the costs of conversion
be based on normal capacity of the production facilities. This Statement is
effective for financial statements for fiscal years beginning after June 15,
2005. Earlier application is permitted for inventory costs incurred during
fiscal years beginning after the date of this Statement is issued. Management
believes this Statement will have no impact on the financial statements of the
Company once adopted.

FASB 152 - Accounting for Real Estate Time-Sharing Transactions

In December 2004, the FASB issued FASB Statement No. 152, which amends FASB
Statement No. 66, Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in Statement of Position (SOP) 04-2, and
Accounting for Real Estate Time-Sharing Transactions. This Statement also amends
FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of
Real Estate Projects, to state that the guidance for (a) incidental operations
and (b) costs incurred to sell real estate projects does not apply to
real-estate time-sharing transactions. The accounting for those operations and
costs is subject to the guidance in SOP 04-2. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005. Management
believes this Statement will have no impact on the financial statements of the
Company once adopted.

FASB 153 - Exchanges of Nonmonetary Assets

In December 2004, the FASB issued FASB Statement No. 153. This Statement
addresses the measurement of exchanges of nonmonetary assets. The guidance in
Accounting Principles Board "APB" Opinion No. 29, Accounting for Nonmonetary
Transactions, is based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. The guidance
in that Opinion, however, included certain exceptions to that principle. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. This
Statement is effective for financial statements for fiscal years beginning after
June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges
incurred during fiscal years beginning after the date of this Statement is
issued. Management believes this Statement will have no impact on the financial
statements of the Company once adopted.

FASB 123 (revised 2004) - Share-Based Payments

In December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock Based Compensation. This Statement supercedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." This Statement does not address
the accounting for employee share ownership plans, which are subject to AICPA
Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership
Plans.

A nonpublic entity will measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of those instruments, except in certain circumstances.

A public entity will initially measure the cost of employee services received in
exchange for an award of liability instruments based on its current fair value;
the fair value of that award will be re-measured subsequently at each reporting
date through the settlement date. Changes in fair value during the requisite
service period will be recognized as compensation cost over that period. A
nonpublic entity may elect to measure its liability awards at their intrinsic
value through the date of settlement.

The grant-date fair value of employee share options and similar instruments will
be estimated using the option-pricing models adjusted for the unique
characteristics of those instruments (unless observable market prices for the
same or similar instruments are available).

Excess tax benefits, as defined by this Statement, will be recognized as an
addition to paid-in-capital. Cash retained as a result of those excess tax
benefits will be presented in the statement of cash flows as financing cash
inflows. The write-off of deferred tax assets relating to unrealized tax
benefits associated with recognized compensation cost will be recognized as
income tax expense unless there are excess tax benefits from previous awards
remaining in paid-in capital to which it can be offset.

The notes to the financial statements of both public and nonpublic entities will
disclose information to assist users of financial information to understand the
nature of share-based payment transactions and the effects of those transactions
on the financial statements.

For public entities that file as small business issuers the effective date will
be as of the beginning of the first annual reporting period that begins after
December 15, 2005, Management intends to comply with this Statement at the
scheduled effective date for the relevant financial statements of the Company.

FASB Interpretation No. 47 - Accounting for Asset Retirement Obligations

In March 2005, FASB Interpretation No.47 "FIN 47" was issued, which clarifies
certain terminology as used in FASB Statement No. 143, Accounting for Asset
Retirement Obligations. In addition it clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005. Early adoption of FIN 47 is encouraged.
Management believes the adoption of FIN 47 will have no impact on the financials
of the Company, once adopted.

ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See pages 25 to 44.

ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On March 21, 2005, the Company changed its independent registered
accountants as previously reported on a Current Report on Form 8K dated
March 21, 2005.

ITEM 8A CONTROLS AND PROCEDURES

(a) The Company carried out an evaluation, under the supervision and
with the participation of the Company's management, including the
Company's President & CEO (principal executive officer) and
Treasurer (principal accounting officer), of the effectiveness of
the design and operation of the Company's disclosure controls and
procedures. Based upon that evaluation, the Company's President and
Treasurer, concluded that the Company's disclosure controls and
procedures are effective as of the period covered by this report.
Disclosure controls and procedures are controls and procedures that
are designed to ensure that information required to be disclosed in
Company reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified by SEC rules and forms.

(b) There were no changes in the Company's internal control over
financial reporting in the last fiscal year that have materially
affected or are reasonably likely to materially affect the Company's
internal control over financial reporting.

ITEM 8B OTHER INFORMATION

None.

PART III

ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPIANCE
WITH 16(a) OF THE EXCHANGE ACT

(a) Identification of Directors

Name Age Position with the Company
---- --- -------------------------

Harvey L. Berger 66 Chief Technology Officer and Director
Christopher L. Coccio 64 Chief Executive Officer, President and
a Director
Edward J. Handler, Esq. 68 Director*
Donald F. Mowbray 67 Director*
Samuel Schwartz 85 Chairman and Director
Philip A. Strasburg, CPA 66 Treasurer and Director*

* Member of the Audit Committee and Compensation Committee.

The Board of Directors is divided into two classes, which were established by
the Company's shareholders at their annual meeting held on October 19, 1989. The
directors in each class serve for a term of two years. The terms of the classes
are staggered so that only one class of directors is elected at each annual
meeting of the Company. The terms of Drs. Berger, and Coccio, and Messrs.
Handler and Strasburg run until the annual meeting to be held in 2005, and the
terms of Messrs. Mowbray and Schwartz run until the annual meeting to be held in
2006, and in each case until their respective successors are duly elected and
qualified.

Audit Committee

The Company's Board of Directors has an Audit Committee composed of Edward J.
Handler and Donald F. Mowbray. Philip A. Strasburg, CPA, was Chairman of the
Audit Committee from August 19, 2004 until February 17, 2005, at which time he
was named Treasurer of the Company. In addition, he continues to serve as an
Audit Committee member. However, the Company has begun a search to find another
qualified outside director to assume the Audit Committee Chairman
responsibility.

The Audit Committee is responsible for (i) selecting an independent public
accountant for ratification by the stockholders, (ii) reviewing material
accounting items affecting the consolidated financial statements of the Company,
and (iii) reporting its findings to the Board of Directors.

Identification of Executive Officers

Name Age Position with the Company
---- --- -------------------------

Harvey L. Berger 66 Chief Technology Officer and Director
Christopher L. Coccio 64 Chief Executive Officer, President and
Director
Vincent F. DeMaio 67 Vice President
R. Stephen Harshbarger 37 Vice President
Philip A. Strasburg, CPA 66 Treasurer and Director

The foregoing officers are elected for terms of one year or until their
successors are duly elected and qualified or until terminated by the action of
the Board of Directors. There are no arrangements or understandings between any
executive officer and any other persons(s) pursuant to which he was or is to be
selected as an officer.

Business Experience

DR. HARVEY L. BERGER was appointed Chief Technologist in April 2001 and Chief
Technology Officer in August 2004 and has been a Director of the Company since
June 1975. He was President of the Company from November 1981 to September 1984
and from September 1985 until April 2001. From September 1986 to September 1988,
he also served as Treasurer. He was Vice Chairman of the Company from March 1981
to September 1985. Dr. Berger holds a Ph.D. in physics from Rensselaer
Polytechnic Institute and is a member of the Marist College Advisory Board.

DR. CHRISTOPHER L. COCCIO was appointed President and Chief Executive Officer of
Sono-Tek on April 30, 2001 and has been a Director of the Company since June
1998. From 1964 to 1996, he held various engineering, sales, marketing and
management positions at General Electric Company, with P&L responsibilities for
up to $100 million in sales and 500 people throughout the United States. His
business experience includes both domestic and international markets and
customers. He founded a management consulting business in 1996, and worked with
the New York State Assembly's Legislative Commission on Science and Technology
from 1996 to 1998. From 1998 to 2001, he worked with Accumetrics Associates,
Inc., a manufacturer of digital wireless telemetry systems, as Vice President of
Business Development and member of the Board of Advisors. Mr. Coccio received a
B.S.M.E. from Stevens Institute of Technology, a M.S.M.E. from the University of
Colorado, and a Ph.D. from Rensselaer Polytechnic Institute in Chemical
Engineering.

VINCENT F. DEMAIO has been Vice President of Manufacturing of the Company since
March 2003. He joined the Company in August 1991 as Production Manager and has
served as Field Service Manager and Director of Operations. Prior to joining,
the Company Mr. DeMaio was an independent real estate developer from 1987 to
1991. From 1956 to 1987, Mr. DeMaio was employed by IBM Corporation in various
manufacturing positions, the last being Manufacturing Supervisor over 600
employees.

EDWARD J. HANDLER, Esq., 68, is a retired attorney in the law firm of Kenyon &
Kenyon, one of the Company's intellectual property counsels and became a
Director of the Company on October 1, 2004, coincident with his retirement from
his law firm. Mr. Handler has 40 years experience in all aspects of intellectual
property, including patents, trade secrets, trademarks and copyrights, including
litigation and other adversarial proceedings. He is a member of a number of
intellectual property Bar Associations and general Bar Associations. Mr. Handler
is past President of the West Point Society of New York and a past Trustee if
the Association of Graduates, U.S. Military Academy. He holds a J.D. degree from
the University of Virginia Law School in 1964 and a B.S. in Engineering Science
from the United States Military Academy in 1960.

R. STEPHEN HARSHBARGER has been Vice President of the Company since June 2000.
He joined the Company in October 1993 as a Sales Engineer and served in various
sales management capacities from 1997 to 2000. Prior to joining the Company, Mr.
Harshbarger was the Sales and Marketing Coordinator at Plasmaco, Inc., a
developer and manufacturer of state-of-the-art flat panel displays. He is a
graduate of Bentley College, with a major in Finance and a minor in Marketing.

DR. DONALD F. MOWBRAY has been a Director since August 2003. He has been an
independent consultant since August 1997. From September 1992 to August 1997 he
was the Manager of the General Electric Company's Corporate Research and
Development Mechanical Engineering Laboratory. From 1962 to 1992 he worked for
the General Electric Company in a variety of engineering and managerial
positions. Dr. Mowbray received a B.S. in Aeronautical Engineering from the
University of Minnesota in 1960, a Master of Science in Engineering Mechanics
from the University of Minnesota in 1962 and a Ph.D. from Rensselaer Polytechnic
Institute in Engineering Mechanics in 1968.

SAMUEL SCHWARTZ has been a Director of the Company since August 1987, and was
Chairman of the Board from February 1993 to May 1999. In April 2001, he accepted
the position as Acting Chairman of the Board. He became Chairman in August 2001.
From 1959 to 1992, he was the Chairman and Chief Executive Officer of Krystinel
Corporation, a manufacturer of ceramic magnetic components used in electronic
circuitry. He received a B.Ch.E. from Rensselaer Polytechnic Institute in 1941
and a M.Ch.E. from New York University in 1948.

PHILIP STRASBURG, CPA, 66, has been a Director since August, 2004. He is a
retired partner from the firm of Anchin Block and Anchin, LLP and has 40 years
of experience in auditing. He served as Audit Committee Chairman from August,
2004 until February, 2005, when he was elected Treasurer. He was the lead
partner on the Sono-Tek account from Fiscal 1994 to Fiscal 1996. Mr. Strasburg
is a certified public accountant in New York State. He has a Master of Science
in economics from The London School of Economics and Political Science and a
Bachelors of Science degree from Lehigh University, where he majored in business
administration. He is a member of the Board of Directors of the Westchester
Public/Private Partnership for Aging Services.

(b) Identification of Certain Significant Employees

Not applicable.

None.

(d) Involvement in certain legal proceedings

None.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors, executive officers and persons who own more than ten percent of the
Company's common stock to file with the Securities and Exchange Commission
initial reports of beneficial ownership and reports of changes of beneficial
ownership of common stock. Such persons are also required by Securities and
Exchange Commission regulations to furnish the Company with copies of all such
reports. Based solely on a review of such filings, during the year ended
February 28, 2005, all of the Company's Directors and executive officers and
holders of more than ten percent of the Company's stock have made timely filings
of such reports except as follows: one report by Samuel Schwartz relating to one
transaction; three reports by Christopher Coccio relating to four transactions;
two reports by Harvey Berger relating to four transactions; two reports by
Philip Strasburg relating to one transaction; one report by Vincent Demaio
relating to two transactions; five reports by Norwood Venture Corp. relating to
ten transactions; and Edward Handler has not filed a Form 3.

ITEM 10 EXECUTIVE COMPENSATION

The following table sets forth the aggregate remuneration paid or accrued by the
Company for Fiscal Years ended February 28, 2005, 2004 and 2003, for each named
officer of the Company. No other executive officer received aggregate
remuneration that equaled or exceeded $100,000 for the Fiscal Year ended
February 28, 2005.

SUMMARY COMPENSATION TABLE

Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Name and All Other Securities Underlying
Principal Position Year Salary ($) Bonus ($) Compensation ($)(1) Options (#)
------------------ ---- ---------- --------- ------------------- -----------

Christopher L. Coccio 2005 $153,650 $60,000 $36,039 495,000
CEO, President and 2004 $129,970 $17,500 $1,244 0
Director 2003 $124,462 $7,500 $1,260 275,000

R. Stephen Harshbarger 2005 $152,985 $15,000 $1,598 10,000
Vice-President 2004 $105,854 $4,375 $927 0
2003 $88,196 $1,200 $996 20,000

(1) Dollar amounts for 2005 for Christopher L. Coccio include a non-cash gain
on non-qualified stock option exercise of $31,250, Company contributions
under the Company's retirement plan and a partial reimbursement of country
club membership fees. All other dollar amounts are for contributions under
the Company's retirement plan.

The following table sets forth information regarding option grants made during
the last completed fiscal year for each named officer of the Company.

Option/SAR Grants in Last Fiscal Year

Number of Percent of total
Securities options/SARs
Underlying granted to
Options/SARs employees in Exercise or base
Name granted (#) fiscal year price ($/Sh) Expiration date
---- ----------- ----------- ------------ ---------------

Christopher L. Coccio 20,000 3% $ .95 05/19/2014
475,000 69% $1.75 11/12/2014

R. Stephen Harshbarger 10,000 1% $ .95 05/19/2014

The following table sets forth information regarding option exercises during the
Fiscal Year ended February 28, 2005, as well as any unexercised options held as
of February 28, 2005 by each named executive who received in excess of $100,000
in salary and bonus.

Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values

Number of Securities Underlying Value of Unexercised
Unexercised Options In-the Money Options
Shares at Fiscal Year End (#) At Fiscal Year End ($)
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------

Christopher Coccio 372,915 0 485,000 10,000 $242,500 $5,000

R. Stephen Harshbarger 77,500 0 12,500 5,000 $18,875 $6,500

Compensation of Directors

Each of the directors are issued stock options, which vest at 10,000 options per
annum as compensation for serving as a director to the Company. The stock
options are issued at the then market price upon issuance of such options.

ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following information is furnished as of May 18, 2005, to indicate
beneficial ownership of the Company's Common Stock by each Director, by each
named executive officer who has a salary and bonus in excess of $100,000, by all
Directors and executive officers as a group, and by each person known to the
Company to be the beneficial owner of more than 5% of the Company's outstanding
Common Stock. Such information has been furnished to the Company by the
indicated owners. Unless otherwise indicated, the named person has sole voting
and investment power.

Name (and address if Amount
more than 5%) of Beneficially
Beneficial owner Owned Percent
---------------- ----- -------

Directors and Officers

*Harvey L. Berger 384,418(1) 2.6%
*Christopher L. Coccio 980,624(2) 6.63%
*Vincent F. DeMaio 75,303(3) **
*Edward J. Handler 93,158(4) **
*R. Stephen Harshbarger 90,000(3) **
*Donald F. Mowbray 47,500(5) **
*Samuel Schwartz 1,552,147(6) 10.5%
*Philip A. Strasburg 15,000 **

All Executive Officers and Directors as a Group (8) 3,238,150(7) 21.90%

Additional 5% owners
Herbert Spiegel 756,931 5.33%
425 East 58th Street
New York, NY 10022

Norwood Venture Corporation 1,064,672 7.50%
65 Norwood Avenue
Montclair, NJ 07043

* c/o Sono-Tek Corporation, 2012 Route 9W, Milton, NY 12547.
** Less than 1%

(1) Includes 49,500 shares in the name of Dr. Berger's wife and 30,000 options
currently exercisable issued under the Company's Stock Incentive Plans.
(2) Includes 2,000 shares owned jointly with Dr. Coccio's father, 2,000 shares
in the name of Dr. Coccio's wife and 495,000 options currently exercisable
issued under the Company's Stock Incentive Plans.
(3) Includes 12,500 options currently exercisable under the Company's Stock
Incentive Plans.
(4) Includes 61,579 shares owned jointly with wife, 31,579 shares in the name
of Mr. Handler's wife.
(5) Includes 10,000 options currently exercisable issued under the Company's
Stock Incentive Plans and 12,500 warrants.
(6) Includes 40,000 options currently exercisable issued under the Company's
Stock Incentive Plans.
(7) Includes 585,000 options currently exercisable issued under the Company's
Stock Incentive Plans and 12,500 warrants.

Securities Authorized for Issuance Under Equity Compensation Plans:

EQUITY COMPENSATION PLAN INFORMATION

Number of
Number of securities remaining
securities to be Weighted- available for future
issued upon average exercise issuance under equity
exercise of price of compensation plans
outstanding options outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
------------------- ------------------- ------------------------
(a) (b) (c)

Equity compensation plans approved
by security holders:
1993 Stock Incentive Plan 167,062 $ .55 --
2003 Stock Incentive Plan 774,000 $1.65 726,000
Equity compensation plans not approved
by security holders:
Warrants issued to individual for
monies loaned 50,000 $1.00 --
Shares issued to individual for
services rendered 7,035 $0.39 --
------- ----- -------

Total 998,067 $1.42 726,000
======= ===== =======

Description of Equity Compensation Plans:

1993 Stock Incentive Plan

Under the 1993 Stock Incentive Plan, as amended ("1993 Plan"), options have been
granted to officers, directors, consultants and employees of the Company and its
subsidiaries to purchase the Company's common shares. Options granted under the
1993 Plan expire on various dates through 2013. There can be no further grants
under the 1993 Plan.

Under the 1993 Stock Incentive Plan, option prices were 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 1993 plan 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.

2003 Stock Incentive Plan

Under the 2003 Stock Incentive Plan ("2003 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. Under the 2003 Stock
Incentive Plan, 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 2003 plan 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.

Warrants Issued to Individuals for Monies Loaned:

Warrants were issued in Fiscal Years February 28, 2000 and 2001, to five
individuals, including officers and directors, who loaned monies to the Company
and one individual who assisted in raising funds for the Company. These warrants
are for terms of five years with exercise prices ranging from $.30 per share to
$1.00 per share. Warrants for 600,000 shares were exercised during the year
ended February 29, 2004 at an average issuance price of $.30. 300,000 of these
warrants were exercised by the Chairman of the Company. During the year ended
February 28, 2004, warrants for 250,000 were exercised and one warrant for 5,000
shares expired in April 2004.The remaining warrant, held by one individual for
50,000 shares was exercised in May 2005.

Shares Issued to Individuals for Services Rendered:

The Company issued 7,035 shares of its common stock to an attorney for patent
application work in lieu of fees for services rendered during the year ended
February 28, 2005.

ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Norwood loans -

On April 30, 2001, in order to induce the advance of an additional $300,000 by
Norwood, certain of the Company's directors, an officer and an affiliate of the
Company participated in the amount of $216,750 in the additional mezzanine
financing. Interest expense of $103,617 was paid to Norwood and $26,571 was
forwarded to these individuals during Fiscal Year 2004. During February 2004, an
officer of the Company exercised 24,444 warrants to purchase the Company's
common stock through Norwood. Coincident with this transaction $10,000 of
principal loaned by Norwood was repaid and was in turn repaid to this officer.

On December 3, 2004, the Company sold 76,750 units each consisting of four
shares of common stock and one warrant to purchase one additional share of
common stock at $1.75 during the two year period ending December 3, 2006.
Proceeds of this offering of $530,000 were used to repay $450,000 of Norwood
Venture Corporation, a principal stockholder of the Company, outstanding debt
and the balance was used for working capital.

On December 15, 2004, Norwood Venture Corporation, a principal stockholder of
the Company, and the Company reached an agreement whereby the "Put" rights under
the Norwood Loan and Warrant Agreement were terminated for a sum of $188,000
paid by the Company to Norwood. Also, Norwood exercised all of its warrants to
purchase the Company's stock, resulting in the issuance of 2,022,017 shares of
common stock. The Chairman of the Company and a different principal stockholder
of the Company were participants in the Norwood Loan and, accordingly, they each
received 243,239 shares of the Company's common stock as the result of the
warrant exercise. Also, they each received $103,333.50 as part of the repayment
of the principal of the Norwood Loans.

Debt Exchange - related party

During February 2004 loans, accrued interest and prior year consulting fees due
to the Chairman of the Company in the amount of $123,827 were exchanged for
294,825 shares of common stock valued at $.42 per share. The debt to equity
conversion price was negotiated independently with other third party creditors
on an "arms length" basis.

Warrant issuance - related party

During February 2004 warrants to acquire 300,000 shares of the Company's common
stock were exercised at $.30 per share by the Chairman of the Company for
$90,000. The proceeds from this exercise were used to repay prior year loans due
to the Chairman.

Equity issuance - related party

In December 2004, a director of the Company acquired 25,000 shares of common
stock and 12,500 warrants to purchase common stock pursuant to a private
placement for $43,750.

ITEM 13 EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

(a)(1) The consolidated financial statements and schedules listed in the
accompanying "Index to Consolidated Financial Statements" are filed as a part of
this annual report.

(2) See (a)(1) above.

(3) Exhibits

Ex. No. Description
------- -----------

2 Asset Sale Agreement - Selected Cleaning Systems assets, dated
February 28, 2005.
3(a)(1) Certificate of Incorporation of the Company and all amendments
thereto.
3(b)(1) By-laws of the Company as amended.
4(a)(3) Form of Warrant.
4(b) Form of Common Stock Purchase Warrants issued to Urban Development
Corporation d/b/a Empire State Development, Small Business investment
Fund, dated October 28, 2004.
4(c) Form of Common Stock Purchase Warrant issued as part of private
placement, dated December 3, 2004.
4(d)(2) Note and Warrant Purchase Agreement dated September 29, 1999 by and
between the Company and Norwood Venture Corp.
4(e)(2) Note issued by the Company, dated September 29, 1999, in the principal
sum of $450,000.
4(f)(2) Common Stock Purchase Warrant, dated September 29, 1999, issued by the
Company to Norwood Venture Corp.
4(g)(2) General Security Agreement, dated September 29, 1999, issued by the
Company in favor of Norwood Venture Corp.
4(h)(4) Amended, Note and Warrant Purchase Agreements dated December 22, 2000
and April 30, 2001 by and between the Company and Norwood Venture
Corp.
4(i)(5) Amended Note and Warrant Purchase Agreement dated October 24, 2001
between the Company and Norwood Venture Corp.
4(j) Agreement, dated December 9, 2004, between Norwood Venture Corporation
and Sono-Tek Corporation which extinguishes Put Rights under Note and
Warrant Purchase Agreement of September 29, 1999, as amended.
10(a)(6) Lease for the Company's facilities in Milton, NY dated December 1,
1999.
10(b)(1) Sono-Tek Corporation 1993 Stock Incentive Plan as amended.
10(c)(1) Sono-Tek Corporation 2003 Stock Incentive Plan.
10(d) Business Flex Line of Credit Note Agreement between Sono-Tek Corp. and
M&T Bank, dated December 21, 2004.
10(e) Equipment Line Credit Agreement between Sono-Tek Corporation and M&T
Bank, dated March 24, 2005.
10(f) General Security Agreement between Sono-Tek Corporation and M&T Bank,
dated December 21, 2004.

14(8) Code of Ethics.
21(7) Subsidiaries of Small Business Issuer.
23.1 Consent of Independent Registered Public Accounting Firm.
23.2 Consent of Independent Registered Public Accounting Firm.
31.1 Rule 13a-14/15d - 14(a) Certification.
31.2 Rule 13a-14/15d - 14(a) Certification.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated herein by reference to the Company's Registration Statement
No. 333-11913 on Form S-8 filed on February 18, 2004.
(2) Incorporated herein by reference to the Company's Form 10-Q Quarterly
Report for the quarter ended November 30, 1999.
(3) Incorporated herein by reference to the Company's Form 10-Q Quarterly
Report for the quarter ended November 30, 1993.
(4) Incorporated herein by reference to the Company's Form 10-K for the year
ended February 28, 2001.
(5) Incorporated herein by reference to the Company's Form 10-QSB quarterly
report for the quarter ended November 30, 2001.
(6) Incorporated herein by reference to the Company's Form 10-K for the year
ended February 29,2000.
(7) Incorporated herein by reference to the Company's Form 10-KSB for the year
ended February 28, 2003.
(8) Incorporated herein by reference to the Company's From 10-KSB for the year
ended February 29, 2004.

ITEM 14 DISCLOSURE OF FEES PAID TO PRINCIPAL ACCOUNTANTS

For the Fiscal Years ended February 28, 2005 and February 29, 2004 the Company
paid or accrued fees of approximately $32,000 and $27,000 for services rendered
by Sherb & Co., LLP and Radin Glass & Co., LLP, respectively, its independent
auditors. These fees included audit and review services.

For the Fiscal Years ended February 28, 2005 and February 29, 2004 the Company
paid or accrued tax preparation fees of approximately $4,000 and $4,000 for
services rendered by Sherb & Co., LLP and Radin Glass & Co., LLP, respectively,
its independent auditors.

There were no other fees for services rendered by Sherb & Co., LLP or Radin
Glass & Co., LLP other than for services described above.

SONO-TEK CORPORATION

FORM 10-KSB

ITEM 7

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

FOR THE YEARS ENDED FEBRUARY 28, 2005 and 2004

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheet at February 28, 2005

Consolidated Statements of Operations
For the Years Ended February 28, 2005 and February 29, 2004

Consolidated Statements of Stockholders' Equity
For the Years Ended February 28, 2005 and February 29, 2004

Consolidated Statements of Cash Flows
For the Years Ended February 28, 2005 and February 29, 2004

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Sono-Tek Corporation
Milton, New York

We have audited the accompanying consolidated balance sheet of Sono-Tek
Corporation as of February 28, 2005, and the related consolidated statements of
operations, stockholders' equity and cash flow for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sono-Tek Corporation, as of
February 28, 2005 and the results of their operation and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.

/s/ SHERB & CO., LLP
--------------------

Certified Public Accountants
New York, New York
May 23, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Sono-Tek Corporation
Milton, New York

We have audited the accompanying consolidated balance sheet of Sono-Tek
Corporation as of February 29, 2004, and the related consolidated statements of
operations, stockholders' equity and cash flow for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sono-Tek Corporation, as of
February 29, 2004 and the results of their operation and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.

/s/ RADIN, GLASS & Co., LLP
---------------------------

Certified Public Accountants
New York, New York
April 27, 2004

SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEET

ASSETS

February 28,
2005
------------
Current Assets
Cash and cash equivalents $ 421,043
Accounts receivable (less allowance of $18,123) 813,703
Inventories 1,338,410
Prepaid expenses and other current assets 111,714
Deferred tax asset 117,000
-----------
Total current assets 2,801,870
-----------

Equipment, furnishings and leasehold improvements
(less accumulated depreciation of $720,384) 140,133
Intangible assets, net 22,894
Other assets 7,171
Deferred tax asset 468,000
-----------

TOTAL ASSETS $ 3,440,068
===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable $ 292,729
Accrued expenses 491,828
Line of credit 350,000
-----------

Total liabilities 1,134,557

Commitments and Contingencies --

Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares authorized,
13,825,640 issued and outstanding 138,257
Additional paid-in capital 7,371,233
Stock subscription receivable (15,750)
Accumulated deficit (5,188,229)
-----------
Total stockholders' equity 2,305,511
-----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,440,068
===========

See notes to consolidated financial statements.

SONO-TEK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended
-----------------------------
February 28, February 29,
2005 2004
----------- -----------

Net Sales $ 5,803,586 $ 3,501,594
Cost of Goods Sold 2,640,373 1,505,010
----------- -----------
Gross Profit 3,163,213 1,996,584
----------- -----------

Operating Expenses
Research and product development 517,526 365,577
Marketing and selling 1,031,194 700,445
General and administrative 778,820 571,058
----------- -----------
Total Operating Expenses 2,327,540 1,637,080
----------- -----------

Operating Income 835,673 359,504

Interest Expense (93,032) (166,884)
Interest and Other Income 64,661 8,719
----------- -----------
Income before Income Taxes 807,302 201,339
Income Tax (Expense)/Benefit (12,000) 583,890
----------- -----------

Net Income $ 795,302 $ 785,229
=========== ===========

Basic Earnings Per Share $ .07 $ .08
=========== ===========

Diluted Earnings Per Share $ .07 $ .07
=========== ===========

Weighted Average Shares - Basic 11,708,331 9,248,175
=========== ===========

Weighted Average Shares - Diluted 12,006,170 11,414,584
=========== ===========

See notes to consolidated financial statements.

SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004

Common Stock Total
Par Value $.01 Additional Stock Stockholders'
-------------- Paid-In Subscription Accumulated (Deficiency)
Shares Amount Capital Receivable Deficit Equity
------ ------ ------- ------------ ------- ------

Balance - February 28, 2003 9,200,161 $ 92,002 $6,037,305 $ 0 $(6,768,760) $ (639,453)

Non-employee stock options -- -- 1,564 -- -- 1,564
Exercise of warrants 624,444 6,245 176,200 -- -- 182,445
Exercise of stock options 91,516 915 13,372 -- -- 14,287
Conv. of Notes and liabilities 578,035 5,780 236,995 -- -- 242,775
Net Income -- -- -- -- 785,229 785,229
---------- -------- ---------- -------- ----------- ----------
Balance - February 29, 2004 10,494,156 104,942 6,465,436 -- (5,983,531) 586,847

Stock Sold/Issued 388,168 3,882 575,796 (15,750) -- 563,928
Exercise of warrants 2,272,017 22,720 263,003 -- -- 285,723
Exercise of stock options 671,299 6,713 66,998 -- -- 73,711
Net Income -- -- -- -- 795,302 795,302
---------- -------- ---------- -------- ----------- ----------
Balance - February 28, 2005 13,825,640 $138,257 $7,371,233 $(15,750) $(5,188,229) $2,305,511
========== ======== ========== ======== =========== ==========

See notes to consolidated financial

SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended
--------------------------
February 28, February 29,
2005 2004
---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 795,302 $ 785,229
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 53,092 49,469
Imputed interest expense -- 17,608
Provision for doubtful accounts 3,077 1,371
Increase in:
Accounts receivable (2,946) (440,166)
Inventories (432,941) (110,803)
Prepaid expenses and other current assets (28,114) (27,577)
Deferred tax assets -- (585,000)
Increase in:
Accounts payable and accrued expenses 97,459 292,892
---------- ----------
Net Cash Provided by (Used in) Operating Activities 484,929 (16,977)
---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, furnishings and leasehold improvements (126,887) (10,411)
Patent filing costs (347) (2,296)
Other assets (630) --
---------- ----------
Net Cash Used In Investing Activities (127,863) (12,707)
---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 563,923 --
Proceeds from exercise of warrants and options 359,439 198,296
Conversion of notes and debt to equity -- 242,774
Repayment under revolving credit line (312,000) --
Repayments of notes payable and equipment loans -- (9,072)
Repayment of notes to related parties -- (24,283)
Repayment of subordinated debt -- (20,928)
Loan Payments/exchanges (737,372) (432,774)
---------- ----------
Net Cash Used in Financing Activities (126,010) (45,987)
---------- ----------

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 231,056 (75,671)
CASH AND CASH EQUIVALENTS
Beginning of year 189,987 265,658
---------- ----------
End of year $ 421,043 $ 189,987
========== ==========

See notes to consolidated financial statements.

SONO-TEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004

NOTE 1: BUSINESS DESCRIPTION

The Company was incorporated in New York on March 21, 1975 for the purpose of
engaging in the development, manufacture, and sale of ultrasonic liquid
atomizing nozzles, which are sold world-wide. Ultrasonic nozzle systems atomize
low to medium viscosity liquids by converting electrical energy into mechanical
motion in the form of high frequency ultrasonic vibrations that break liquids
into minute drops that can be applied to surfaces at low velocity.

NOTE 2: 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"), which the Company acquired on August 3, 1999, whose
operations have been discontinued. There have been no operations of this
subsidiary since Fiscal Year Ended February 28, 2002. All significant
intercompany accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents - Cash and cash equivalents consist of money market
mutual funds 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 $100,000 insurable limits at a given bank. At February 28,
2005, the Company had $292,205 over the insurable limit.

Supplemental Cash Flow Disclosure -

Years Ended
---------------------------
February 28, February 29,
2005 2004
------- --------
Interest paid $93,032 $172,684
======= ========
Income taxes paid -- --
======= ========
Non-cash items:
Interest expense for issuance of warrants $ 0 $ 17,606
======= ========

Inventories - Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method for raw materials,
subassemblies and work-in-progress and the specific identification method for
finished goods. Consignment goods are spare parts used by outside sales
representatives for emergency repairs performed on customer's equipment.

Allowance for doubtful accounts - The Company records a bad debt
expense/allowance based on managements estimate of uncollectible accounts. All
outstanding accounts receivable accounts are reviewed for collectibility on an
individual basis. The bad debt expense recorded for the year ended February 28,
2005 and February 29, 2004 was $13,500 and $12,000 respectively.

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

Product Warranty - Expected future product warranty expense is recorded when the
product is sold.

Intangible Assets -Include Costs of patent applications which are deferred and
charged to operations over seventeen years for domestic patents and twelve years
for foreign patents and the unamortized portion of deferred financing costs. The
accumulated amortization of patents is $45,487 at February 28, 2005.

Research and Product Development Expenses - Research and product development
expenses represent engineering and other expenditures incurred for developing
new products, for refining the Company's existing products and for developing
systems to meet unique customer specifications for potential orders or for new
industry applications and are expensed as incurred. Engineering costs directly
applicable to the manufacture of existing products are included in cost of goods
sold.

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

Earnings (Loss) Per Share - Basic earnings (loss) per share ("EPS") is computed
by dividing net income (loss) by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Stock options granted but not yet
exercised under the Company's stock option plans are included for Diluted EPS
calculations under the treasury stock method.

Advertising Expenses - The Company expenses the cost of advertising in the
period in which the advertising takes place. Advertising expenses for the year
ended February 28, 2005 and February 29, 2004 was $14,905 and $14,914,
respectively.

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

Stock-Based Employee Compensation - The Company accounts for stock-based
compensation plans utilizing the provisions of Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and the
Financial Accounting Statement of Financial Accounting Standards No. 123 and No.
148 (SFAS 123 and SFAS 148), "Accounting for Stock-Based Compensation". Under
SFAS 123, the Company will continue to apply the provisions of APB 25 to its
stock-based employee compensation arrangements, and is only required to
supplement its financial statements with additional pro-forma disclosures. The
Company has elected to provide the related pro-forma disclosures utilizing an
intrinsic value method of accounting for such stock based compensation.

The estimated fair value of options granted during Fiscal Year 2005 was $1.64
per share and the estimated fair value of options granted during Fiscal Year
2004 was $.23 per share. The Company applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for the 1993 Plan. Had
compensation cost for the Company's stock option plan been determined based on
the intrinsic value at the option grant dates for awards in accordance with the
accounting provisions of SFAS 123, the Company's net income and basic and
diluted earnings per share for the years ended February 28, 2005 and February
29, 2004 would have been changed to the pro forma amounts indicated below:

Year Ended
---------------------------
February 28, February 29,
2005 2004
--------- ---------
Net income:
As reported $ 795,302 $ 785,229
Deduct: Total stock based
employee compensation under
Intrinsic value based method for
all awards, net of tax effects 746,818 10,863
--------- ---------
Pro forma net income $ 48,484 $ 772,693
========= =========
Basic earnings per share:
As reported $ 0.07 $ 0.08
Pro forma $ 0.00 $ 0.08
Diluted earnings per share:
As reported $ 0.07 $ 0.07
Pro forma $ 0.00 $ 0.07

The fair value of options granted under the Company's fixed stock option plans
during Fiscal Years 2005 and 2004 were estimated on the dates of grant using the
minimum value options-pricing models with the following weighted-average
assumptions used: expected volatility of approximately 109% and 107% in Fiscal
Years 2005 and 2004, respectively, risk-free interest rate of approximately
3.25% in Fiscal Years 2005 and 2004, and expected lives of option grants of
approximately five years.

Recognition of Revenue - Sales are recorded at the time title passes to the
customer, which, based on shipping terms, generally occurs when the product is
shipped to the customer. Based on prior experience, the Company reasonably
estimates its sales returns and warranty reserves. Sales are presented net of
discounts and allowances.

Concentration of Credit Risk - The Company does not believe that it is subject
to any unusual or significant risks, in the normal course of business. The
Company does have cash in excess of the federal insurable limits as noted above.
The Company also has two customers, which accounted for 11% and 9% of sales,
respectively, during the year ended February 28, 2005. One customer accounted
for 11% of the outstanding accounts receivables at February 28, 2005.

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.

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

New Accounting Pronouncements-

FASB 151 - Inventory Costs

In November 2004, the FASB issued FASB Statement No. 151, which revised ARB
No.43, relating to inventory costs. This revision is to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs and
wasted material (spoilage). This Statement requires that these items be
recognized as a current period charge regardless of whether they meet the
criterion specified in ARB 43. In addition, this Statement requires the
allocation of fixed production overheads to the costs of conversion be based on
normal capacity of the production facilities. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after the date of this Statement is issued. Management believes this
Statement will have no impact on the financial statements of the Company once
adopted.

FASB 152 - Accounting for Real Estate Time-Sharing Transactions

In December 2004, the FASB issued FASB Statement No. 152, which amends FASB
Statement No. 66, Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions. This Statement also amends
FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of
Real Estate Projects, to state that the guidance for (a) incidental operations
and (b) costs incurred to sell real estate projects does not apply to
real-estate time-sharing transactions. The accounting for those operations and
costs is subject to the guidance in SOP 04-2. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005. Management
believes this Statement will have no impact on the financial statements of the
Company once adopted.

FASB 153 - Exchanges of Nonmonetary Assets

In December 2004, the FASB issued FASB Statement No. 153. This Statement
addresses the measurement of exchanges of nonmonetary assets. The guidance in
APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the
principle that exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged. The guidance in that Opinion, however,
included certain exceptions to that principle. This Statement amends Opinion 29
to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This Statement is effective
for financial statements for fiscal years beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges incurred during fiscal
years beginning after the date of this Statement is issued. Management believes
this Statement will have no impact on the financial statements of the Company
once adopted.

FASB 123 (revised 2004) - Share-Based Payments

In December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock Based Compensation. This Statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." This Statement does not address
the accounting for employee share ownership plans, which are subject to AICPA
Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership
Plans.

For public entities that file as small business issuers the effective date will
be as of the beginning of the first interim or annual reporting period that
begins after December 15, 2005, Management intends to comply with this Statement
at the scheduled effective date for the relevant financial statements of the
Company.

FASB Interpretation No. 47 - Accounting for Asset Retirement Obligations

NOTE 3: SEGMENT INFORMATION

The Company currently operates in one business segment, spraying systems and is
primarily engaged in the business of developing, manufacturing, selling,
installing and servicing ultrasonic spray equipment.

NOTE 4: SALE OF CLEANING SYSTEM BUSINESS:

The Company sold the assets and rights to its Cleaning Systems business on
February 28, 2005. The assets, which included certain inventories, drawings and
patents were sold for $60,000. Other income of $41,224 was recognized in the
financial statements as a result of this sale. An additional contingent payment
of up to $22,500 may be due based on future sales of Cleaning Systems products.

NOTE 5: INVENTORIES

Inventories consist of the following:

February 28,
2005
-----------
Raw Materials $ 585,563
Work-in-process 506,975
Consignment 9,305
Finished Goods 487,817
-----------
Totals 1,589,660
Less: Allowance (251,250)
-----------
$ 1,338,410
===========

NOTE 6: EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS

Equipment, furnishings and leasehold improvements consist of the following:

February 28,
2005
-----------
Laboratory equipment $ 172,841
Machinery and equipment 304,467
Leasehold improvements 45,913
Furniture and fixtures 337,296
-----------
Totals 860,517
Less: accumulated depreciation (720,384)
-----------
$ 140,133
===========

Depreciation expense for the years ended February 28, 2005 and February 29, 2004
was $44,590 and $37,452, respectively.

NOTE 7: ACCRUED EXPENSES

Accrued expenses consist of the following:

February 28,
2005
------------
Accrued compensation $ 233,155
Sales tax liability 6,920
Accrued interest 1,495
Accrued marketing expense 19,585
Estimated warranty costs 21,825
Accrued commissions 82,270
Professional fees 23,865
Customer deposits 75,746
Other accrued expenses 26,967
------------
$ 491,828
============

NOTE 8: REVOLVING LINE OF CREDIT

The Company has a $500,000 revolving line of credit at prime which was 5.75% at
February 28, 2005. 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 February 28, 2005, the
balance was $350,000, hence the unused credit line was $150,000.

NOTE 9: COMMITMENTS AND CONTINGENCIES

Leases - Total rent expense was approximately $84,677 and $78,661, for the two
years ended February 28, 2005 and February 29, 2004, respectively.

The Company has $61,983 in future minimum obligations under its lease, which
expires November 30, 2005.

NOTE 10: INCOME TAXES

The annual provision (benefit) for income taxes differs from amounts computed by
applying the maximum U.S. Federal income tax rate to pre-tax income (loss) as
follows:

February 28, February 29,
------------ ------------
2005 % 2004 %
---------- ----- --------- -----

Computed tax at maximum rate $ 311,000 38.5 $ 68,455 34.0
Other permanent differences 1,728 1.0
Franchise taxes due, net of
federal benefit 54,000 6.7
Utilization or change in
valuation allowance for
tax effect of operating
loss carryforwards (353,000) (43.7) (654,073) (325.0)
---------- ----- --------- -----
Income tax (benefit) $ 12,000 1.5 $(583,890) (290.0)
========== ===== ========= =====

The net deferred tax asset is comprised of the following:

February 29,
2005
-----------
Allowance for doubtful accounts $ 7,000
Inventory 98,000
Accrued vacation 13,000
Accrued expenses 110,000
Net operating losses and other
carryforwards 1,156,000
-----------
Net deferred tax assets before
valuation allowance 1,384,000
Deferred tax asset valuation allowance (799,000)
-----------

Net deferred tax asset $ 585,000
===========

The change in the valuation allowance was $122,000 for the year ended February
28, 2005. This represents a $158,000 decrease in the net operating loss
valuation allowance offset by a $36,000 increase in the timing difference of
accrued expense accruals. A $585,000 tax benefit has been reflected as a tax
asset in the financial statements, of which $117,000 is a current asset.

At February 28, 2005, the Company has available net operating loss carryforwards
of approximately $2,965,000 for income tax purposes, which expire between fiscal
2006 and fiscal 2022. The Company also has research and development credits of
approximately $136,000, which expire between fiscal 2010 and fiscal 2021. The
net operating loss and credit carryforwards generated by a subsidiary are
subject to limitations under Section 382 of the Internal Revenue Code.

NOTE 11: STOCK OPTIONS AND WARRANTS

Stock Options - The Company has two stock option plans, the 1993 Stock Incentive
Plan, as Amended ("1993 Plan") and the 2003 Stock Incentive Plan ("2003 Plan").
Under each 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. Options granted under the 1993 Plan expire on various
dates through 2012. The 1993 Plan expired in October 2003 and no further options
can be granted under the 1993 Plan. A total of 167,062 options remain
outstanding under the 1993 Plan. Under the 2003 Plan options expire at various
dates through 2015. A total of 774,000 options are outstanding under the 2003
Plan.

During Fiscal Year 2005 the Company granted options for 540,000 shares
exercisable at prices from $.95 to $1.75 to officers of the Company, options for
40,000 shares exercisable at $1.06 to directors of the Company, options for
144,000 shares exercisable at prices from $.95 to $2.30 to employees of the
Company, and options for 50,000 shares exercisable at prices from $1.06 to $1.95
to consultants to the Company. During Fiscal Year 2005, compensation expense of
$ 19,801was recognized based on the fair value of the options granted to two
consultants.

During Fiscal Year 2004, the Company granted options for 20,000 shares
exercisable at $.19 per share to a director of the Company and options for
10,000 shares at $.25 to a consultant to the Company. There were no options
granted to employees of the Company. During Fiscal Year 2004, compensation
expense of $1,564 was recognized based on the fair value of the options granted
to a consultant.

Under both the 1993 Plan and the 2003 Plan, options granted at prices that are
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 both 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 terminate at a stipulated period of time after an
employee's termination of employment.

A summary of the activity of both plans for the years ended February 28, 2005
and February 29, 2004 is as follows:

Weighted Average
Stock Options Exercise Price
Outstanding Exercisable Outstanding Exercisable
----------- ----------- ----------- -----------

Balance - February 28, 2003 1,122,562 903,062 $ .33 $ .35
=========
Granted Fiscal Year 2004 30,000 .23
Exercised Fiscal Year 2004 (91,516) (.16)
Canceled Fiscal Year 2004 (100,000) (.52)
--------- ------
Balance - February 29, 2004 961,046 890,171 .32 $ .29
========= ====== =====
Granted Fiscal Year 2005 774,000 1.64
Exercised Fiscal Year 2005 (792,484) (.26)
Canceled Fiscal Year 2005 (1,500) (.30)
--------- ------
Balance - February 28, 2005 941,062 642,062 $ 1.46 $1.47
========= ====== =====

Information, at date of issuance, regarding stock option grants for the years
ended February 28, 2005 and February 29, 2004:

Weighted Weighted
Average Average
Exercise Fair
Shares Price Value
------ ----- -----
Year ended February 29, 2004:
Exercise price exceeds market price -- $ -- $ --
Exercise price equals market price 30,000 .23 .23
Exercise price is less that market price -- -- --

Year ended February 28, 2005:
Exercise price exceeds market price 25,000 $1.95 $1.75
Exercise price equals market price 749,000 1.63 1.63
Exercise price is less that market price -- -- --

The following table summarizes information about stock options outstanding and
exercisable at February 28, 2005:

Weighted-
Average Weighted
Remaining Average
Number Life in Exercise Number
Outstanding Years Price Exercisable
----------- ----- ----- -----------
Range of exercise prices:
$.09 to $.50 99,500 7.6 $ .24 99,500
$.51 to $1.00 129,062 7.8 $ .86 35,062
$1.01 to $1.75 602,500 9.2 $1.64 507,500
$1.76 to $2.30 110,000 9.9 $2.22 0

Warrants -

On February 15, 2000, the Company entered into a 90 day $100,000 subordinated
convertible loan with a non-affiliated individual convertible into common stock
at $1.00 per share. The loan and related interest of 8 % was repaid upon
maturity, May 15, 2000. As part of the loan agreement, the lender was eligible
to receive a warrant to purchase 50,000 shares of the Company's common stock, if
the loan was not converted to equity or was not repaid. When the loan was
repaid, the lender received a five-year warrant to purchase 50,000 shares of the
Company's common stock at $1.00 per share in accordance with the provisions of
the agreement. This warrant was exercised on May 9, 2005.

On October 28, 2004, the Company issued two one year warrants each to purchase
142,857shares of the Company's common stock at $1.75 per share to a New York
State Agency. These warrants were issued at fair-market value to encourage
additional equity investment in the Company.

On December 3, 2004, in conjunction with a private offering of 307,000 shares of
the Company's common stock, the Company issued two year warrants to purchase
76,750 shares of the Company's common stock at $1.75 per share to eight
accredited investors. In April 2005, 10,000 of these warrants were exercised.

NOTE 12: EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

February 28, February 29,
2005 2004
----------- -----------
Numerator for basic and diluted
Earnings per share $ 795,302 $ 785,229
=========== ===========

Denominator:
Denominator for basic earnings per
share-weighted average shares 11,708,331 9,096,436
Effects of dilutive securities:
Warrants 22,619 1,020,085
Stock options for employees,
directors and outside consultants 275,221 454,780
----------- -----------
Denominator for diluted earnings
per share 12,006,170 11,414,584
=========== ===========

Basic Earnings Per Share $ .07 $ .08
=========== ===========

Diluted Earnings Per Share $ .07 $ .07
=========== ===========

NOTE 13: RELATED PARTY TRANSACTIONS

Norwood loans - On April 30, 2001, in order to induce the advance of an
additional $300,000 by Norwood Venture Corp. ("Norwood"), certain of the
Company's directors, an officer and an affiliate of the Company participated in
the amount of $216,750 in the additional mezzanine financing. Interest expense
of $8,821 and $26,571 was paid to Norwood and forwarded to these individuals
during Fiscal Years 2005 and 2004, respectively.

On December 15, 2004, Norwood Venture Corporation and the Company reached an
agreement whereby the "Put" rights under the Norwood Loan and Warrant Agreement
were terminated for a sum of $188,000 paid by the Company to Norwood. Also,
Norwood exercised all of its warrants to purchase the Company's stock, resulting
in the issuance of 2,022,017 shares of common stock. The Chairman of the Company
and an over 5% owner of the Company were participants in the Norwood Loan and,
accordingly, they each received 243,239 shares of the Company's common stock as
the result of the warrant exercise. Also, they each received $103,333 as part of
the repayment of the principal of the Norwood Loans.

Debt Exchange - related party -

Warrant issuance - related party-

NOTE 14: SIGNIFICANT CUSTOMERS AND FOREIGN SALES

From continuing operations - One customer accounted for 11% of the Company's
sales for Fiscal Year ended February 28, 2005.

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

February 28, February 29,
2005 2004
---------- --------
Western Europe $ 482,000 $552,000
Far East 986,000 171,000
Other 925,000 132,000
---------- --------
$2,393,000 $855,000
========== ========

During Fiscal Years 2005 and 2004, sales to foreign customers accounted for
approximately $2,393,000 and $855,000, or 41% and 24% respectively, of total
revenues.

NOTE 15 - SUBSEQUENT EVENTS

Revolving Loan Repayment

On April 12, 2005, the Company repaid the outstanding borrowings of $350,000
under the $500,000 Revolving Line of Credit with the M&T Bank. Such repayment is
required for a 30 day period annually.

Additional Equity Investments

On May 3, 2005, the Company sold 125,000 shares of its common stock at $2.30 per
share and issue a warrant for purchase an additional 25,000 shares of common
stock at $2.45 per share to an institutional investor in a private placement. On
May 9, 2005, a warrant for 50,000 shares was exercised for $1.00 per share. On
May 11, 2005, a warrant for 142,857 shares of the Company's common stock was
exercised at $1.75 per share by Empire State Development Corporation, Small
Business Technology Investment Fund.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: May 27, 2005
Sono-Tek Corporation
(Registrant)

By: /s/ Dr. Christopher L. Coccio
-----------------------------
Dr. Christopher L. Coccio,
Chief Executive Officer and President

KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and officers of
Sono-Tek Corporation, a New York corporation, which is filing its Annual Report
on Form 10-KSB with the Securities and Exchange Commission under the provisions
of the Securities Exchange Act of 1934, as amended, hereby constitute and
appoint Christopher L. Coccio, with full power and substitution and
re-substitution, for him and in his name, place and stead, in any and all
capacities, to sign such Form 10-KSB and any or all amendments to the Form
10-KSB, and all other documents in connection therewith to be filed with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
interests and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

/s/ Dr. Christopher L Coccio May 27, 2005 /s/ Samuel Schwartz May 27, 2005
--------------------------- ---------------------------
Christopher L. Coccio Samuel Schwartz
Chief Executive Officer, President and Director Chairman and Director

/s/ Dr. Donald F. Mowbray May 27, 2005 /s/ Dr. Harvey L Berger May 27, 2005
--------------------------- ---------------------------
Donald F. Mowbray Dr. Harvey L. Berger
Director Chief Technology Officer and Director

/s/ R. Stephen Harshbarger May 27, 2005 /s/ Vincent F. DeMaio May 27, 2005
--------------------------- ---------------------------
R. Stephen Harshbarger Vincent F. DeMaio
Vice President Vice President

/s/ Edward J. Handler, III May 27, 2005 /s/ Philip A. Strasburg May 27, 2005
--------------------------- ---------------------------
Edward J. Handler, III Philip A. Strasburg
Director Treasurer and Director