Edgar Filing: SONO TEK CORP

U.S. 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, 2007

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. Yes |X| 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. |X|

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

The Issuer had revenues of $6,886,453 for Fiscal Year ended
February 28, 2007.

As of May 7, 2007, the aggregate market value of the Registrant's Common
Stock held by non-affiliates of the Registrant was approximately $13,883,337
computed by reference to the average of the bid and asked prices of the Common
Stock on said date, which average was $1.18.

The Registrant had 14,360,541 shares of Common Stock outstanding as of
May 7, 2007.

PART I

ITEM 1 DESCRIPTION OF BUSINESS

Organization and Business

Sono-Tek Corporation (the "Company", "Sono-Tek", "We" or "Our") 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.

We operate in one business segment, spraying systems. 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 our
products, has had downturns due to lower levels of printed circuit boards being
made. To offset this, we have diversified our 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

We have core technology and have developed the following products that have
expanded our 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 2000FP and 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. They are designed to be used by either OEMs or contract
manufacturers of electronic circuit assemblies.

3. MediCoat for stent coating - A table-top, fully-contained system
designed to apply thin layers of polymer and drug coatings to
arterial stents with high precision. The system incorporates motion
control of the stent during the coating process and produces
coatings having excellent uniformity. The MediCoat 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. The
Widetrack System offers significant advantages over conventional
pressure-spray methods in a broad range of applications such as
non-woven fabrics, float glass, or odd-shaped industrial or consumer
products. Waste is greatly reduced, since the ultrasonic spray can
be easily controlled.

Other Product Offerings

We have an exclusive distribution relationship 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 relationship
is the United States and Canada. EVS manufacturers the EVS6000, EVS3000
and the EVS1000 solder recovery systems which are used to reclaim solder
from the dross which accumulates in the wave-solder equipment of circuit
board manufacturers. The customer base for distribution of these systems
is synergistic with Sono-Tek's existing customer base for spray fluxer
sales. Sales of EVS products were approximately 4% of our total revenues
for the current fiscal year ended February 28, 2007. We plan to continue
the distribution of EVS's products.

We have recently released a new line of Laboratory Ultrasonic Spray Drying
Systems - The SonoDry Ultrasonic Spray Dryer. This new spray dryer is
available in three sizes, providing the ability to choose the proper size
machine for differing requirements. All SonoDry Spray Dryers are supplied
with Sono-Tek's unique non-clogging ultrasonic atomizing nozzle
incorporated into them. SonoDry systems also have the ability to use a
traditional twin fluid air atomizing nozzle system as well. Nozzle
requirements can be specified by the customer depending on application
needs. The machines can handle both aqueous and solvent based liquids. All
systems include software that allows for recipe storage and complete data
logging of all system functions. The SonoDry series of spray dryers is of
particular importance to product and process developers in the following
industries: pharmaceuticals (e.g. for drug actives and intermediates,
enzymes and low molecular weight proteins), foods (e.g. for
nutriceuticals, herbal extracts and flavors) and specialty chemicals (e.g.
for fragrances, cosmetics ingredients and nano-scale particles).

Manufacturing

We purchase 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 our products are readily
available from many different domestic suppliers. We provide a limited warranty
on all of our products covering parts and labor for a period of one year from
the date of sale. We have a business and quality control system that meets the
qualifications of ISO 9001/2000. We were ISO 9001 registered in September 1998
and we have been recertified annually since then.

Research and Development

We believe that our 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 our core technology. We
expended approximately $858,000 and $648,000 for Fiscal Years 2007 and 2006,
respectively, on new engineering and product development. The increase reflects
our view that future growth will benefit from current research and development
expenditures.

Patents and Licenses

Our business is based in part on the technology covered by our United States
patents. We have an unexpired patent on our ultrasonic nozzle designs which will
expire in December 2007. We have recently applied for a patent covering a new
design for our entire line of nozzle systems. We have also applied for a patent
for our new air shaping technology in the United States and overseas. In
addition, we rely on unpatented know-how in the production of our nozzle
systems. We have executed non-disclosure and non-compete agreements with all of
our employees to safeguard our intellectual property. We execute reciprocal
non-disclosure agreements with our key customers to safeguard any jointly
developed know-how. We also have an exclusive license from Cornell University
for a patented vacuum deposition system using our ultrasonic nozzles.

Marketing and Distribution

Our products are marketed and distributed through independent sales
representatives or sales representative companies, OEMs and through an in-house
direct sales force. Many of our sales leads are generated from our Internet web
site and from attendance at major industry trade shows.

Competition

We operate in competitive markets in the electronics industry. We compete
against global and regional electronics manufacturers based on price, quality,
product features and follow up service. We maintain our competitive position by
providing highly effective solutions that meet our customers' requirements and
needs. In other markets, there is limited competition based on the uniqueness of
the ultrasonic technology in these applications.

Significant Customers

Two customers accounted for 5.2% and 3.9%, of our sales for Fiscal Year ended
February 28, 2007.

Foreign and Export Sales

During Fiscal Years 2007 and 2006, sales to foreign customers accounted for
approximately $3,509,000 and $3,037,000, or 51% and 44% respectively, of total
revenues. The increase in foreign sales has resulted from an increased emphasis
and related expenditures on international market development.

Employees

As of February 28, 2007, we employed forty-four full-time employees and six
part-time employees. We believe that relations with our employees are generally
good.

Available Information

The public may read and copy any materials that we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549.
Information on the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file with the SEC at http://www.sec.gov.

Our Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, Current
Reports on Form 8-K, proxy statements and amendments to those reports, are also
available free of charge on our internet website at http://www.sono-tek.com as
soon as reasonably practicable after such reports are electronically filed with
or furnished to the Securities and Exchange Commission.

ITEM 2 DESCRIPTION OF PROPERTIES

Our offices, product development, manufacturing and assembly facilities are
located in an industrial park in Milton, New York. We presently lease a 13,000
square foot building and a 2,400 square foot storage building on a month to
month basis. Our 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.

During the current fiscal year, we added additional office space in an adjacent
building located in the Milton industrial park. We are looking at additional
sites to accommodate future growth.

We presently maintain a sales and service office in Hong Kong and an equipment
demonstration room in Shenzhen, China. The office and demonstration room are
located on the premises of one of our product distributors.

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) Our 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 our Common Stock for the periods indicated.

YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
2007 2006
HIGH LOW HIGH LOW
---------------- ------------------
First Quarter $1.85 $1.40 $2.92 $1.90
Second Quarter 1.68 1.35 2.55 2.07
Third Quarter 1.60 1.25 2.32 1.27
Fourth Quarter 1.30 0.96 2.15 1.20

The above quotations are believed to represent inter-dealer quotations without
retail markups, markdowns or commissions and may not represent actual
transactions.

(b) As of May 7, 2007, there were 283 shareholders of record of our Common
Stock, according to our stock transfer agent. We estimate that there are
between 1,000 and 1,400 total shareholders. The difference between the
shareholders of record and the total shareholders is due to stock being
held in street names at our transfer agent.

(c) We have not paid any cash dividends on our Common Stock since inception.
We intend to retain earnings, if any, for use in our business and for
other corporate purposes.

(d) Recent Sales of Unregistered Securities - We issued 7,035 shares of common
stock to an attorney for patent application work in lieu of fees for
services rendered during the year ended February 28, 2005. On May 3, 2005,
we sold 125,000 shares of our common stock at $2.30 per share and issued a
warrant to 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 and January 4, 2006, two warrants for a total of 285,714
shares of our common stock were exercised at $1.75 per share by Empire
State Development Corporation, Small Business Technology Investment Fund.
These securities were offered and sold to "accredited investors" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended, in reliance on the exemption from the registration requirements
under Section 4(2) of the Securities Act of 1933 and/or Rule 506 of
Regulation D.

ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS

Forward-Looking Statements

We discuss expectations regarding our future performance, such as our business
outlook, in our annual and quarterly reports, press releases, and other written
and oral statements. These "forward-looking statements" are based on currently
available competitive, financial and economic data and our operating plans. They
are inherently uncertain, and investors must recognize that events could turn
out to be significantly different from our expectations. The following risks are
by no means all inclusive but are designed to highlight what we believe are
important factors to consider when evaluating our trends and future results.

- Our ability to respond to competition in national and global markets.

- General economic conditions in our markets.

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

Overview

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

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

Several years ago, we recognized that the trend in the electronics assembly
industry was a move toward offshore production into China and other developing
countries. The change in the global structure of this business created the need
for Sono-Tek to change as well.

One change that has proven successful is our diversification into the medical
device market. In the past two years, we have focused engineering resources on
the medical device market, with emphasis on providing coating solutions for the
new generation of drug coated stents. We have sold a significant number of
specialized ultrasonic nozzles and MediCoat stent coating systems to large
medical device customers. Sono-Tek's stent coating systems are superior compared
to pressure nozzles in their ability to uniformly coat the very small arterial
stents without creating webs or gaps in the coatings. We sell a bench-top, fully
outfitted stent coating system to a wide range of customers that are
manufacturing stents and/or applying coatings to be used in developmental
trials.

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

In the electronics, medical device and WideTrack coating markets, it has been
incumbent upon us to focus our attention and resources on the development of a
much greater international presence. We believe we have accomplished this and
plan to continue our marketing efforts. Our international sales have risen from
approximately 20% of total revenues in Fiscal Year 2003 to over 51% today, and
we expect to increase that percentage in the years ahead.

Past history shows the cyclical nature of the electronics business. This cycle,
coupled with the increasing trend toward moving electronics production offshore,
created a need to diversify. As expected, our US based electronics business has
declined this year and is approximately 17% below previous levels, as a result
of the trend toward production moving offshore, coupled with a slower economy
and the reduced competitiveness of our US based automotive customers. We have
been able to offset this reduction in US electronics sales with an increase in
our international electronics and medical device sales.

The creation of technological innovations and the expansion into new
geographical markets requires the investment of both time and capital. These
investments are clearly shown in the year over year increase in both R&D and
Marketing and Sales expenses, resulting in a reduction in our reported net
income. However, we are able to make these expenditures based on our strong
balance sheet with an excellent cash position and virtually no debt. Although
there is no guarantee of success, we expect that over time, these newer markets
will be the basis for Sono-Tek's continued growth and will contribute to future
profitability. It is management's opinion that this strategy will be a better
one than being bound to a shrinking domestic market.

Liquidity and Capital Resources

Working Capital - Our working capital increased $533,000 from a working capital
of $3,699,000 at February 28, 2006 to $4,232,000 at February 28, 2007. The
increase in working capital is due to the current year net income. Our current
ratio is 6.8 to 1 at February 28, 2007, as compared to 5.33 to 1 at February 28,
2006.

Stockholders' Equity - Stockholders' equity increased $621,000 from $4,230,000
at February 28, 2006 to $4,851,000 at February 28, 2007. The increase in
stockholders' equity is the result of net income of $544,000, stock option
exercises of $2,000, stock issuance of $16,000 and stock based compensation of
$59,000.

Operating Activities - In 2007, our operations provided $731,000 of cash
compared to $880,000 in the prior year, a decrease of $149,000 or 17%. The
decrease is primarily due to a decrease in net income when compared to the prior
year. A majority of our cash provided by operating activities is a result of our
current year's net income. In 2007, we decreased our inventories by $114,000 and
also decreased our accounts payable and accrued expenses by $144,000.

Investing Activities - In 2007, we used $190,000 for the purchase of capital
equipment and $5,000 for patent application costs.

Financing Activities - In 2007, our net cash used in financing activities was
$7,000, resulting from: the issuance of stock for $16,000, exercise of stock
options and warrants for $2,000 and the repayments of notes payable of $26,000.

We currently have a revolving credit line of $500,000 and a $150,000 equipment
purchase facility, both of these are with a bank. At February 28, 2007, there
were no outstanding borrowings under the line of credit. 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. There
have been no borrowing's under the revolving credit line after it was paid off
in May 2005.

We had outstanding borrowings of $79,000 under the equipment facility at
February 28, 2007. The borrowings have repayment terms which vary from 36 - 60
months and bear interest at rates from 6.2% to 6.6%.

Results of Operations

For the year ended February 28, 2007, our sales increased by $15,000 to
$6,886,000 as compared to $6,871,000 for the year ended February 28, 2006. For
the year ended February 28, 2007, we continued to see an increase in our sales
to customers located in Asian countries and a corresponding decrease in our
sales to US based customers. Our sales to customers located in Asian countries
increased by $545,000 or 53% for the year ended February 28, 2007. Our sales to
US based customers decreased by $457,000 or 12% for the year ended February 28,
2007. The increase in our Asian markets was driven by a demand for our medical
device products which was offset by a decrease in our US based electronics
sales.

Our gross profit increased $33,000, to $3,462,000 for the year ended February
28, 2007 from $3,429,000 for the year ended February 28, 2006. Our gross margin
percentage remained level at 50% for the two years ended February 28, 2007 and
2006.

Marketing and selling costs increased $154,000 to $1,281,000 for the year ended
February 28, 2007 from $1,127,000, for the year ended February 28, 2006. The
increase is due to increased international travel expenses, international
representative commissions and trade show expenses.

General and Administrative expense increased $72,000 to $850,000 for the year
ended February 28, 2007 from $778,000, for the year ended February 28, 2006. The
increase was principally a result of stock based compensation expense of $59,000
being recorded for the year ended February 28, 2007.

Research and product development costs increased $210,000 to $858,000 for the
year ended February 28, 2007 as compared to $648,000 for the year ended February
28, 2006. The increase is due to increased engineering personnel, engineering
materials, food industry initiatives and depreciation expense.

Interest income increased $56,000 to $72,000 for the year ended February 28,
2007 as compared to $16,000 for the year ended February 28, 2006. Our present
investment policy is to invest excess cash in short term commercial paper with
an S & P rating of at least A1+.

Our operating income decreased $402,000 to $474,000 for the year ended February
28, 2007 as compared to $876,000 for the year ended February 28, 2006. Net
income decreased $499,000 to $544,000 or $.04 per share on a diluted basis for
the year ended February 28, 2007 from $1,043,000 or $0.07 per share for the year
ended February 28, 2006. The decrease in operating income is a result of our
emphasis on new product research and development and international market
expenditures, both of which are being made to create future growth for the
Company.

Other Income

As previously reported on Form 8-K, filed on July 5, 2005, the Company
determined that a former employee had misappropriated approximately $250,000 of
the Company's monies, primarily through unauthorized check writing from the
Company's accounts over a period of three calendar years. The Company had
previously expensed substantially all of the misappropriated funds over the
years.

For the Fiscal years ended February 28, 2007 and February 28, 2006, the Company
recovered $11,323 and $157,605, respectively; these amounts are recorded as
other income. The Company is pursuing appropriate remedies to recover the
balance of the funds, including, receiving regular payments from the former
employee. As previously discussed, the Company can offer no assurances that it
will be successful in its attempt to collect the balance of the remaining
restitution.

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 those
described below. For a detailed discussion on the application of these and other
accounting policies, please see the notes 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

Prior to fiscal year 2007, the Company accounted for employee stock options
under the fair value provisions of SFAS No. 123. On March 1, 2006, the Company
adopted SFAS No. 123R, "Share Based Payments." SFAS No. 123R requires companies
to expense the value of employee stock options and similar awards for periods
beginning after December 15, 2005, and applies to all outstanding and vested
stock-based awards at a company's adoption date. Results from prior periods have
not been restated in the Company's historical financial statements.

Impact of New Accounting Pronouncements

FASB 157 - Fair Value Measurements

In September 2006, the FASB issued FASB Statement No. 157, "Fair Value
Measurements". This Statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value measurements,

the FASB having previously concluded in those accounting pronouncements that
fair value is a relevant measurement attribute. Accordingly, this Statement does
not require any new fair value measurements. However, for some entities, the
application of this Statement will change current practices. This Statement is
effective for financial statements for fiscal years beginning after November 15,
2007. Earlier application is permitted provided that the reporting entity has
not yet issued financial statements for that fiscal year. Management believes
this Statement will have no impact on the financial statements of the Company
once adopted.

FASB 159 - Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued FASB Statement No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115" (SFAS 159). This Statement provides companies with an option
to measure, at specified election dates, many financial instruments and certain
other items at fair value that are not currently measured at fair value. A
company that adopts SFAS 159 will report unrealized gains and losses on items
for which the fair value option has been elected in earnings at each subsequent
reporting date. This Statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities.
This Statement is effective for fiscal years beginning after November 15, 2007.
We do not believe that the adoption of SFAS 159 will have a material impact on
our results of operations or financial condition.

FIN 48 - Accounting for Uncertainty in Income Taxes--an interpretation of FASB
Statement No. 109

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions. FIN 48 requires that we recognize
in our financial statements, the impact of a tax position, if that position is
more likely than not of being sustained on audit, based on the technical merits
of the position. This Interpretation is effective for fiscal years beginning
after December 15, 2006. Earlier application of the provisions of this
Interpretation is encouraged if the reporting entity has not yet issued
financial statements, including interim financial statements, in the period this
Interpretation is adopted. Management believes this interpretation will have no
impact on the financial statements of the Company once adopted.

ITEM 7 FINANCIAL STATEMENTS

Our financial statements are presented on pages 23 to 41.

ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - None.

ITEM 8A CONTROLS AND PROCEDURES

(a) We carried out an evaluation, under the supervision and with the
participation of the Company's management, including our President & CEO
(principal executive officer) and Chief Financial Officer (principal
accounting officer), of the effectiveness of the design and operation of
our disclosure controls and procedures. Based upon that evaluation, the
Company's President and Chief Financial Officer, 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 our internal control system 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, CONTROL PERSONS AND
CORPORATE GOVERNANCE; COMPIANCE WITH 16(a) OF THE EXCHANGE ACT

(a) Identification of Directors

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

Harvey L. Berger 68 Chief Technology Officer and Director
Christopher L. Coccio 66 Chief Executive Officer, President, Vice
Chairman and a Director
Edward J. Handler, Esq. 70 Director*
Donald F. Mowbray 69 Director*
Samuel Schwartz 87 Chairman and Director
Philip A. Strasburg, CPA 68 Director*

* Member of the Audit Committee and Compensation Committee.

The Board of Directors is divided into two classes. 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 Mr. Strasburg run until the annual
meeting to be held in 2007. The terms of Dr. Mowbray, and Messrs. Handler and
Schwartz run until the annual meeting to be held in 2008, 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, Donald F. Mowbray and Philip A. Strasburg, CPA, as Chairman of the
Audit Committee. The "audit committee financial expert' designated by the Board
is Philip A. Strasburg. Mr. Strasburg is not considered an independent Director
under the NASDAQ rules as he is a former employee.

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
--------------------------------------------------------------------------------

Stephen J. Bagley, CPA 44 Chief Financial Officer
Harvey L. Berger 68 Chief Technology Officer and Director
Christopher L. Coccio 66 Chief Executive Officer, President,
Vice Chairman and a Director
Vincent F. DeMaio 69 Vice President
R. Stephen Harshbarger 39 Vice President
Joseph Riemer 58 Vice President

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

STEPHEN J. BAGLEY, CPA was appointed Chief Financial Officer in June 2005. From
1987 to 1991 he worked in public accounting in various capacities. From 1992 to
2005, he held various leadership positions as Controller, Chief Financial
Officer and Vice President of Finance for companies with up to $45,000,000 in
revenues. Mr. Bagley earned a Bachelor of Science degree from The State
University of NY - College at Oneonta and an MBA from Marist College. He was
licensed as a CPA in 1990.

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, has been a Director of the Company since June 1998,
and was appointed Vice-Chairman in August 2006. 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. Dr. Coccio received a B.S.M.E. from Stevens Institute
of Technology, an 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, III, Esq., is a retired partner from Kenyon & Kenyon, a law
firm that provided intellectual property advice to the Company. Mr. Handler
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. Mr. Handler
is President and COO of Storm Bio, Inc., a private Delaware corporation active
in the area of therapeutics for acute inflammatory conditions. Mr. Handler is
past President of the West Point Society of New York and a past Trustee of the
Association of Graduates, U.S. Military Academy. He holds a J.D. degree from the
University of Virginia Law School and a B.S. in Engineering Science from the
United States Military Academy.

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.

Dr. JOSEPH RIEMER joined the Company in January 2007 as Vice President of
Engineering. Dr. Riemer holds a Ph.D. in Food Science and Technology from the
Massachusetts Institute of Technology (MIT), focusing on food technology, food
chemistry, biochemical analysis, and food microbiology. His experience includes
7 years with Pfizer in its Adams Confectionary Division, where he was Director,
Global Operations Development. Dr. Riemer has also held leading positions with
several food, food ingredients, and personal care products companies. He has
served in the capacities of research and development, operations, and general
management. Prior to joining the Company, he was a management consultant serving
clients in the food, biotech and pharmaceutical industries

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 an M.Ch.E. from New York University in 1948.

PHILIP STRASBURG, CPA, 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. Mr. Strasburg was
reappointed Audit Committee chairman in May 2005 concurrent with his resignation
as 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, 2007, 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.

Code of Ethics

The Company has adopted a Code of Ethics for senior executives and financial
officers. The Board intends that this Code satisfy the requirements of the
Securities and Exchange Commission rules for a Code of Ethics that applies to
senior management. A copy of the Company's Code of Ethics is posted on the
"information for investors" web page located at
www.sono-tek.com/investors/IRcodeofethics.php and is available in print to any
shareholder who requests a copy.

ITEM 10 EXECUTIVE COMPENSATION

The following table sets forth the aggregate remuneration paid or accrued by the
Company for the Fiscal Years ended February 28, 2007 and 2006 for each named
officer of the Company.

Summary Compensation Table
--------------------------

All Other
Salary Bonus Stock Option Compensation
Name and Principal Position Year ($) ($) Awards Awards ($) Total ($)
(a) (b) (c) (d) (e) (f) (i) (j)
-----------------------------------------------------------------------------------------------------------------

Christopher L. Coccio 2007 159,766 47,000 0 0 3,909 210,675
CEO, President, Director and 2006 160,169 85,000 0 0 2,779 247,948
Vice Chairman

R. Stephen Harshbarger 2007 135,357 9,500 0 0 2,861 147,718
Vice-President 2006 137,985 16,000 0 0 2,316 156,301

Stephen J. Bagley 2007 105,000 9,500 0 0 2,280 116,780
Chief Financial Officer 2006 77,000 16,000 0 20,750 656 114,406

All Other Compensation represents Company contributions to the Company's 401K plan.

Outstanding Equity Awards At Fiscal Year End
--------------------------------------------

Number of Number of
Securities Securities
Underlying Underlying Option
Unexercised Options Unexercised Options Exercise Price Option
Name (#) Exercisable (#) Unexercisable ($) Expiration Date
(a) (b) (c) (e) (f)
-----------------------------------------------------------------------------------------------------------

Christopher L. Coccio 20,000 0.95 5/19/2014
475,000 1.75 11/12/2014

R. Stephen Harshbarger 7,500 0.60 6/26/2008
10,000 0.95 5/19/2014

Stephen J. Bagley (1) 20,000 5,000(1) 2.25 9/9/2015

(1) Mr. Bagley's 5,000 unvested options will be exercisable on Sept. 9, 2007.

Compensation of Directors

Each non-employee director receives $500 for each meeting attended. Committee
Chairmen and committee members receive $100 for each committee meeting attended.
Directors who are employees of the Company receive no additional compensation
for serving as directors. For the year ended February 28, 2007, director
compensation is as follows:

2007 Director Compensation
--------------------------

Nonqualified
Fees Non-Equity Deferred
Earned or Stock Incentive Plan Compensation
Paid in Awards Option Compensation Earnings All Other
Name Cash ($) ($) Awards ($) ($) ($) Compensation ($) Total ($)
(a) (b) (c) (d) (e) (f) (g) (h)
------------------------------------------------------------------------------------------------------------------------------

Edward J. Handler 2,100 -- -- -- -- -- 2,100

Donald F. Mowbray 2,700 -- -- -- -- -- 2,700

Samuel Schwartz 2,700 -- -- -- -- -- 2,700

Philip Strasburg 2,200 -- -- -- -- -- 2,200

The number of vested and unvested stock options held by non-employee directors
as of February 28, 2007 is as follows:

Number of Number of
Name Vested Options Unvested Options
----------------------------------------------------------------------------

Edward J. Handler 20,000 --
Donald F. Mowbray 30,000 --
Samuel Schwartz 60,000 --
Philip Strasburg 20,000 10,000

ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following information is furnished as of May 7, 2007, 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
*Stephen J. Bagley 20,000(1) **
*Harvey L. Berger 384,418(2) 2.68%
*Christopher L. Coccio 971,125(3) 6.54%
*Edward J. Handler 117,508(4) **
*R. Stephen Harshbarger 29,000(5) **
*Donald F. Mowbray 55,000(6) **
*Samuel Schwartz 1,575,147(7) 10.92%
*Philip A. Strasburg 40,000(8) **

All Executive Officers and Directors as a Group 3,280,001(9) 21.80%

Additional 5% owners
Herbert Spiegel 756,931 5.27%
425 East 58th Street
New York, NY 10022

Norwood Venture Corporation 1,084,672 7.55%
65 Norwood Avenue
Montclair, NJ 07043

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

(1) Represents 20,000 options currently exercisable under the Company's Stock
Incentive Plans.
(2) Includes 289,918 shares owned jointly with Dr. Berger's wife, 65,500
shares in the name of Dr. Berger's wife and 5,000 options currently
exercisable issued under the Company's Stock Incentive Plans.
(3) Includes 3,000 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.
(4) Includes 61,579 shares owned jointly with Mr. Handler's wife, 35,929
shares in the name of Mr. Handler's wife and 20,000 options currently
exercisable issued under the Company's Stock Incentive Plans.
(5) Includes 17,500 options currently exercisable under the Company's Stock
Incentive Plans.
(6) Includes 30,000 options currently exercisable issued under the Company's
Stock Incentive Plans.
(7) Includes 60,000 options currently exercisable issued under the Company's
Stock Incentive Plans.
(8) Includes 20,000 options currently exercisable issued under the Company's
Stock Incentive Plans.
(9) The group total includes 685,000 options currently exercisable issued
under the Company's Stock Incentive Plans. The group total includes 75,303
shares and 12,500 exercisable options held by Mr. DeMaio.

Securities Authorized for Issuance Under Equity Compensation Plans:

EQUITY COMPENSATION PLAN INFORMATION

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

Equity compensation plans approved
by security holders:
1993 Stock Incentive Plan 119,000 $ .67 --
2003 Stock Incentive Plan 830,375 $1.71 586,000
------- -------
Total 949,375 586,000
======= =======

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, 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 Plan. 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.

ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 13 EXHIBITS

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

3(a)(1) Certificate of Incorporation of the Company and all amendments
thereto.
3(b)(1) By-laws of the Company as amended.
10(a)(2) 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)(5) Equipment Line Credit Agreement between Sono-Tek Corporation and
M&T Bank, dated March 24, 2005.
10(e)(5) General Security Agreement between Sono-Tek Corporation and M&T
Bank, dated December 21, 2004.
14(4) Code of Ethics.
21(3) Subsidiaries of Small Business Issuer.
23.1 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-K for the year
ended February 29,2000.
(3) Incorporated herein by reference to the Company's Form 10-KSB for the year
ended February 28, 2003. (4) Incorporated herein by reference to the
Company's Form 10-KSB for the year ended February 29, 2004.
(5) Incorporated herein by reference to the Company's Form 10-KSB for the year
ended February 28, 2005.

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

For the Fiscal Years ended February 28, 2007 and February 28, 2006, the Company
paid or accrued fees of approximately $41,000 and $38,500 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, 2007 and February 28, 2006, the Company
paid or accrued tax preparation fees of approximately $4,000 and $4,000 for
services rendered by Sherb & Co., LLP, its independent auditors.

There were no other fees for services rendered by Sherb & 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, 2007 and 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheet at February 28, 2007

Consolidated Statements of Operations
For the Years Ended February 28, 2007 and February 28, 2006

Consolidated Statements of Stockholders' Equity
For the Years Ended February 28, 2007 and February 28, 2006

Consolidated Statements of Cash Flows
For the Years Ended February 28, 2007 and February 28, 2006

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, 2007, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years ended
February 28, 2007 and 2006. 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 audits 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, 2007 and the results of their operation and their cash flows for
each of the years then ended February 28, 2007 and 2006 in conformity with
accounting principles generally accepted in the United States.

/S/ SHERB & CO., LLP
--------------------
Certified Public Accountants
New York, New York
April 27, 2007

SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEET

ASSETS
February 28,
2007
-----------
Current Assets
Cash and cash equivalents $ 2,268,976
Accounts receivable (less allowance of $18,500) 946,833
Inventories, net 1,406,231
Prepaid expenses and other current assets 69,107
Deferred tax asset 270,000
-----------
Total current assets 4,961,147
-----------

Equipment, furnishings and leasehold improvements
(less accumulated depreciation of $896,773) 301,360
Intangible assets, net 30,744
Other assets 7,171
Deferred tax asset 411,239
-----------

TOTAL ASSETS $ 5,711,661
===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable $ 209,202
Accrued expenses 476,140
Current maturities of long term debt 27,373
Deferred tax liability 16,239
-----------
Total current liabilities 728,954
-----------

Long term debt, less current maturities 51,506
Deferred tax liability 80,000
-----------

Total Liabilities 860,460
-----------

Commitments and Contingencies --

Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares authorized,
14,360,541 issued and outstanding 143,606
Additional paid-in capital 8,308,301
Accumulated deficit (3,600,706)
-----------
Total stockholders' equity 4,851,201
-----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,711,661
===========

See notes to consolidated financial statements.

SONO-TEK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended
------------------------------
February 28, February 28,
2007 2006
------------ ------------

Net Sales $ 6,886,453 $ 6,871,069
Cost of Goods Sold 3,424,183 3,442,501
------------ ------------
Gross Profit 3,462,270 3,428,568
------------ ------------

Operating Expenses
Research and product development 857,718 647,681
Marketing and selling 1,280,553 1,126,507
General and administrative 850,238 778,451
------------ ------------
Total Operating Expenses 2,988,509 2,552,639
------------ ------------

Operating Income 473,761 875,929

Other Income (Expense):
Interest Expense (6,133) (6,008)
Interest Income 72,313 15,611
Other Income 11,523 158,038
------------ ------------
Income before Income Taxes 551,464 1,043,570
Income Tax (Expense) (7,261) (250)
------------ ------------

Net Income $ 544,203 $ 1,043,320
============ ============

Basic Earnings Per Share $ .04 $ .07
============ ============

Diluted Earnings Per Share $ .04 $ .07
============ ============

Weighted Average Shares - Basic 14,359,936 14,156,972
============ ============

Weighted Average Shares - Diluted 14,439,808 14,274,493
============ ============

See notes to consolidated financial statements.

SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 2007 AND FEBRUARY 28, 2006

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

Balance - February 29, 2005 13,825,640 $138,257 $7,371,233 $(15,750) $(5,188,229) $2,305,511
Exercise of non-employee
stock options 7,562 76 2,475 -- -- 2,551
Stock Sold/Issued 125,000 1,250 286,250 -- -- 287,500
Exercise of warrants 345,714 3,457 564,043 -- -- 567,500
Exercise of stock options 50,500 505 23,090 -- -- 23,595
Net Income -- -- -- -- 1,043,320 1,043,320
--------------------------------------------------------------------------------
Balance - February 28, 2006 14,354,416 143,545 8,247,091 (15,750) (4,144,909) 4,229,977
Exercise of non-employee
stock options 5,000 50 900 950
Stock Sold/Issued 15,750 15,750
Exercise of stock options 1,125 11 1,587 1,598
Stock Based Compensation
Expense 58,723 58,723
Net Income 544,203 544,203
--------------------------------------------------------------------------------
Balance - February 28, 2007 14,360,541 $143,606 $8,308,301 -- $(3,600,706) $4,851,201
================================================================================

See notes to consolidated financial statements.

SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended
----------------------------
February 28, February 28,
2007 2006
------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 544,203 $ 1,043,320
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 132,401 72,155
Provision for doubtful accounts -- 377
Stock based compensation expense 58,723
Gain on sale of equipment 17,723
(Increase) Decrease in:
Accounts receivable 8,261 (141,768)
Inventories 114,166 (181,987)
Prepaid expenses and other current assets (1,083) 43,690
(Decrease) Increase in:
Accounts payable and accrued expenses (143,863) 44,648
------------ ------------
Net Cash Provided by Operating Activities 730,531 880,435
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, furnishings and leasehold improvements (189,615) (185,029)
Patent filing costs (5,392) (11,320)
------------ ------------
Net Cash Used In Investing Activities (195,007) (196,349)
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 15,750 287,500
Proceeds from exercise of warrants and options 2,548 593,646
Line of Credit Repayment -- (350,000)
Repayment of long term debt (25,650) (11,112)
Proceeds from long term debt -- 115,641
------------ ------------
Net Cash (Used in) Provided by Financing Activities (7,352) 635,675
------------ ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS 528,172 1,319,761

CASH AND CASH EQUIVALENTS:
Beginning of year 1,740,804 421,043
------------ ------------
End of year $ 2,268,976 $ 1,740,804
============ ============

See notes to consolidated financial statements.

SONO-TEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2007 AND 2006

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, and
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, short term commercial paper and short-term certificates of deposit
with original maturities of 90 days or less. The Company occasionally has cash
or cash equivalents on hand in excess of the $100,000 insurable limits at a
given bank. At February 28, 2007, the Company had $2,168,976 over the insurable
limit.

Supplemental Cash Flow Disclosure -
Years Ended
------------------------------
February 28, February 28,
2007 2006
------ ------
Interest paid $5,923 $6,008
====== ======
Income taxes paid $7,261 --
======

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.

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 years ended February 28,
2007 and February 28, 2006 was $3,750 and $3,862, 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 $54,350 at February 28, 2007. Annual
amortization expense of such intangible assets is expected to be $4,272 per year
for the next five years.

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 Per Share - Basic earnings per share ("EPS") is computed by dividing
net income 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.

Shipping and Handling Costs - Shipping and handling costs are included in cost
of sales in the accompanying consolidated statements of operations.

Advertising Expenses - The Company expenses the cost of advertising in the
period in which the advertising takes place. Advertising expense for the years
ended February 28, 2007 and February 28, 2006 was $116,274 and $100,205,
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.

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. Discounts and allowances are determined when a sale is
negotiated. The Company does not grant its customers or independent
representatives the ability to return equipment after a sale is complete.

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 5.2% and 3.9% of sales,
respectively, during the year ended February 28, 2007. One customer accounted
for 10.5% of the outstanding accounts receivables at February 28, 2007.

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 157 - Fair Value Measurements

In September 2006, the FASB issued FASB Statement No. 157. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is a
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practices. This Statement is effective for

financial statements for fiscal years beginning after November 15, 2007. Earlier
application is permitted provided that the reporting entity has not yet issued
financial statements for that fiscal year. Management believes this Statement
will have no impact on the financial statements of the Company once adopted.

FASB 159 - Fair Value Option for Financial Assets and Financial Liabilities

FIN 48 - Accounting for Uncertainty in Income Taxes--an interpretation of FASB
Statement No. 109 In July 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes--an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the
accounting for uncertainty in tax positions. FIN 48 requires that we recognize
in our financial statements, the impact of a tax position, if that position is
more likely than not of being sustained on audit, based on the technical merits
of the position. This Interpretation is effective for fiscal years beginning
after December 15, 2006. Earlier application of the provisions of this
Interpretation is encouraged if the reporting entity has not yet issued
financial statements, including interim financial statements, in the period this
Interpretation is adopted. Management believes this interpretation will have no
impact on the financial statements of the Company once adopted.

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: STOCK-BASED COMPENSATION

On March 1, 2006, the Company adopted SFAS No. 123R, "Share Based Payments."
SFAS No. 123R requires companies to expense the value of employee stock options
and similar awards for periods beginning after December 15, 2005, and applies to
all outstanding and vested stock-based awards at a company's adoption date.

During the transition period of the Company's adoption of SFAS 123R, the
weighted-average fair value of options has been estimated on the date of grant
using the Black-Scholes options-pricing model. The weighted-average
Black-Scholes assumptions are as follows:

2007 2006
----------------------------------
Expected life 4 years 4 years
Risk free interest rate 4.35% - 5.07% 4% - 4.25%
Expected volatility 39% - 78% 40%
Expected dividend yield 0% 0%

In computing the impact, the fair value of each option is estimated on the date
of grant based on the Black-Scholes options-pricing model utilizing certain
assumptions for a risk free interest rate; volatility; and expected remaining
lives of the awards. The assumptions used in calculating the fair value of
share-based payment awards represent management's best estimates, but these
estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses different
assumptions, the Company's stock-based compensation expense could be materially
different in the future. In addition, the Company is required to estimate the
expected forfeiture rate and only recognize expense for those shares expected to
vest. In estimating the Company's forfeiture rate, the Company analyzed its
historical forfeiture rate, the remaining lives of unvested options, and the
amount of vested options as a percentage of total options outstanding. If the
Company's actual forfeiture rate is materially different from its estimate, or
if the Company reevaluates the forfeiture rate in the future, the stock-based
compensation expense could be significantly different from what we have recorded
in the current period.

For the year ended February 28, 2007, net income and earnings per share reflect
the actual deduction for stock-based compensation expense. The impact of
applying SFAS 123R approximated $58,723 in additional compensation expense
during the year ended February 28, 2007. Such amount is included in general and
administrative expenses on the statement of operations. The expense for
stock-based compensation is a non-cash expense item.

Under the requirements of FAS 123R, the Company is not required to restate prior
period earnings, however, the Company is required to supplement its financial
statements with additional pro forma disclosures. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the date
of grant, the Company's net income and basic and diluted earnings per share
would have been reduced to the pro forma amounts for the periods indicated
below.

Year Ended
February 28, 2006
-----------------

Net Income:
As reported $ 1,043,320
Deduct: Stock based employee compensation
expense under fair value based method for all
awards, net of tax effects 117,181
------------
Pro forma net income $ 926,139
============

Basic earnings per share:
As reported $ 0.07
Pro forma $ 0.07
Diluted earnings per share:
As reported $ 0.07
Pro Forma $ 0.06

NOTE 5: INVENTORIES

Inventories consist of the following:

February 28,
2007
-----------
Raw Materials $ 583,706
Work-in-process 481,158
Consignment 9,770
Finished Goods 535,794
-----------
Totals 1,610,428
Less: Allowance (204,197)
-----------
$ 1,406,231
===========

NOTE 6: EQUIPMENT, FURNISHINGS AND LEASEHOLD IMPROVEMENTS

Equipment, furnishings and leasehold improvements consist of the following:

February 28,
2007
-----------

Laboratory equipment $ 261,513
Machinery and equipment 357,702
Leasehold improvements 49,913
Furniture and fixtures 529,005
-----------
Totals 1,198,133
Less: accumulated depreciation (896,772)
-----------
$ 301,360
===========

Depreciation expense for the years ended February 28, 2007 and February 28, 2006
was $127,831 and $67,682, respectively.

NOTE 7: ACCRUED EXPENSES

Accrued expenses consist of the following:

February 28,
2007
-----------

Accrued compensation $ 271,575
Accrued marketing expense 5,515
Estimated warranty costs 24,900
Accrued commissions 89,352
Professional fees 31,758
Customer deposits 40,097
Other accrued expenses 12,943
-----------
$ 476,140
===========

NOTE 8: REVOLVING LINE OF CREDIT

The Company has a $500,000 revolving line of credit at prime which was 8.25% at
February 28, 2007. 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. As of February 28, 2007, the Company had no
outstanding borrowings under the revolving line of credit.

NOTE 9: LONG-TERM DEBT

Long-term debt consists of the following:

February 28, 2007
-----------------

Equipment loan, bank, collateralized by related production
equipment, payable in monthly installments of principal and
interest of $832. Interest rate 6.51%. 60 month term. $27,788

Equipment loan, bank, collateralized by related office
equipment, payable in monthly installments of principal and
interest of $1,039. Interest rate 6.21%. 36 month term. 18,725

Equipment loan, bank, collateralized by related engineering
equipment, payable in monthly installments of principal and
interest of $770. Interest rate 6.54%. 60 month term. 32,366
--------
Total long term debt 78,879
Due within one year 27,373
--------
Due after one year $51,506
========

Long-term debt is payable as follows:

Fiscal Year ending February 28,
-------------------------------
2009 $23,881
2010 17,853
2011 9,772

NOTE 10: COMMITMENTS AND CONTINGENCIES

Leases - Total rent expense was approximately $100,769 and $94,595, for the two
years ended February 28, 2007 and February 28, 2006, respectively.

The Company presently leases its office and production facilities on a
month-to-month basis.

NOTE 11: 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 28,
2006 % 2006 %
--------- ----- --------- -----

Computed tax at maximum rate $ 193,000 35.0 $ 365,000 35.0
Franchise taxes due, net of
federal benefit 23,000 4.2 43,000 4.5
Temporary Difference -
Depreciation (27,000) (4.8) (34,000) (3.3)
Permanent Difference -
FASB 123R 23,000 4.2 -- --
Utilization or change in
valuation allowance for
tax effect of operating
loss carryforwards (212,000) (37.3) (374,000) (36.2)
--------- ----- --------- -----
Income tax (benefit) $ 0 1.3 $ 0 0
========= ===== ========= =====

The net deferred tax asset is comprised of the following:

February 28,
2007
-----------

Allowance for doubtful accounts $ 7,000
Inventory 118,000
Accrued expenses 131,000
Net operating losses and other carryforwards 505,239
-----------
Net deferred tax assets before valuation allowance 761,239
Deferred tax asset valuation allowance (80,000)
-----------

Net deferred tax asset $ 681,239
===========

Deferred tax liability - Depreciation $ 96,239
===========

The change in the valuation allowance was $335,000 for the year ended February
28, 2007. This represents a $325,000 decrease in the net operating loss
valuation allowance offset by a $10,000 change in other timing differences. A
$681,239 tax benefit has been reflected as a tax asset in the financial
statements, of which $270,000 is a current asset.

At February 28, 2007, the Company has available net operating loss carryforwards
of approximately $1,449,000 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 and Section 383 of the Internal Revenue
Code.

NOTE 12: STOCKHOLDERS' EQUITY

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 2013. The 1993 Plan expired in October 2003 and no further options
can be granted under the 1993 Plan. A total of 119,000 options remain
outstanding under the 1993 Plan. Under the 2003 Plan options expire at various
dates through 2015. A total of 830,375 options are outstanding under the 2003
Plan.

During Fiscal Year 2007, the Company granted options for 45,000 shares
exercisable at prices from $1.00 to $1.99 to employees of the Company.

During Fiscal Year 2006, the Company granted options for 25,000 shares
exercisable at $2.25 to an officer of the Company, options for 40,000 shares
exercisable at prices from $1.06 to $2.43 to directors of the Company and
options for 37,500 shares exercisable at prices from $1.42 to $2.95 to employees
of the Company. During Fiscal Year 2006, no compensation expense was recognized
based on the fair value of any options granted.

Under both the 1993 Plan and the 2003 Plan, options are 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, 2007
and February 28, 2006 is as follows:

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

Balance - February 28, 2005 941,062 642,062 1.46 1.47
Granted Fiscal Year 2006 102,500 2.18
Exercised Fiscal Year 2006 (58,062) (.51)
Canceled Fiscal Year 2006 (50,000) (1.63)
-------- ------
Balance - February 28, 2006 935,500 762,425 1.61 1.83
Granted Fiscal Year 2007 45,000 1.41
Exercised Fiscal Year 2007 (6,125) (.42)
Canceled Fiscal Year 2007 (25,000) (1.82)
-------- ------
Balance - February 28, 2007 949,375 871,500 1.58 1.63
======= ======= ====== ====

Information, at date of issuance, regarding stock option grants for the years
ended February 28, 2007:

Weighted Weighted
Average Average
Exercise Fair
Shares Price Value
------ ----- -----
Year ended February 28, 2007:
Exercise price exceeds market price -- -- --
Exercise price equals market price 45,000 $ 1.41 $ .59
Exercise price is less than market price -- -- --

The following table summarizes information about stock options outstanding and
exercisable at February 28, 2007:

Weighted-
Average Weighted
Remaining Average
Number Life in Exercise Number
Outstanding Years Price Exercisable
----------- ----- ----- -----------
Range of exercise prices:
$.09 to $.50 56,500 5.5 $.29 56,500
$.51 to $1.00 94,000 5.5 $.84 88,200
$1.01 to $1.75 632,375 7.6 $1.62 592,875
$1.76 to $2.30 126,500 8.2 $2.18 108,550
$2.31 to $3.00 40,000 8.4 $2.48 25,375

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 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.

On May 3, 2005, the Company sold 125,000 shares of its common stock at $2.30 per
share and issued a warrant to 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 and January 4, 2006, two warrants for a total of 285,714 shares of
the Company's common stock were exercised at $1.75 per share by Empire State
Development Corporation, Small Business Technology Investment Fund.

NOTE 13: EARNINGS PER SHARE

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

February 28, February 28,
2007 2006
----------- -----------
Numerator for basic and diluted
Earnings per share $ 544,203 $ 1,043,320
=========== ===========

Denominator:
Denominator for basic earnings per
share-weighted average shares 14,359,936 14,156,972
Effects of dilutive securities:
Stock options for employees,
directors and outside consultants 79,872 117,521
----------- -----------
Denominator for diluted earnings
per share 14,439,808 14,274,493
=========== ===========

Basic Earnings Per Share $ .04 $ .07
=========== ===========

Diluted Earnings Per Share $ .04 $ .07
=========== ===========

NOTE 14: SIGNIFICANT CUSTOMERS AND FOREIGN SALES

One customer accounted for 5.2% of the Company's sales for Fiscal Year ended
February 28, 2007.

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

February 28, February 28,
2007 2006
---------- ----------

Western Europe $ 886,000 $ 839,000
Far East 1,567,000 1,021,000
Other 1,056,000 1,176,000
---------- ----------
$3,509,000 $3,036,000
========== ==========

During Fiscal Years 2007 and 2006, sales to foreign customers accounted for
approximately $3,509,000 and $3,036,000, or 51% and 44% respectively, of total
revenues.

NOTE 15: OTHER INCOME

As previously reported on Form 8-K, filed on July 5, 2005, the Company
determined that a former employee had misappropriated approximately $250,000 of
the Company's monies, primarily through unauthorized check writing from the
Company's accounts over a period of three calendar years. The Company has
previously expensed substantially all of the misappropriated funds over the
years.

For the Fiscal years ended February 28, 2007 and February 28, 2006, the Company
recovered $11,323 and $157,605, respectively; these amounts are recorded as
other income. The Company is pursuing appropriate remedies to recover the
balance of the funds. As previously discussed, the Company can offer no
assurances that it will be successful in its attempt to collect the balance of
the remaining restitution.

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 23, 2007
Sono-Tek Corporation
(Registrant)

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

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 23, 2007
-----------------------------
Christopher L. Coccio
Chief Executive Officer,
President and Director

/s/ Stephen J. Bagley May 23, 2007
-----------------------------
Stephen J. Bagley
Chief Financial Officer

/s/ Edward J. Handler, III May 23, 2007
-----------------------------
Edward J. Handler, III
Director

/s/ Samuel Schwartz May 23, 2007
-----------------------------
Samuel Schwartz
Chairman and Director

/s/ Dr. Harvey L Berger May 23, 2007
-----------------------------
Dr. Harvey L. Berger
Chief Technology Officer
and Director

/s/ Philip A. Strasburg May 23, 2007
-----------------------------
Philip A. Strasburg
Director

/s/ Dr. Donald F. Mowbray May 23, 2007
-----------------------------
Donald F. Mowbray
Director