What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-05-28 compared with 2020-05-29 · 9 added, 517 removed, 2 unchanged (100% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock currently trades on the OTCQX U.S.

tier of the OTC exchange under

the ticker symbol “SOTK”.

Quotations of our common stock price reflect inter-dealer prices, without retail mark-up,

mark-down or commission and may not necessarily represent actual transactions.

As of May 29, 2020, there were approximately 800 beneficial shareholders of our

Common Stock.

tier of the OTC exchange under the

ticker symbol “SOTK”.

Quotations of our common stock price reflect inter-dealer prices, without retail mark-up, mark-down

or commission and may not necessarily represent actual transactions.

As of May 17, 2021, there were 111 record holders of our common stock and approximately

825 beneficial shareholders of our Common Stock.

We have not paid any cash dividends on our Common Stock since inception.

to retain earnings, if any, for use in our business and for other corporate purposes.

SELECTED FINANCIAL DATA –

Not Required for Smaller Reporting Companies.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

We discuss expectations regarding

our future performance, such as our business outlook, in our annual and quarterly reports, press releases, and other written and

oral statements.

These “forward-looking statements”

are based on currently available competitive, financial and economic

data and our operating plans.

They are inherently uncertain, and investors must recognize that events could turn out to be significantly

different from our expectations.

These factors include, among other considerations, general economic and business conditions;

regulatory, tax, competitive and technological developments affecting our operations or the demand for our products;

and scope of the COVID-19 pandemic ;

the extent and duration of the pandemic’s

adverse effect on economic and social activity, consumer confidence, discretionary spending and preferences, labor and healthcare

costs, and unemployment rates, any of which may reduce demand for some of our products and impair the ability of those with whom

we do business to satisfy their obligations to us;

our ability to sell and provide our services and products, including as a result

of continued pandemic related travel restrictions, mandatory business closures, and stay-at home or similar orders;

any temporary

reduction in our workforce, closures of our offices and facilities and our ability to adequately staff and maintain our operations

resulting from the pandemic;

the ability of our customers and suppliers to continue their operations as result of the pandemic,

which could result in terminations of contracts, losses of revenue, and further adverse effects to our supply chain;

of increased order backlog, including effects of any COVID-19 related cancellations;

the imposition of tariffs;

timely development

and market acceptance of new products and continued customer validation of our coating technologies;

adequacy of financing;

additions, the ability to enforce patents;

maintenance of operating leverage;

consummation of order proposals;

completion of large

orders on schedule and on budget;

successful transition from primarily selling ultrasonic nozzles and components to a more complex

business providing complete machine solutions and higher value subsystems;

and realization of quarterly and annual revenues within

the forecasted.

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

Founded in 1975, Sono-Tek Corporation designs and manufactures ultrasonic coating

systems that apply precise, thin film coatings to a multitude of products for the microelectronics/electronics, alternative energy,

medical and industrial markets, including specialized glass applications in construction and automotive.

We also sell our products

to emerging research and development and other markets.

We have invested significant resources to enhance our market diversity

by leveraging our core ultrasonic coating technology.

As a result, we have increased our portfolio of products, the industries

we serve and the countries in which we sell our products.

Our ultrasonic nozzle systems use high frequency, ultrasonic vibrations that atomize

liquids into minute drops that can be applied to surfaces at low velocity providing thin layers of protective materials over a

surface such as glass or metals.

Our solutions are environmentally-friendly, efficient and highly reliable.

They enable dramatic

reductions in overspray, savings in raw material, water and energy usage and provide improved process repeatability, transfer efficiency,

high uniformity and reduced emissions.

We believe product superiority is imperative and that it is attained through the

extensive experience we have in the coatings industry, our proprietary manufacturing know-how and skills and our unique work force

we have built over the years.

Our growth strategy is to leverage our innovative technologies, proprietary know-how, unique talent

and experience, and global reach to further advance the use of ultrasonic coating technologies for the microscopic coating of surfaces

in a broader array of applications that enable better outcomes for our customers’

products and processes.

We are a global business with approximately 71% of our sales generated from outside

the United States and Canada.

Our direct sales team and our distributor and sales representative network is located in North America,

Latin America, Europe and Asia.

Over the last few years, we have expanded our sales capabilities by increasing the size of our

direct sales force, adding new distributors and sales representatives (”reps”).

In addition, we have established testing

labs at our distribution partner sites in China, Taiwan, Germany, Turkey, Korea and Japan, while also expanding our first testing

lab that is co-located with our manufacturing facilities in New York.

These labs provide significant value for demonstrating to

prospective customers the capabilities of our equipment and enabling us to develop custom solutions to meet their needs.

Over the last decade, we have shifted our business from primarily selling our ultrasonic

nozzles and components to a more complex business providing complete machine solutions and higher value subsystems to original

equipment manufacturers (“OEMs”).

This strategy has resulted in significant growth of our average unit selling price;

with our larger machines often selling for over $300,000 and system prices sometimes reaching over $1,000,000.

As a result of this

transition, we have broadened our addressable market and we believe that we can grow sales on a larger scale.

We expect that we

will experience wide variations in both order flow and shipments from quarter to quarter.

Highlights for fiscal 2020 include:

Net sales for fiscal 2020 were $15,355,000, up 32% compared with $11,610,000 for fiscal 2019.

This substantial increase was driven by three large orders for complex highly customized equipment.

Gross profit and operating margins for fiscal 2020 increased to 47.6% and 7.3%, respectively, from 45.2% and 0.71%, respectively, for fiscal 2019.

Higher gross profit margin primarily reflects the impact from the sale of three large orders of complex highly customized equipment.

Basic Earnings and Diluted Earnings per share increased 600% to $0.07 in fiscal 2020 compared with $0.01, for fiscal 2019.

Backlog on February 29, 2020 was $3,517,000, up 16% from backlog of $3,038,000 on February 28, 2019.

Backlog growth resulted from our ongoing strategy to expand the Sono-Tek product line and markets we serve, by providing larger highly automated, complex ultrasonic coating solutions.

Cash and cash equivalents and short-term investments at February 29, 2020 were $7,879,000 compared with $5,510,000 as of February 28, 2019, an increase of $2,369,000.

Operating activities generated cash of $3,254,000 in fiscal 2020.

Capital expenditures in fiscal 2020 were $722,000.

We have a strong balance sheet with debt accounting for approximately 7% of total capitalization.

We believe that provides us with the financial flexibility to pursue our business strategy for growth.

Market and Geographic Diversity

We have invested significant resources to enhance our market diversity.

our core ultrasonic coating technology, we expanded our portfolio of products, the industries we serve, and the countries in which

we sell our products.

Today, we serve five industries:

microelectronics/electronics, medical, alternative

energy, emerging research and development and other, as well as the industrial markets.

We are a geographically diverse company with a presence directly and through distributors

and trade representatives, in the United States and Canada , EMEA (Europe, Middle East and Africa), APAC (Asia Pacific) and Latin

America (including Mexico).

In fiscal 2020, approximately 71% of sales originated outside of the United States and Canada.

We established

an infrastructure to drive our geographic diversity including a newly equipped, application process development laboratory in APAC,

a strengthened sales organization of application engineers, expanded talent on our engineering team, the latest, most sophisticated

design software tools, as well as an expanded, highly trained installation and service organization.

We believe that the new products we have introduced, the new markets we have penetrated,

and the regions in which we now sell our products, are a strong foundation for our future sales growth and enhanced profitability.

Results of Operations

Sales and Gross Profit:

Fiscal Year Ended

Cost of Goods Sold

Gross Profit %

Through the introduction of several new high value machine offerings, we have increased

our fixed costs relative to our variable costs which has allowed us to create greater operating leverage and income potential.

This transition of our cost structure in combination with our continued investment in application engineering capabilities, drove

sales up 32% to $15,355,000, compared with the prior fiscal year.

Gross profit increased by 240 basis points, reaching 47.6% for

fiscal 2020, compared to 45.2% for FY2019.

The improvement in gross profit was primarily impacted by a shift of sales to less price

sensitive advanced technology markets, requiring a higher level of coating process related expertise provided from our applications

engineers and laboratories.

Our capability to provide this full system solution approach, brings increased value to the customer

and allows this value to be reflected with increased margins.

In fiscal 2020, our sales include approximately $3,492,000 for orders that were

delivered to two customers.

Product Sales:

Twelve Months Ended

Fluxing Systems

Integrated Coating Systems

Multi-Axis Coating Systems

Sales growth was driven by demand for more complex, highly engineered and higher

value machinery, combined with application specific knowledge.

Multi-Axis Coating systems grew by 40%, primarily due to a sale

of our new 6-axis robotic platform.

Integrated Coating Systems grew 148% due to several sales of a new custom designed multi-nozzle

system sold to the electronics industry.

Market Sales:

Twelve Months Ended

Electronics/Microelectronics

Alternative Energy

Emerging R&D and Other

Use of our application process development laboratory by customers continued to

reach record levels in FY2020, which we believe demonstrates the success of our strategy to provide excellent application engineering

expertise as well as paid coating services to prospects and customers to validate the capabilities of our coating technologies

for their uses.

These service-based customers are guided by our applications engineering team, to develop successful coating processes

for their unique needs.

Upon achieving coating results that meet the application requirements, the customer's next step is typically

to purchase the newly defined coating solution.

We believe a high percentage of prospects and customers that use our lab services

to develop their products results in sales of our ultrasonic coating solutions.

Our sales to the Electronics/Microelectronics market showed significant growth

in FY2020, reaching $8,486,000;

a 96% increase compared to FY2019.

The near doubling increase was the successful result of our

focused plan to expand our product line with higher value, higher revenue machines.

Our sales to the Medical market grew 10% in

FY2020 compared to FY2019, which were driven by strong demand for our stent coating systems.

Our sales to the Alternative Energy

market showed a small decline of 9% in FY2020, due to lower than expected sales of our fuel cell systems in China.

the Emerging R&D and Industrial markets decreased 21% and 36% respectively, due to decreased sales of our float glass coating

systems, and decreased sales in food applications, which is a typical due to variations in demand and applications from period

Geographic Sales:

Twelve Months Ended

Asia Pacific (APAC)

Europe, Middle East, Asia (EMEA)

Latin America

In fiscal 2020, approximately 71% of sales originated outside of the United States

This compares with 65% in fiscal 2019.

Sales to APAC and EMEA grew substantially, primarily from China and Germany

in the Electronics / Microelectronics markets.

Operating Expenses:

Twelve Months Ended

Research and product development

Marketing and selling

General and administrative

Total Operating Expenses

Research and Product Development:

Research and product development costs increased $103,000 to $1,428,000 for fiscal

2020 as compared with $1,325,000 for the prior fiscal year.

Higher research and product development costs for fiscal 2020 were

due to increased engineering salaries and health insurance premiums.

Marketing and Selling:

Marketing and selling costs increased $717,000 to $3,403,000 for fiscal 2020 as

compared with $2,686,000 for the prior fiscal year.

Higher marketing and selling costs for fiscal 2020 were due to increased salaries

related to the addition of new technical sales personnel and related health insurance premiums, international commission expense

and trade show expense.

These increases were partially offset by decreases in travel expense and international distributor training

During fiscal 2020, we expended approximately $865,000 for commissions as compared

with $457,000 for the prior fiscal year, an increase of $408,000.

The increase in commission expense is primarily the result of

an increase in the proportion of our international sales generated by our external distributors which are commissioned at a higher

rate than our in-house sales team.

During fiscal 2020, we expended approximately $297,000 for advertising and trade

show expense compared with $247,000 for the prior fiscal year, an increase of $50,000.

General and Administrative:

General and Administrative costs increased $212,000 to $1,367,000 for fiscal 2020

as compared with $1,155,000 for the prior fiscal year.

Higher general and administrative costs for fiscal 2020 were due to increased

health insurance premiums, increased corporate insurance premiums, corporate expenses and stock-based compensation expense.

increases were partially offset by lower professional fees.

In fiscal 2020, we accrued approximately $97,000 for potential Covid-19

This accrual has been recorded in General and Administrative expense.

Health Insurance Premiums:

The Company’s health insurance program requires employee contributions.

Company’s net health insurance expense increased $59,000 to $383,000 for fiscal 2020 as compared with $324,000 for the prior

The increase in health insurance expense is due to the Company’s annual insurance program renewal and eligible

employee enrollment.

Operating Income:

Operating income increased $1,033,000, to $1,115,000 in fiscal 2020 compared with

$82,000 for the prior fiscal year.

Growth in revenue and gross profit were key factors in the improvement of operating income in

Operating margin for fiscal 2020 increased to 7.3% compared with 0.71% in the prior fiscal year.

As a percentage of

net sales, operating expenses were down 400 basis points to 40.4% in fiscal 2020 compared with 44.5% in fiscal 2019.

Interest Expense:

Interest expense decreased to $33,000 for fiscal 2020 as compared with $40,000 for

the prior fiscal year.

Interest expense is directly related to the mortgage on our industrial park.

Interest and Dividend Income:

Interest and dividend income decreased $35,000 to $102,000 for fiscal 2020 as compared

with $137,000 for the prior fiscal year.

The decrease in interest and dividend income is due to the reallocation of our investments

into US Treasury securities and certificates of deposit.

Our present investment policy is to invest excess cash in highly liquid,

low risk US Treasury securities, certificates of deposit and mutual funds.

At February 29, 2020, the majority of our holdings are

rated at or above investment grade.

Net Unrealized Loss on Marketable Securities:

The Company adopted ASU 2016-01, “Financial Instruments –

and Measurement of Financial Assets and Financial Liabilities”

in the first quarter of fiscal 2019.

ASU 2016-01 requires

the Company to measure its equity investments at fair value and changes in fair value are to be recognized in net income.

information is available in NOTE 2:

SIGNIFICANT ACCOUNTING POLICIES in our financial statements.

In fiscal 2019, net income and earnings per share each reflect the actual deduction

of $100,000, for the unrealized loss on our marketable securities.

In fiscal 2020, there was no unrealized gain or loss recorded for the Company’s

marketable securities.

Unrealized gains or losses, if any, are considered to be immaterial.

Other Income:

Included in other income is the net revenue related to the rental of the Company’s

For fiscal 2020, the Company’s rental revenue was $85,000, expenses were $56,000 and the net profit was $29,000.

For fiscal 2019, the Company’s rental revenue was $84,000, expenses were $61,000

and the net profit was $23,000.

Income Tax Expense:

We recorded income tax expense of $106,000 for fiscal 2020 compared with $20,000

for the prior fiscal year.

The details of the current year’s tax expense are explained in Note 11 in our financial statements.

Net income increased by $945,000 to $1,107,000 for fiscal 2020 compared with $162,000

for the prior fiscal year.

The increase reflects an increase in gross profit of $2,064,000 offset by an increase in operating expenses

of $1,032,000 and an increase in income tax expense of $86,000.

For fiscal 2020 and 2019, we do not believe that our sales revenue or net income

has been affected by the impact of inflation or changing prices.

Impact of Covid 19

In December 2019, the novel coronavirus (“COVID-19”) outbreak occurred

in China and has since spread to other parts of the world.

On March 11, 2020, the World Health Organization declared COVID-19 to

be a global pandemic and recommended containment and mitigation measures.

On March 13, 2020, the United States declared a national

emergency concerning the outbreak.

Along with these declarations, extraordinary and wide-ranging actions have been taken by international,

federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19

in regions across the United States and the world.

These actions include quarantines, social distancing and “stay-at-home”

orders, travel restrictions, mandatory business closures and other mandates that have substantially restricted individuals’

daily activities and curtailed or ceased many businesses’

normal operations.

In response to the pandemic and these actions, we began implementing

changes in our business in March 2020 to protect our employees and customers:

We implemented social distancing and other health and safety protocols.

We have flexed the workforce in our manufacturing operations based

on business needs, including the addition of a second shift and the implementation of remote, alternative and

flexible work arrangements.

We have enhanced cleaning and sanitary procedures.

We temporarily eliminated domestic and international travel.

We restricted access to our facilities to only employees and essential

non-employees with strict protocols.

While all of these measures have been necessary and appropriate, they may result

in additional costs and may adversely impact our business and financial performance.

As our response to the pandemic evolves, we

may incur additional costs and will potentially experience adverse impacts to our business, each of which may be significant.

addition, an extended period of remote work arrangements could impair our ability to effectively manage our business, and introduce

additional operational risks, including, but not limited to, cybersecurity risks and increased vulnerability to security breaches,

cyber-attacks, computer viruses, ransomware, or other similar events and intrusions.

We may experience, decreases in

demand and customer orders for our products in all sales channels, as well as temporary disruptions and closures of our facilities

due to decreased demand and government mandates.

COVID-19 has also impacted various aspects of the supply chain

as our suppliers experience similar business disruptions due to operating restrictions from government mandates.

We continue to

monitor procurement of raw materials and components used in the manufacturing, distribution and sale of our products, but

continued disruptions in the supply chain due to COVID-19 may cause difficulty in sourcing materials or unexpected shortages or

delays in delivery of raw materials and components, and may result in increased costs in our supply chain.

We have implemented plans to reduce spending in certain areas of our business, including

reductions or delays in capital expenditures, reduced trade show participation costs, reduced travel expenditures and may need

to take additional actions to reduce spending in the future.

We are closely monitoring and assessing the impact of the

pandemic on our business.

The extent of the impact on our results of operations, cash flow, liquidity, and financial performance,

as well as our ability to execute near- and long-term business strategies and initiatives, will depend on numerous evolving factors

and future developments, which are highly uncertain and cannot be reasonably predicted.

Given the inherent uncertainty surrounding COVID-19, we expect the pandemic may

continue to have an adverse impact on our business in the near term.

Should these conditions persist for a prolonged period, the

COVID-19 pandemic, including any of the above factors and others that are currently unknown, may have a material adverse effect

on our business, results of operations, cash flow, liquidity, and financial condition.

Liquidity and Capital Resources

Working Capital –

Our working capital increased $749,000 to

$7,173,000 at February 29, 2020 from $6,424,000 at February 28, 2019.

The increase in working capital was mostly the result of

the current period’s net income and non-cash charges partially offset by purchases of equipment and repayment of long-term

We aggregate cash and cash equivalents and marketable securities in managing our

balance sheet and liquidity.

For purposes of the following analysis, the total is referred to as “Cash.”

29, 2020 and February 28, 2019, our working capital included:

Cash and cash equivalents

Marketable securities

The following table summarizes the accounts and the major reasons for the $2,369,000

increase in “Cash”:

Impact on Cash

Net income, adjusted for non-cash items

To reconcile increase in cash.

Accounts receivable decrease

Cash receipts.

Inventories increase

Required to support backlog.

Equipment purchases

Equipment and facilities upgrade.

Customer deposits increase

Received for new orders.

Accounts payable increase

Timing of disbursements

Timing of disbursements.

Net increase in cash

Stockholders’

Equity - Stockholders' equity increased $1,198,000

from $8,584,000 at February 28, 2019 to $9,782,000 at February 29, 2020.

The increase was a result of the current year’s

net income of $1,107,000 and $90,000 in additional equity related to stock based compensation awards.

The details of stock based

compensation are explained in Note 4 in our financial statements.

Operating Activities –

We generated $3,254,000 of

cash in our operating activities in fiscal 2020 compared with using $109,000 in fiscal 2019.

The increase in cash generated by

operating activities was mostly the result of increased accounts payable, accrued expenses, customer deposits and a decrease in

accounts receivable.

These sources of cash were partially offset by increased inventories and a decrease in prepaid expenses directly

related to inventory.

Investing Activities –

In fiscal 2020, cash used by

investing activities was $2,576,000 compared with their providing $1,393,000 of cash in fiscal 2019.

Capital spending in fiscal

2020 was $722,000 for the purchase or manufacture of equipment, furnishings and leasehold improvements.

This compares with $547,000

for the purchase of equipment and furnishings in fiscal 2019.

In fiscal 2020 we used $1,854,000 for the purchase of marketable securities.

In fiscal 2019 we received $1,940,000 from the sale of marketable securities.

Financing Activities –

In fiscal years 2020 and 2019, we used

$163,000 and $156,000 in cash, respectively, for the principal payments on our mortgage.

Net Increase in Cash and Cash Equivalents –

In fiscal 2020 our

cash balance increased by $515,000 as compared with an increase of $1,128,000 in fiscal 2019.

During fiscal 2020, our operating

activities generated $3,254,000 of cash.

In addition, we used $722,000 for the purchase or manufacture of equipment, furnishings

and leasehold improvements, used $1,854,000 for the purchase of marketable securities and used $163,000 for the repayment of our

note payable.

Bank Credit Facilities:

We currently have a revolving credit line of $1,500,000 and a $750,000 equipment

purchase facility, both of which are with a bank.

The revolving credit line is collateralized by the Company’s accounts receivable

and inventory.

The revolving line of credit is payable on demand and must be retired for a 30-day period, once annually.

February 29, 2020, there were no outstanding borrowings under the line of credit.

As of February 29, 2020, $701,000 of the Company’s credit line was being utilized

to collateralize letters of credit issued to customers that have remitted cash deposits to the Company on existing orders.

unused portion of the credit line was $799,000 as of February 29, 2020.

The letters of credit expire in 2020.

We had outstanding borrowings under a note payable of $708,000 at February 29, 2020.

The note is payable over four years and accrues interest at 4.15% per year.

The note payable is secured by a mortgage on our land

and buildings.

Subsequent to the completion of fiscal 2020, on April 17, 2020, we entered into

a loan transaction pursuant to which we received proceeds of $1,001,640 (the “PPP Loan”) on May 8, 2019 under the Paycheck

Protection Program (“PPP”).

The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES

Act”), provides for loans to qualifying companies and is administered by the U.S.

Small Business Administration (the “SBA”).

The PPL Loan is evidenced by a promissory note, dated as of April 17, 2020 (the

“Note”), between the Company and a bank.

The Note has a two-year term, bears interest at the rate of 1.0% per annum,

and may be prepaid at any time without payment of any premium.

No payments of principal or interest are due during the six-month

period beginning on the date of the Note (the “Deferral Period”).

Beginning on the seventh month following the date

of the Note, we are required to make 18 monthly payments of principal and interest in the amount of $56,088.24.

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted

forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations,

based on the use of the loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities.

However, at least 75 percent of the PPP Loan proceeds must be used for eligible payroll costs.

The terms of any forgiveness may

also be subject to further requirements in any regulations and guidelines the SBA may adopt.

Off - Balance Sheet Arrangements

We do not have any Off - Balance Sheet Arrangements as of February 29, 2020.

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.

As of February 29, 2020, management believes that there are no critical accounting policies applicable to the Company that are

reflective of significant judgments and or uncertainties.

Stock-Based Compensation

The computation of the expense associated with stock-based compensation requires

the use of a valuation model.

ASC 718 is a complex accounting standard, the application of which requires significant judgment

and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives,

and expected option forfeiture rates, to value equity-based compensation.

We currently use a Black-Scholes option pricing model

to calculate the fair value of stock options.

We primarily use historical data to determine the assumptions to be used in the Black-Scholes

model and have no reason to believe that future data is likely to differ materially from historical data.

However, changes in the

assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the

assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based

ASC 718 requires the recognition of the fair value of stock compensation in net income.

Although every effort is made to

ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and

assumptions may result in recording stock option expense that may materially impact our financial statements for each respective

reporting period.

Impact of New Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments –

Recognition and Measurement of Financial Assets and Financial Liabilities.”

ASU 2016-01 requires equity investments

(except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be

measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price

notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial

assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public

business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be

disclosed for financial instruments measured at amortized cost.

ASU 2016-01 is effective for all entities for fiscal years beginning

after December 15, 2017, and interim periods within those fiscal years.

The Company has evaluated the potential impact this standard

may have on the consolidated financial statements, the fair value of the securities from the prior year has been reclassified to

Retained Earnings from Other Accumulated Comprehensive Income.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency

and comparability among organizations by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases

with terms longer than 12 months.

Leases will be classified as either operating or financing, with such classification affecting

the pattern of expense recognition in the income statement.

ASU 2016-02 is effective for fiscal years and interim periods within

those years beginning after December 15, 2018, and early adoption is permitted.

The adoption of ASU 2016-02 will have no material

impact on the Company’s financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive

Income (Topic 220), “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”.

was issued to allow the reclassification from accumulated other comprehensive income to retained earnings for the stranded tax

effect resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017.

The Tax Cuts and Jobs Act, among other things, reduced

the corporate tax rate from 35% to 21%, which required the re-evaluation of any deferred tax assets and liabilities at the lowered

tax rate which potentially could leave a disproportionate tax effect in accumulated other comprehensive income.

ASU 2018-02 allows

for the election to reclassify these stranded tax effects to retained earnings.

ASU 2018-02 is effective for all entities for fiscal

years beginning after December 15, 2018, and interim periods within those fiscal years.

Early adoption is permitted, including

adoption in any interim period for public business entities for reporting periods for which financials statements have not yet

The adoption of ASU 2018-02 will have no material impact on the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, “

Income Taxes (Topic 740)

- Simplifying the Accounting for Income Taxes .”

The guidance issued in this update simplifies the accounting for income

taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the

methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis

ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates

and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

The ASU will be effective

for the Company on March 1, 2021, with early adoption permitted, and is not expected to have a significant impact on the Company’s

financial statements.

Other than, Accounting Standards Update (“ASU”) No.

ASU 2016-01, ASU

2016-02, ASU 2018-02 and ASU 2019-12 discussed above, all new accounting pronouncements issued but not yet effective have been

deemed to be not applicable to the Company.

Hence, the adoption of these new accounting pronouncements, once effective, is not

expected to have an impact on the Company.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK –

Not Required for Smaller Reporting Companies.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements are presented on pages 32 to 49 of this Report.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE –

We intend to retain

earnings, if any, for use in our business and for other corporate purposes.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity