What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-05-24 compared with 2021-05-28 · 790 added, 20 removed, 158 unchanged (84% of the section changed)

Sono-Tek Corporation (the “Company”, “Sono-Tek”, “We”

or “Our”) is the world leader in the design and manufacture of ultrasonic coating systems for applying precise, thin film

coatings to protect, strengthen, smooth or create surfaces on parts and components for the microelectronics/electronics, alternative energy,

medical, industrial and emerging research & development/other markets.

We design and manufacture custom-engineered ultrasonic coating

system solutions and also provide smaller sub-systems containing our patented nozzles and generators for manufacturers to incorporate

into their own equipment.

Sono-Tek Corporation (the “Company”, “Sono-Tek”,

“We” or “Our”) is the world leader in the design and manufacture of ultrasonic coating systems for applying precise,

thin film coatings to add functional properties, protect or strengthen surfaces on parts and components for the microelectronics/electronics,

alternative energy, medical, industrial and emerging research & development/other markets.

We design and manufacture custom-engineered

ultrasonic coating systems incorporating our patented technology, in combination with strong applications engineering knowledge, to assist

our customers in achieving their desired coating solutions.

Our ultrasonic nozzle systems use high frequency ultrasonic vibrations that atomize

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have a broad base of customers.

Our largest customer accounted for 12% of revenue in fiscal 2021.

The applications that are employing our unique coating technology and expertise have

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in New York on March 21, 1975.

We became a public company in 1987 and our stock is traded on the OTCQX U.S.

tier of the OTC exchange under

the ticker symbol “SOTK”.

Our corporate offices are located in Milton, New York where our production facilities are co-located.

We also have a sales and service office in Singapore and an application process development laboratory in Guangzhou, China.

9001 qualified since registering in September 1998 and have been recertified annually since then.

We became a public company in 1987 and our stock is traded on the Nasdaq Capital Market.

Our corporate

offices are located in Milton, New York where our production facilities are co-located.

We also have a sales and service office in Singapore

and an application process development laboratory in Guangzhou, China.

We are ISO 9001 qualified since registering in September 1998 and

have been recertified annually since then.

Our fiscal year ends on February 28.

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Alternative Energy :

Our systems provide coatings of chemicals and other materials that act as catalysts, barriers, symbiosis or other interactions between surfaces.

Our systems provide coatings of chemicals and other materials that act as catalysts, barriers, facilitators of symbiosis or other interactions between surfaces.

Emerging Research and Development / Other Markets

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Are continually developing new technologies and solutions to address an ever-changing marketplace.

Have built a strong balance sheet with no debt, which we believe, provides us with the financial flexibility to pursue our strategic plans for growth, including aggressive pursuit of organic and other development opportunities.

Our strategy is to further advance the use of ultrasonic coating technologies for the microscopic

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and human capital in order to expand our presence in our targeted markets and create broader offerings for our customers.

Availability of Raw Materials and Working Capital Practices

Availability of Raw Materials

Historically, we have not been adversely impacted by the availability of raw materials

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We purchase circuit board assemblies and sheet metal components from a wide range of suppliers throughout the world.

We carefully manage our inventory using lean manufacturing processes.

We provide a limited

warranty on all of our products that covers parts and labor for a period of one year from the date of sale.

We carefully manage our inventory using lean manufacturing

We provide a limited warranty on all of our products that covers parts and labor for a period of one year from the date

We have recently experienced scattered supply chain hold-ups of raw

materials and components.

To insulate our production against shortages and slow deliveries of these items, we have deployed some of

our cash to ensure that we have additional raw materials and components on hand for use when needed, and this has been

Research and Development

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Information Regarding Sales Outside the United States

and Canada and Significant Customers

During fiscal 2022 and fiscal 2021, sales to customers outside the U.S.

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for approximately $11,653,000, or 68% of total revenue, and $9,678,000, or 65% of total revenue, respectively.

Our two largest customers accounted for 24% of revenue in fiscal 2022.

As of February 28, 2022, we employed 67 full-time and 14 part-time employees.

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Copies are also available, without charge, from Sono-Tek Corporation, 2012 Route 9W, Milton, NY 12547.

RISK FACTORS – Not Required for Smaller Reporting Companies.

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

The COVID-19 pandemic could have a material adverse effect on our business, results

of operations and financial condition in the future.

Our business could be adversely affected by the

effects of a widespread outbreak of contagious disease, including the outbreak of respiratory illness caused by the novel coronavirus

(COVID-19) first identified in Wuhan, Hubei Province, China.

The COVID-19 pandemic has resulted in authorities worldwide implementing

numerous measures to contain or mitigate the outbreak of the virus, such as travel bans and restrictions, border controls, limitations

on business activity, social distancing requirements, quarantines, and shelter-in-place orders.

These measures have caused, and are continuing

to cause, business slowdowns or shutdowns in affected areas, both regionally and worldwide.

The impact of the pandemic on our business

and operations and our ability to execute our strategic plans remains uncertain and will depend on many unpredictable factors outside

of our control, including, without limitation, the extent, trajectory and duration of the pandemic;

the development, availability and

distribution of vaccines and other effective treatments to treat the COVID-19 virus and any new variants thereof;

the emergence of new

variants that are more contagious, symptomatic or fatal and the time the medical community requires to respond to such variants;

the imposition

of and compliance with protective public safety measures;

the impact of the pandemic on the global economy;

and the related impacts on

our development pipeline and demand for our products.

In 2020, we initiated several precautions in accordance

with local regulations and guidelines to mitigate the spread of COVID-19 across our businesses.

These precautions have impacted the way

we carry out our business, including limiting travel to and attendance at trade shows and visiting existing and prospective customers,

additional sanitation and cleaning procedures in our production and other facilities, temperature and symptom confirmations, remote working

when possible, and implementation of social distancing and staggered worktime requirements for our employees who must work on-site.

we are required to continue such measures for an extended period of time, it could impact the ability of our employees to collaborate

In addition, the loss or unavailability of our production staff or other key employees and executives, as a result of sickness

of employees or their families or the responsibility of employees to manage family obligations while working from home, could negatively

impact our business and operations and our ability to operate or execute our business strategy.

Continued employee telecommuting activity

also increases the risk of a security breach of our information technology systems.

The changed environment under which we are operating

could have an impact on our internal controls over financial reporting.

Moreover, the ongoing impacts of the COVID-19

pandemic could result in interruptions or delays in the operations of regulatory authorities, which may impact review or approval timelines;

delays in necessary interactions with other agencies and contractors due to limitations in employee resources or forced furlough of government

termination of, or difficulties in procuring or maintaining, arrangements with third parties upon whom we depend such as manufacturers,

including contract manufacturing organizations, suppliers and other strategic partners;

and disruptions or restrictions on our ability

to pursue partnerships and other business transactions.

As a result of the COVID-19 pandemic, we have not experienced significant disruption

or delays in our global supply chain.

If the COVID-19 pandemic worsens, however, we may experience supply disruptions due to temporary

closures, production slowdowns, staffing shortages, logistics, delays and disruptions in the manufacture and/or shipment of our products.

The effects of a prolonged pandemic could result

in a continued negative impact on investment in our principal markets.

In addition, if COVID-19 impacts the financial position of our

customers, we may have difficulty collecting receivables and our business and results of operations could be exposed

to risks associated with uncollectible accounts or defaults on contractual payment obligations by our collaboration partners.

unable to generate sufficient cash from operations due to impacts of the COVID-19 pandemic or otherwise, we may need to raise additional

The duration and severity of any further economic or market impact of the pandemic remains uncertain, and there can be no assurance

that it will not have an adverse effect on our liquidity and capital resources, including our ability to access capital markets, in the

future, on terms that are favorable to us, or at all.

We do not have long-term commitments for significant revenues

with most of our customers and may be unable to retain existing customers, attract new customers or replace departing customers with new

customers that can provide comparable revenues and profit margins.

Because we generally do not obtain firm, long-term

volume purchase commitments from our customers, most of our sales are derived from individual purchase orders.

We remain dependent upon

securing new purchase orders in the future in order to sustain and grow our revenues.

Accordingly, there is no assurance that our revenues

and business will grow in the future.

Our failure to maintain and expand our customer relationships could materially and adversely affect

our business and results of operations.

In recent years, a few major customers and distributors have

accounted for a significant portion of our revenue.

Our revenue could decline if we are unable to maintain or develop relationships with

additional customers or distributors and our results of operations could be adversely affected if any one of these customers is unable

to meet their financial obligations to us.

For the year ended February 28, 2022, our two

largest customers accounted for approximately 24% of our net sales.

For the year ended February 28, 2021, our three largest customers

accounted for approximately 28% of our net sales.

If we are unable to diversify our customer base, our future results will be heavily

dependent on these customers and distributors.

Our dependence on a limited number of customers and distributors means that the loss of

a major customer or distributor or any reduction in orders by a major customer or distributor would materially reduce our net sales and

adversely affect our results of operations.

We expect that sales to relatively few customers will continue to account for a significant

percentage of our net sales for the foreseeable future;

however, these customers or our other customers, may not use our products at current

levels in the future, if at all.

Customer purchase orders may be delayed or cancelled, and order volume levels can be changed with loss

of deposit as the only penalty.

We may not be able to replace cancelled, delayed, or reduced purchase orders with new orders.

of these customers reduces its demand for our products, it will likely have a material adverse effect on our operations.

Furthermore, a significant portion of our accounts

receivables is concentrated with a few major customers, who may not be able to meet their financial obligations to us.

of any such customers to pay amounts owed to us in a timely fashion or at all could have an adverse effect on our results of operations.

Company is also exposed to credit risk on its accounts receivable, and this risk is heightened during periods when economic conditions

The Company's outstanding receivables are not covered by collateral or credit insurance.

The Company's exposure to credit and

collectability risk on its receivables may also be higher in certain international markets, and its ability to mitigate such risks may

While the Company has procedures to monitor and limit exposure to credit risk on its receivables, there can be no assurance

such procedures will effectively limit our credit risk and avoid losses.

We will need to raise additional funds to develop our business,

which may adversely affect our future growth.

We may finance a portion of our anticipated

future growth and possibly future strategic acquisitions through public or private equity offerings or debt financings.

Additional funds

may not be available when we need them on terms that are acceptable to us, or at all.

If adequate funds are not available, we may be required

to delay or reduce the scope of, our plans to grow our revenues or to consummate one or more strategic acquisitions or otherwise

to scale back our business plans.

In addition, we could be forced to reduce or forego attractive business opportunities.

To the extent

that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution.

In addition, debt financing,

if available, may involve restrictive covenants.

We may seek to access the public or private capital markets whenever conditions are favorable,

even if we do not have an immediate need for additional capital at that time.

Our access to the financial markets and the pricing and

terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets and interest

We may be adversely affected by global and regional economic

conditions and military, legislative, regulatory and political developments.

We sell our products around the world, and we

expect to continue to derive a substantial portion of sales from outside the U.S.

The uncertain macroeconomic environment caused by the

outbreak of COVID-19 may adversely affect our results and could have a negative impact on demand for our products.

In addition, we are

currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical

instability due to the ongoing military conflict between Russia and Ukraine.

Our business, financial condition and results of operations

could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in

Ukraine or any other geopolitical tensions.

Customers or suppliers may experience cash flow

problems and as a result, may modify, delay or cancel plans to purchase our products, and suppliers may significantly and quickly increase

their prices or reduce their output.

Additionally, if customers are not successful in generating sufficient revenue or are precluded from

securing financing, they may not be able to pay, or may delay payment of, amounts owed to us.

Any inability of current and/or potential

customers to purchase our products and/or to pay us for our products may adversely affect our sales, earnings and cash flow.

earnings could also be affected by our ability to manage the risks and uncertainties associated with the application of local legal requirements

or the enforceability of laws and contractual obligations, trade protection measures, changes in tax laws, regional political instability,

war, terrorist activities, severe or prolonged adverse weather conditions and natural disasters as well as health epidemics or pandemics.

Our success will depend, to a large degree, on the expertise

and experience of the members of our management team, the loss of whom could have a material adverse effect on our business.

Our success is, to a large degree, dependent upon

the expertise and experience of the management team and its ability to attract and retain qualified personnel who are technically proficient.

The loss of the services of one or more of such personnel could have a material adverse effect on our business.

Our business may be adversely

affected if we are unable to continue to attract and retain such personnel.

We will need to add qualified additional personnel as we expand

our business, and we may not be able to employ such persons, which could affect our ability to expand and have a material adverse effect

on our business.

In order to expand our product offerings

and customer base, we will need to hire additional qualified personnel.

We may not be able to identify such persons, and even if we identify

them, we may not have the funds or ability to employ them, which could have a material adverse effect on our business.

Although we have not experienced any material

disruptions due to labor shortages to date, we have observed an overall tightening and increasingly competitive labor market.

labor shortage or increased turnover rates within our employee base, whether caused by COVID-19 or as a result of general macroeconomic

factors, could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees,

and could negatively affect our ability to complete our projects according to the required schedule or otherwise efficiently operate our

If we are unable to hire and retain employees capable of performing at a high level, or if mitigation measures we may take to

respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative effects, our business

could be adversely affected.

An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by COVID-19

or as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations, liquidity

or cash flows.

If we are unable to manage our expected growth, our business

may be materially and adversely affected.

We expect to expand our operations, including

by expanding our internal resources, making acquisitions and entering into new markets, and we intend to continue to focus on rapid growth,

including organic growth and possibly acquisitions.

The growth of our business could place significant strain on our management, operational

and financial resources.

To manage our future growth, we could be required to improve existing or implement new operational or financial

systems, procedures and controls or expand, train and manage a growing employee base.

Our failure to accomplish any of these tasks could

materially and adversely affect our business.

Even if we are successful in integrating future acquisitions into our existing operations,

we may not derive the benefits, such as operational or administrative synergies, that we expected from such acquisitions, which may result

in the investment of our capital resources without realizing the expected returns on such investment.

Our inability to protect our intellectual property rights could

negatively affect our business and results of operations.

Our ability to compete effectively depends in

part upon developing, maintaining and/or protecting intellectual property rights relevant to our ultrasonic nozzles and coating processes.

We rely principally on a combination of patent protection, trade secret laws, confidentiality and non-disclosure agreements, and trusted

business relationships to establish, maintain and protect the intellectual property rights relevant to our business.

These measures, however,

may not be adequate in every given case to permit us to gain or retain any competitive advantage, particularly in those countries where

the laws do not protect our proprietary rights as fully as in the United States.

Where we consider it appropriate, we may seek

patent protection in the United States on technologies used in, or relating to, our ultrasonic nozzles, applications and manufacturing

The issuance of a patent is not conclusive as to its scope, validity and enforceability.

Thus, any patent or patent application

which may issue into a patent held by us could be challenged, invalidated or held unenforceable in litigation or proceedings before the

Patent and Trademark Office and/or other patent tribunals or circumvented by others.

No consistent policy regarding the breadth of

patent claims has emerged to date in the United States, and the landscape could become more uncertain in view of future rule changes by

the United States Patent and Trademark Office, the introduction of patent reform legislation and decisions in patent law cases by United

States federal courts.

The patent landscape outside the United States is even less predictable.

As a result, the validity and enforceability

of patents cannot be predicted with certainty.

In addition, we may fail to apply for patents on important technologies or product candidates

in a timely fashion, if at all, and our existing and future patents may not be sufficiently broad to prevent others from utilizing our

technologies or from developing competing products or technologies.

Our patent strategy involves complex legal and

factual questions.

Our ability to maintain and solidify our proprietary technology may depend in part upon our success in obtaining patent

rights and enforcing those rights once granted or licensed.

Our issued patents and those that may be issued in the future may be challenged,

invalidated, rendered unenforceable or circumvented, which could limit our ability to prevent competitors from marketing similar or related

products, or shorten the term of patent protection that we may have for our products, processes and enabling technologies.

the rights granted under any issued patents may not provide us with competitive advantages against competitors with similar technology.

Furthermore, our competitors may independently develop similar technologies, duplicate technology developed by us or otherwise possess

intellectual property rights that could limit our ability to manufacture our products and operate our business.

We also rely on trade secret protection for our

confidential and proprietary information.

Trade secrets, however, can be difficult to protect.

We may not be able to maintain our technology

or know-how as trade secrets, and competitors may develop or acquire equally valuable or more valuable technology or know-how related

to the manufacture of comparable ultrasonic nozzles.

We also seek to protect our confidential and proprietary information, in part, by

requiring all employees, consultants and business partners to execute confidentiality and/or nondisclosure agreements upon the commencement

of any employment, consulting arrangement or engagement with us.

These agreements generally require that all confidential and proprietary

information developed by the employee, consultant, or business partner, or made known to the employee, consultant or business partner

by us, during the course of the relationship with us, be kept confidential and not disclosed to third parties.

These agreements may be

breached and may not provide adequate remedies in the event of breach.

To the extent that our employees, consultants, or business partners

use intellectual property owned by others in their work for and/or with us, disputes could arise as to the rights in related or resulting

technologies, know-how or inventions.

Moreover, while we also require customers and vendors to execute agreements containing confidentiality

and/or nondisclosure provisions, we may not have obtained such agreements from all of our customers and vendors.

In addition, our trade

secrets may otherwise become known or be independently discovered by competitors, customers, or vendors.

Such customers or vendors may

also be subject to laws and regulations that require them to disclose information that we would otherwise seek to keep confidential.

Moreover, others may independently develop and

obtain patents covering technologies that are similar or superior to the product forms, applications, or manufacturing processes that

If that happens, we may need to obtain licenses for these technologies and may not be able to obtain licenses on reasonable

terms, if at all, which could limit our ability to manufacture our future products and operate our business.

In addition, third parties

could utilize our intellectual property rights in territories where we do not have intellectual property protection.

Such third parties

may then try to import products made using our intellectual property rights into the United States or other countries, which could have

a material adverse effect on our business.

We could become subject to intellectual property litigation

that could be costly, limit or cancel our intellectual property rights, divert time and efforts away from business operations, require

us to pay damages and/or otherwise have an adverse material impact on our business.

The success of our business is highly dependent

on protecting our intellectual property rights.

Unauthorized parties may attempt to copy or otherwise obtain and use our products and/or

enabling technologies.

Policing the unauthorized use of our intellectual property rights is difficult and expensive, as is enforcing these

rights against unauthorized use by others.

Identifying unauthorized use of our intellectual property rights is difficult because we may

be unable to monitor the processes and/or materials being employed by other parties.

The steps we have taken may not prevent unauthorized

use of our intellectual property rights, particularly in foreign countries where enforcement of intellectual property rights may be more

difficult than in the United States.

Our continued commercial success will also depend

in part upon not infringing the patents or violating the intellectual property rights of third parties.

We are aware of patents and patent

applications generally relating to aspects of our technologies filed by, and issued to, third parties.

Nevertheless, we cannot determine

with certainty whether such patents or patent applications of other parties may materially affect our ability to conduct our business.

There may be existing patents of which we are unaware that we may inadvertently infringe, resulting in claims against us or our customers.

In the event that the manufacture, use and/or sale of our products or processes is challenged, or if our product forms or processes conflict

with the patent rights of others, third parties could bring legal actions against us or our customers in the United States, Asia, Europe

or other countries, claiming damages and seeking to enjoin the manufacturing and/or marketing of our products.

Additionally, it is not

possible to predict with certainty what patent claims may issue from any relevant third-party pending patent applications.

Third parties

may be able to obtain patents with claims relating to our product forms, applications and/or manufacturing processes which they could

attempt to assert against us or our customers.

In either case, litigation may be necessary to

enforce, protect or defend our intellectual property rights or to determine the validity and scope of the intellectual property rights

Any litigation could be unsuccessful, cause us to incur substantial costs, divert resources and the efforts of our personnel

away from daily operations, harm our reputation and/or result in the impairment of our intellectual property rights.

In some cases, litigation

may be threatened or brought by a patent holding company or other adverse patent owner who has no relevant product revenues and against

which our patents may provide little or no deterrence.

If we are found to infringe any patents, we could be required to (1) pay substantial

monetary damages, including lost profits, reasonable royalties and/or treble damages if an infringement is found to be willful and/or

(2) totally discontinue or substantially modify any products or processes that are found to be in violation of another party’s intellectual

property rights.

If our competitors are able to use our technology without payment to us, our ability to compete effectively could be

The markets within which we compete are highly competitive.

Many of our competitors have greater financial and other resources than we do and one or more of these competitors could use their greater

financial and other resources to gain market share at our expense.

If our business continues to develop as expected,

we anticipate that our revenues will continue to grow.

If, due to capital constraints or otherwise, we are unable to fulfill our existing

backlog in a timely manner and/or procure and timely fulfill our anticipated future backlog, our customers and potential customers may

decide to use competing systems or products.

If we are unable to fulfill the demand for products and systems in a timely manner, our customers

and potential customers may choose to purchase products from our competitors.

In addition, we could face new competition from large international

or domestic companies with established industrial brands and distribution networks that enter our end markets.

Demand for our products

may also be affected by our ability to respond to changes in design and functionality, to respond to downward pricing pressure, and to

provide shorter lead times for our products than our competitors.

If we are unable to respond successfully to these competitive pressures,

we could lose market share, which could have an adverse impact on our results.

We cannot assure that we will be able to compete successfully

in our markets or compete effectively against current and new competitors as our industry continues to evolve.

Rapid technological changes may prevent us from remaining current

with our technological resources and maintaining competitive product and service offerings.

The markets in which we and our customers operate

are characterized by rapid technological change.

Significant technological changes could render our existing and potential new products,

systems and technology obsolete.

Our future success will depend, in large part, upon our ability to:

· effectively identify and develop leading technologies;

· continue to develop our technical expertise;

· enhance our current products and systems with new, improved and

competitive technology;

· respond to technological changes in a cost-effective and timely

If we are unable to successfully respond to technological

change or if we do not respond to it in a cost-effective and timely manner, then our business will be materially and adversely affected.

We cannot assure you that we will be successful in responding to changing technology.

In addition, technologies developed by others may

render our products, systems and technology uncompetitive or obsolete.

Even if we do successfully respond to technological advances, the

integration of new technology may require substantial time and expense, and we cannot assure you that we will succeed in adapting our

products, systems and technology in a timely and cost-effective manner.

If we are unable to continue to develop new and enhanced products

and systems that achieve market acceptance in a timely manner, our competitive position and operating results could be harmed.

Our future success will depend on our ability

to continue to develop new and enhanced ultrasonic nozzles and coating systems and related products that achieve market acceptance in

a timely and cost-effective manner.

The markets in which we and our customers operate are characterized by frequent introductions of new

and enhanced products and services, evolving industry standards and regulatory requirements, government incentives and changes in customer

The successful development and market acceptance of our products and systems, depends on a number of factors, including:

· the impact of the COVID-19 pandemic on the global markets;

· the changing requirements and preferences of the potential customers

in our markets;

· the accurate prediction of market requirements, including regulatory

· the timely completion and introduction of new products and systems

to avoid obsolescence;

· the quality, price and performance of new products and systems;

· the availability, quality, price and performance of competing

products and systems;

· our customer service and support capabilities and responsiveness;

· the successful development of our relationships with existing

and potential customers;

· changes in industry standards.

We may experience financial or technical difficulties

or limitations that could prevent us from introducing new or enhanced products or systems.

Furthermore, any of these new or enhanced products

and systems could contain problems that are discovered after they are introduced.

We may need to significantly modify the design of these

products and systems to correct problems.

Rapidly changing industry standards and customer preferences and requirements may impede market

acceptance of our products and systems.

Development and enhancement of our products and

systems will require significant additional investment and could strain our management, financial and operational resources.

of market acceptance of our products or systems or our inability to generate sufficient revenues from this development or enhancement

to offset their development costs could have a material adverse effect on our business.

In addition, we may experience delays or other

problems in releasing new products and systems and enhancements, and any such delays or problems may cause customers to forego purchases

of our products and systems and to purchase those of our competitors.

We cannot provide assurance that products and

systems that we have recently developed or that we develop in the future will achieve market acceptance.

If our new products and systems

fail to achieve market acceptance, or if we fail to develop new or enhanced products and systems that achieve market acceptance, our growth

prospects, operating results and competitive position could be adversely affected.

We manufacture and assemble all our products at one facility.

Any prolonged disruption in the operations of this facility would result in a decline in our sales and profitability.

We manufacture and assemble our products and systems

at our production facility located in Milton, New York.

Any prolonged disruption in the operations of our manufacturing and assembly facility,

whether due to the COVID-19 pandemic, equipment or information technology infrastructure failure, labor difficulties, destruction of or

damage to this facility as a result of a hurricane, earthquake, fire, flood, other catastrophes, and other operational problems would

result in a decline in our sales and profitability.

In the event of a business interruption at our facility, we may be unable to shift

manufacturing and assembly capabilities to alternate locations, accept materials from suppliers or meet customer shipment needs, among

other severe consequences.

Such an event could have a material and adverse impact on our financial condition and results of our operations.

Failure to obtain adequate supplies of components and raw materials

or failure to obtain components or raw materials at affordable prices could negatively affect our ability to supply products to our customers

and negatively affect our profit margins.

We use a variety of components and raw materials

in the manufacture of our products.

As other industries develop products utilizing similar components and raw materials that we use, we

may not be able to obtain adequate supplies of components and raw materials required for the manufacture of our existing and future products

that would prevent us from supplying products to our customers and materially affect our business.

Furthermore, any increased demand for,

the raising of tariff rates on, or an increase of non-tariff trade barriers that apply to the components and raw materials that we use

could increase the price we must pay to obtain them and could adversely affect our profitability, which would have an adverse effect on

our financial results.

Recently, we have encountered challenges in our

supply of various materials and components, and electronic components in particular, due to well-documented shortages and constraints

in the global supply chain.

Lead times for ordered components may vary significantly, and some components used to manufacture our products

are provided by a limited number of sources.

We have experienced lengthened lead times throughout our supply chain as a result of supply

chain constraints and material shortages that have occurred in the recent months, and may continue through fiscal year 2023.

been exacerbated by the recent resurgence of the COVID-19 pandemic in certain parts of China, which has resulted in the temporary closure

of manufacturing facilities, including those that make electronic parts like those that we included in our products, in certain parts

We may rely on sub-contractors to meet current demand for our

products, and we may need to obtain additional manufacturing capacity in order to increase production of our existing products or to produce

our proposed new products, the failure of which could have a material adverse effect on our operations.

We may not have sufficient internal manufacturing

capacity to meet the current demand for our products, and we may need to rely on subcontractors to enable us to meet this demand.

Since we may rely on our subcontractors for a significant amount of our production capacity, the loss of the services of our subcontractors

would have a material adverse effect on our business.

Our plans for the growth of our business rely upon increasing sales of our existing

products and systems and developing and marketing new products.

We may not have adequate internal manufacturing facilities to substantially

increase production of our products and obtaining additional manufacturing capacity in-house could require substantial capital expenditures.

We may not have the capital resources to obtain or construct new facilities to expand manufacturing capacity and meet increasing demand

for our products, which could have a material adverse effect on our operations.

Conversely, any significant decrease in demand for our

products could create idle plant capacity and an inability to cover fixed costs, which could adversely impact our results of operations

and financial condition.

We are exposed to risks related to our international sales,

and the failure to manage these risks could harm our business.

In addition to our sales to customers within the

and Canada, we may become increasingly dependent on sales to customers outside the U.S.

and Canada as we pursue expanding our business

with customers worldwide.

In the fiscal years ended February 28, 2022 and 2021, our sales outside of the U.S.

and Canada accounted for

approximately 68% and 65%, respectively, of total revenue.

We continue to expect that a significant portion of our future revenues will

be from international sales.

As a result, the occurrence of any international, political, economic, or geographic event could result in

a significant decline in revenue.

There are significant risks associated with conducting operations internationally, requiring significant

financial commitments to support such operations.

These numerous and sometimes conflicting laws and regulations include internal control

and disclosure rules, data privacy and filtering requirements, anti-corruption laws, such as the Foreign Corrupt Practices Act, and other

local laws prohibiting corrupt payments to governmental officials, and anti-competition regulations, among others.

Violations of these laws and regulations could

result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business

and on our ability to offer our products and services in one or more countries, and could also materially affect our brand, our international

expansion efforts, our ability to attract and retain employees, our business, and our operating results.

Although we have implemented

policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors,

or agents will not violate our policies.

Some of the risks and challenges of

conducting business internationally include:

· the impact of COVID-19 on the global markets;

· requirements or preferences for domestic products or solutions, which could reduce demand

for our products;

· unexpected changes in regulatory requirements;

· restrictions on the import or export of critical technology;

· management communication and integration problems resulting from cultural and geographic

· the burden of complying with a variety of laws and regulations in various countries;

· difficulties in enforcing contracts;

· the uncertainty of protection for intellectual property rights

in some countries;

· application of the income tax laws and regulations of multiple

jurisdictions, including relatively low-rate and relatively high-rate jurisdictions, to our sales and other transactions, which results

in additional complexity and uncertainty;

· tariffs and trade barriers, export regulations and other regulatory and contractual limitations

on our ability to sell products;

· failure to comply with both U.S.

and foreign laws, including

export and antitrust regulations, the Foreign Corrupt Practices Act and any trade regulations ensuring fair trade practices;

· heightened risk of unfair or corrupt business practices in certain

geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities

in, financial statements;

· potentially adverse tax consequences, including multiple and possibly overlapping tax structures;

· general economic and geopolitical conditions, including war and acts of terrorism;

· lack of the availability of qualified third-party financing;

· currency exchange controls.

While these factors and the impacts of these factors

are difficult to predict, any one or more of them could adversely affect our business, financial condition and results of operations in

Any liability damages resulting from technical faults or failures

of our products could be substantial and could materially adversely affect our business and results of operations.

Our products are used by customers and integrated

into customers’ machines and systems, and therefore a malfunction or the inadequate design of our products could result in product

liability claims.

Any liability for damages resulting from technical faults or failures could be substantial and could materially adversely

affect our business and results of operations.

In addition, a well-publicized actual or perceived problem could adversely affect the market’s

perception of our products, which would materially impact our financial condition and operating results.

Inflationary Pressures and Rising Prices for Goods and Services.

Inflation rose sharply at the end of 2021 and

has continued rising in 2022 at levels not seen for over 40 years.

Inflationary pressures are currently expected to remain elevated throughout

Small to medium-sized businesses may be impacted more during periods of high inflation as they are not as able to leverage economics

of scale to mitigate cost pressures compared to larger businesses.

Inflation has the potential to adversely affect our liquidity, business,

financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate

increases in the prices we charge our customers.

The existence of inflation in the economy has resulted in, and may continue to result

in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor, weakening exchange rates and

other similar effects.

As a result of inflation, we have experienced and may continue to experience, cost increases.

Although we may take

measures to mitigate the impact of this inflation, if these measures are not effective our business, financial condition, results of operations

and liquidity could be materially adversely affected.

Even if such measures are effective, there could be a difference between the timing

of when these beneficial actions impact our results of operations and when the cost inflation is incurred.

We could become liable for damages resulting from our manufacturing

activities, which could have a material adverse effect on our business or cause us to cease operations.

The nature of our manufacturing operations exposes

us to potential claims and liability for environmental damage, personal injury, loss of life and damage to, or destruction of, property.

Our manufacturing operations are subject to numerous laws and regulations that govern environmental protection and human health and safety.

These laws and regulations have changed frequently in the past and it is reasonable to expect additional and more stringent changes in

Our manufacturing operations may not comply with future laws and regulations, and we may be required to make significant unanticipated

capital and operating expenditures to bring our operations within compliance with such evolving regulations.

If we fail to comply with

applicable environmental laws and regulations, manufacturing guidelines, and workplace safety requirements, governmental authorities may

seek to impose fines and penalties on us or to revoke or deny the issuance or renewal of operating permits, and private parties may seek

damages from us.

Under such circumstances, we could be required to curtail or cease operations, conduct site remediation or other corrective

action, or pay substantial damage claims for which may not have sufficient or any insurance coverage for claims.

If we fail to maintain an effective system of internal control

over financial reporting, we may not be able to accurately report our financial results, and current and potential stockholders may lose

confidence in our financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002

requires our management to assess the effectiveness of our internal control over financial reporting and to disclose in our filing if

such controls were unable to provide assurance that a material error would be prevented or detected in a timely manner.

We have an ongoing

program to review the design of our internal controls framework in keeping with changes in business needs, implement necessary changes

to our controls design and test the system and process controls necessary to comply with these requirements.

If in the future, our internal

controls over financial reporting are determined to be not effective resulting in a material weakness or significant deficiency, investor

perceptions regarding the reliability of our financial statements may be adversely affected which could cause a decline in the market

price of our stock and otherwise negatively affect our liquidity and financial condition.

We may have risks associated with security of our information

technology systems.

We make significant efforts to maintain the security

and integrity of our information technology systems and data.

Despite significant efforts to create security barriers to such systems,

it is virtually impossible for us to entirely mitigate this risk.

There is a risk of industrial espionage, cyber-attacks, misuse or theft

of information or assets, or damage to assets by people who may gain unauthorized access to our facilities, systems, or information.

cybersecurity breaches, misuse, or other disruptions could lead to the disclosure of confidential information;

improper usage and distribution

of our intellectual property;

theft, manipulation, and destruction of private and proprietary data;

and production downtimes.

we actively employ measures to prevent unauthorized access to our information systems, preventing unauthorized use or infringement of

our rights is inherently difficult.

These events could adversely affect our financial results and any legal action in connection with

any such cybersecurity breach could be costly and time-consuming and may divert management’s attention and adversely affect the

market’s perception of us and our products.

In addition, we must frequently expand our internal information system to meet increasing

demand in storage, computing and communication, which may result in increased costs.

Our internal information system is expensive to expand

and must be highly secure due to the sensitive nature of our customers’ information that we transmit.

Building and managing the

support necessary for our growth places significant demands on our management and resources.

These demands may divert such resources from

the continued growth of our business and implementation of our business strategy.

RISKS RELATED TO OUR COMMON STOCK

Future equity financings would dilute your ownership and could

adversely affect your common stock ownership rights in comparison with those of other security holders.

Our board of directors has the power to issue

additional shares of common without stockholder approval.

Our stockholders do not have preemptive rights to any common stock issued by

us in the future;

therefore, stockholders may experience additional dilution of their equity investment if we issue additional shares

of common stock in the future, including shares issuable under equity incentive plans, or if we issue securities that are convertible

into shares of our common stock.

If additional funds are raised through the issuance

of equity securities, the percentage of ownership of our existing stockholders will be reduced, and such newly issued securities may have

rights, preferences or privileges senior to those of existing stockholders.

If we issue additional common stock or securities convertible

into common stock, such issuance will reduce the proportionate ownership and voting power of each other stockholder.

In addition, such

stock issuances might result in a reduction of the market value of our common stock, which could make our stock unattractive to existing

stockholders.

Provisions in our articles of incorporation and bylaws could

discourage changes in the composition of our board of directors which could hinder an acquisition of us by a third party, even if the

acquisition would be favorable to you, thereby adversely affecting existing stockholders.

Our articles of incorporation and bylaws contain

provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of our board of directors

and our Company, even when these attempts may be in the best interests of stockholders.

For example, our articles of incorporation and

bylaws provide for a classified board of directors which could delay or prevent changes in our control or management, including transactions

in which stockholders might otherwise receive a premium for their shares over then-current market prices.

These provisions may also limit

the ability of stockholders to approve transactions that they may deem to be in their best interests.

There is limited trading volume of our common stock, which could

make it difficult for you to liquidate an investment in our common stock in a timely manner.

Since August 27, 2021, our common stock has been traded

on the Nasdaq Capital Market under the symbol SOTK.

Because there is limited volume in our common stock, investors may not be able to

liquidate their investments when they desire to do so.

In addition, if we fail to meet the criteria set

forth in SEC and Nasdaq Capital Market rules and regulations, various requirements would be imposed by law on broker-dealers who sell

our securities to persons other than established customers and accredited investors.

Consequently, such regulations may deter broker-dealers

from recommending or selling our common stock, which may further affect its liquidity.

If securities analysts do not publish research or reports about

our business or if they downgrade us or our sector, the price of our common stock could decline.

The trading market for our common stock will depend

in part on research and reports that industry or financial analysts publish about us or our business.

Furthermore, if one or more of the

analysts who cover us downgrades us, the industry in which we operate, or the stock of any of our competitors, the price of our common

stock may decline.

If one or more of these analysts ceases coverage altogether, we could lose visibility, which could also lead to a decline

in the price of our common stock.

Our operating results can fluctuate significantly from period

to period, which makes our operating results difficult to predict and can cause our operating results, in any particular period, to be

less than comparable periods and expectations from time to time.

Our operating results have fluctuated significantly

from quarter-to-quarter, period-to-period and year-to-year during our operating history and are likely to continue to fluctuate in the

future due to a variety of factors, many of which are outside of our control.

Certain factors that may affect our operating results include,

without limitation, those set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations

—Critical Accounting Policies” in this Annual Report on Form 10-K.

Because we have little or no control over many

of these factors, our operating results are difficult to predict.

Any adverse change in any of these factors could negatively affect our

business and results of operations.

Our revenues, net income and other operating results

are heavily dependent upon the size and timing of customer orders and projects, and the timing of the completion of those projects.

timing of our receipt of large individual orders, and of project completion, is difficult for us to predict.

Because our operating expenses

are based on anticipated revenues over the mid- and long-term and because a high percentage of our operating expenses are relatively fixed,

a shortfall or delay in recognizing revenues can cause our operating results to vary significantly from quarter-to-quarter and can result

in significant operating losses or declines in profit margins in any particular quarter.

If our revenues fall below our expectations in

any particular quarter, we may not be able, or it may not be prudent for us, to reduce our expenses rapidly in response to the revenue

shortfall, which can result in us suffering significant operating losses or declines in profit margins in that quarter.

Due to these factors and the other risks discussed

in this Annual Report on Form 10-K, you should not rely on quarter-to-quarter, period-to-period or year-to-year comparisons of our results

of operations as an indication of our future performance.

Quarterly, period and annual comparisons of our operating results are not necessarily

meaningful or indicative of future performance.

As a result, it is likely that, from time to time, our results of operations or our revenue

backlog could fall below historical levels or the expectations of public market analysts and investors, which could cause the trading

price of our common stock to decline significantly.

The market price of our common stock has been and may continue

to be volatile.

The market price of our common stock has been

volatile and fluctuates widely in response to various factors that are beyond our control.

The price of our common stock is not necessarily

indicative of our operating performance or long-term business prospects.

In addition, the securities markets have from time-to-time experienced

significant price and volume fluctuations that are unrelated to the operating performance of particular companies.

These market fluctuations

may also materially and adversely affect the market price of our common stock.

Factors such as the following could cause the market price

of our common stock to fluctuate substantially:

• the underlying price of the commodities, materials, equipment that affect our key markets;

• announcements of capital budget changes by major customers;

• the introduction of new products by our competitors;

• announcements of technology advances by us or our competitors;

• current events affecting the political and economic environment in the United States, Europe or Asia;

• conditions or industry trends, including demand for our products, services and technological advances;

• changes to financial estimates by us or by any securities analysts who might cover our stock;

• additions or departures of our key personnel;

• seasonal, economic, or financial conditions;

• our quarterly operating and financial results;

• litigation or public concern about the safety of our products;

• the impact of inflation;

• war in Ukraine;

• the effect of COVID-19.

The realization of any of these risks and other

factors beyond our control could cause the market price of our common stock to decline significantly.

The stock market in general experiences,

from time to time, extreme price and volume fluctuations.

Periodic and/or continuous market fluctuations could result in extreme volatility

in the price of our common stock, which could cause a decline in the value of our common stock.

Price volatility may be worse if the trading

volume of our common stock is low.

Future sales of our common stock, or the perception that future

sales may occur, may cause the market price of our common stock to decline.

If any significant number of our outstanding shares

are sold, such sales could have a depressive effect on the market price of our stock.

We are unable to predict the effect, if any, that

the sale of shares, or the availability of shares for future sale, will have on the market price of the shares prevailing from time to

Sales of substantial numbers of shares in the public market, or the perception that such sales could occur, could depress prevailing

market prices for the shares.

Such sales may also make it more difficult for us to sell equity securities or equity-related securities

in the future at a time and price that we deem appropriate.

The Company is considered a “ smaller

reporting company ” and is exempt from certain disclosure requirements, which could make our common stock less

attractive to potential investors.

Rule 12b-2 of the Securities Exchange Act of 1934

("Exchange Act") defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed

issuer, or a majority-owned subsidiary of a parent, that is not a smaller reporting company, and that had a public float of less than

$250 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide

number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold,

or the average of the bid and asked prices of common equity, in the principal market for the common equity.

As a “smaller reporting company,”

we are not required and may not include a Compensation Discussion and Analysis section in our proxy statements;

we provide only three

years of business information;

and have other “scaled” disclosure requirements that are less comprehensive than issuers that

are not “smaller reporting companies,” which could make our stock less attractive to potential investors and could make it

more difficult for shareholders to sell their shares.

We have no current plan to pay dividends on our common stock,

and investors may lose the entire amount of their investment.

We have no current plans to pay dividends

on our common stock;

therefore, investors will not receive any funds absent a sale of their shares.

We cannot assure investors of a positive

return on their investment when they sell their shares, nor can we assure that investors will not lose the entire amount of their investment.

GENERAL RISK FACTORS

We will continue to incur significant costs as a result of operating

as a public company, and our management may be required to devote substantial time to compliance initiatives that ultimately could have

a material adverse effect on our financial condition and results of operations.

As a public company, we expect to continue to

incur significant legal, accounting and other expenses.

In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented

by the SEC, have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure

and financial controls as well as mandating certain corporate governance practices.

Our management and other personnel will continue to

devote a substantial amount of time and financial resources to these compliance initiatives.

As a “smaller reporting company” we

are able to take advantage of certain exceptions to disclosure requirements, including, but not limited to, reduced disclosure obligations

regarding executive compensation in our periodic reports and proxy statements and the exemption from providing a “Compensation Discussion

and Analysis” section in our proxy statements;

providing only three years of business information;

and other “scaled”

disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies.

If we fail to staff our accounting and finance

function adequately or maintain internal control systems adequate to meet the demands that are placed upon us as a public company, we

may be unable to report our financial results accurately or in a timely manner and our business and stock price may suffer.

of being a public company, as well as diversion of management’s time and attention, may have a material adverse effect on our future

business, financial condition and results of operations.

Changes in U.S.

Generally Accepted Accounting Principles ( “ GAAP ” )

could adversely affect our financial results and may require significant changes to our internal accounting systems and processes.

We prepare our consolidated financial

statements in conformity with GAAP.

These principles are subject to interpretation by the Financial Accounting Standards Board

(“FASB”), the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance.

FASB periodically issues new accounting standards on a variety of topics.

For information regarding new accounting standards, please

refer to Note 1 and 2, “Description of Business and Significant Accounting Policies – Recent Accounting

Pronouncements,” of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial

Statements and Supplementary Data,” of this Annual Report on Form 10-K.

These and other such standards generally result

in different accounting principles, which may significantly impact our reported results or could result in variability of our

financial results.

In preparing our financial statements we make certain assumptions,

judgments and estimates that affect amounts reported in our consolidated financial statements, which, if not accurate, may significantly

impact our financial results.

We make assumptions, judgments and

estimates for a number of items, including the fair value of financial instruments, long-lived assets and other intangible assets;

the realizability of deferred tax assets;

the recognition of revenue and the fair value of stock option awards;

make assumptions, judgments and estimates in determining the accruals for revenue recognition, product warranties, employee-related

liabilities, including commissions and variable compensation, and in determining the allowance or provisions for uncertain tax

positions, doubtful accounts, excess or obsolete inventory, and legal contingencies.

These assumptions, judgments and estimates are

drawn from historical experience and various other factors that we believe are reasonable under the circumstances as of the date of

the consolidated financial statements.

Actual results could differ materially from our estimates, and such differences could

significantly impact our financial results.

Our business could be negatively affected as a result of actions

of activist shareholders, and such activism could impact the trading value of our securities.

In recent years, shareholder activists have become

involved in numerous public companies.

Shareholder activists frequently propose to involve themselves in the governance, strategic direction

and operations of the Company.

Such proposals may disrupt our business and divert the attention of our Board of Directors, management

and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of

potential business opportunities, interfere with our ability to execute our strategic plan, be exploited by our competitors, cause concern

to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all

of which could adversely affect our business.

A proxy contest for the election of directors at our annual meeting could also require us

to incur significant legal fees and proxy solicitation expenses.

In addition, actions of activist shareholders may cause significant fluctuations

in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying

fundamentals and prospects of our business.

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 1. Business