What changed in this filing

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Item 1. Business

2023-05-25 compared with 2022-05-24 · 277 added, 292 removed, 656 unchanged (46% of the section changed)

6 unchanged sentences

our customers in achieving their desired coating solutions.

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 microscopic layers of protective and other useful

materials over a wide variety of surfaces, including glass and metals.

Our equipment solutions are environmentally-friendly, efficient

and highly reliable.

They enable dramatic reductions in overspray, savings in raw materials, water and energy usage and provide improved

process repeatability, transfer efficiency, high uniformity and reduced emissions.

We serve a variety of industries and applications and

have a broad base of customers.

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

been expanding as the advantages of ultrasonic coatings are more broadly recognized.

The original application of our technology was to

coat the inner surface of blood collection tubes used for medical diagnostic testing.

Our products enable the application of a thin and

uniform coating of material that prevents coagulation of blood.

Following that initial breakthrough, our technology was then used for

applying uniform flux coatings to printed circuit boards, a critical part of the fabrication process for all electronic devices.

application for much larger surfaces was to address the many challenges that glass manufacturers faced.

They needed a solution for specialized

glass applications in the construction and automotive industries.

Among other things, our ultrasonic nozzles are used to provide coatings

that improve durability, create filters, increase clarity, reduce reflection, enable conductivity, and enhance safety.

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 microscopic layers of protective

and other useful materials over a wide variety of surfaces, including glass and metals.

Our equipment solutions are environmentally-friendly,

efficient and highly reliable.

They enable dramatic reductions in overspray, savings in raw materials, water and energy usage and provide

improved process repeatability, transfer efficiency, high uniformity and reduced emissions.

We serve a variety of industries and applications

and have a broad base of customers.

The applications that are employing our unique coating technology

and expertise have been expanding as the advantages of ultrasonic coatings are more broadly recognized.

The original application of our

technology was to coat the inner surface of blood collection tubes used for medical diagnostic testing.

Our products enable the application

of a thin and uniform coating of material that prevents coagulation of blood.

Following that initial breakthrough, our technology was

then used for applying uniform flux coatings to printed circuit boards, a critical part of the fabrication process for all electronic

A later application for much larger surfaces was to address the many challenges that glass manufacturers faced.

They needed a

solution for specialized glass applications in the construction and automotive industries.

Among other things, our ultrasonic nozzles

are used to provide coatings that improve durability, create filters, increase clarity, reduce reflection, enable conductivity, and enhance

We have invested significant resources to enhance our market diversity by leveraging our core ultrasonic coating technology.

a result, we have increased our portfolio of products, the industries we serve, and the countries in which we sell our products.

We were founded by the inventor of the ultrasonic nozzle, Dr.

Harvey Berger, and incorporated

in New York on March 21, 1975.

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.

Berger, and incorporated in New York on March 21, 1975.

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

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.

We refer to the fiscal year ended February 28, 2022

as “fiscal 2022” and use similar protocol for previous fiscal years.

We refer to the fiscal year ended

February 28, 2023 as “fiscal 2023” and use similar protocol for previous fiscal years.

Our Products, Markets and Customers

Our products are used in a wide range of applications.

We provide our customers a broad

offering of ultrasonic spray coating equipment solutions custom suited for their requirements and we continually expand our offerings

to address new applications.

Our products include fully integrated Multi-Axis Coating Systems, Integrated Coating Systems, Fluxing Systems,

OEM Systems and other related systems.

We invest heavily in research and development to continually bring to market new solutions for

our customers, to increase our market share and to solve high value problems in manufacturing.

Our Multi-Axis Coating Systems, Integrated Coating Systems and Fluxing Systems provide

complete fully integrated solutions for our customers, while we created the Universal Align to offer our customers subsystems that integrate

our nozzles and generators that they can then incorporate into their original equipment.

We have built our brand and reputation on providing high quality, highly reliable products

that provide consistent performance for critical applications in demanding operating environments.

Our surface coating solutions are used

in 24/7 work schedules, under harsh and challenging manufacturing environments, where they provide value in a continuous and dependable

We target the following markets where our product quality and consistency and application

knowledge are valued by our customers:

our customers a broad offering of ultrasonic spray coating equipment solutions custom suited for their requirements and we continually

expand our offerings to address new applications.

Our products include fully integrated Multi-Axis Coating Systems, Integrated Coating

Systems, Fluxing Systems, OEM Systems and other related systems.

We invest heavily in research and development to continually bring to

market new solutions for our customers, to increase our market share and to solve high value problems in manufacturing.

Our Multi-Axis Coating Systems, Integrated Coating Systems and Fluxing

Systems provide complete fully integrated solutions for our customers, while we created the Universal Align to offer our customers subsystems

that integrate our nozzles and generators that they can then incorporate into their original equipment.

We have built our brand and reputation on providing high quality,

highly reliable products that provide consistent performance for critical applications in demanding operating environments.

coating solutions are used in 24/7 work schedules, under harsh and challenging manufacturing environments, where they provide value in

a continuous and dependable fashion.

We target the following markets where our product quality and consistency

and application knowledge are valued by our customers:

Micro-Electronics/Electronics:

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A variety of other small industries using our coating technology, that have not yet matured into a developed marketplace for our ultrasonic coating machines

Our principal customers include original equipment manufacturers, distributors and end

users of our products in the industries that we serve.

Our products are sold primarily through our direct sales personnel, select independent

distributors and through sales representatives around the world that are trained on our technologies and products.

Our distributors are

typically experts in their industries and recognize the significant value that our technology provides their customers.

We provide extensive

training and on-site support with our direct sales force and application engineers, who also respond to leads generated by our web site

and the trade shows in which we participate.

To grow sales, we continue to strengthen our laboratory and applications engineering personnel

and support our worldwide process development labs with additional ultrasonic coating equipment, in conjunction with sponsoring various

technical training seminars for our distribution network.

We also provide application consulting services enabling our customers to rely on our surface

coating expertise and specific customer process optimization.

We offer these services both in our application process development laboratory

and at our customers’ sites where we can assist in the design and development of customized coating systems.

We are a global business and our geographical sales mix can vary from year to year depending

on the timing of orders from customers.

Our principal customers include original equipment manufacturers,

distributors and end users of our products in the industries that we serve.

Our products are sold primarily through our direct sales personnel,

select independent distributors and through sales representatives around the world that are trained on our technologies and products.

Our distributors are typically experts in their industries and recognize the significant value that our technology provides their customers.

We provide extensive training and on-site support with our direct sales force and application engineers, who also respond to leads generated

by our web site and the trade shows in which we participate.

To grow sales, we continue to strengthen our laboratory and applications

engineering personnel and support our worldwide process development labs with additional ultrasonic coating equipment, in conjunction

with sponsoring various technical training seminars for our distribution network.

We also provide application consulting services enabling our customers

to rely on our surface coating expertise and specific customer process optimization.

We offer these services both in our application process

development laboratory and at our customers’ sites where we can assist in the design and development of customized coating systems.

We are a global business and our geographical sales mix can vary from

year to year depending on the timing of orders from customers.

In fiscal 2023, 55% of our sales were from outside the U.S.

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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

coating of surfaces in a broader array of applications which enable better outcomes for our customers’ products and processes.

believe product superiority is imperative and that it is attained through the extensive experience that we have in the coatings industry,

our proprietary manufacturing know-how and skills, and our unique work force that we have built over the years.

We intend to leverage our innovative technologies, proprietary know-how, unique talent

and experience, and global reach to:

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

for the microscopic coating of surfaces in a broader array of applications which enable better outcomes for our customers’ products

and processes.

We believe product superiority is imperative and that it is attained through the extensive experience that we have in the

coatings industry, our proprietary manufacturing know-how and skills, and our unique work force that we have built over the years.

We intend to leverage our innovative technologies, proprietary know-how,

unique talent and experience, and global reach to:

Grow the business globally by reaching new markets and further penetrating the markets and customers we currently serve;

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Provide an acceptable return to our shareholders.

To accomplish these objectives, we believe that we must judiciously deploy our monetary

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

To accomplish these objectives, we believe that we must judiciously

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

Availability of Raw Materials

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

or components used in the manufacture of our products.

All raw materials used in our products are readily available from many different

domestic suppliers.

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

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

Historically, we have not been adversely impacted by the availability

of raw materials or components used in the manufacture of our products.

However, since the onset of the COVID-19 pandemic, we have encountered

challenges in procuring supplies 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 through fiscal year 2023.

Generally, except in instances of pandemic related supply chain issues,

all raw materials used in our products are available from many different domestic suppliers.

We purchase circuit board assemblies and

sheet metal components from a wide range of suppliers throughout the world.

When materials are plentiful, 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 .

Research and Development

We believe that our long-term growth is dependent upon the development and commercialization

of ultrasonic coating technologies to solve customers’ high value problems across a wide spectrum of applications in various industries,

while also advancing the utility of our core technology.

During fiscal 2022 and fiscal 2021, we spent $1,730,000 and $1,645,000, respectively,

on research and development activities related to new products and services and the ongoing improvement of existing products and services.

As a percentage of sales, research and development expenses were 10.1% and 11.1% in fiscal 2022 and 2021, respectively.

We believe that our long-term growth is dependent upon the development

and commercialization of ultrasonic coating technologies to solve customers’ high value problems across a wide spectrum of applications

in various industries, while also advancing the utility of our core technology.

During fiscal 2023 and fiscal 2022, we spent $2,149,000

and $1,730,000, respectively, on research and development activities related to new products and services and the ongoing improvement

of existing products and services.

As a percentage of sales, research and development expenses were 14.3% and 10.1% in fiscal 2023 and

2022, respectively.

Intellectual Property

Our business is based in part on the technology covered by our U.S.

on unpatented know-how in the design and production of our nozzle systems, subsystems and complete solutions.

We have executed non-disclosure

and non-compete agreements with all of our employees to safeguard our intellectual property.

We execute reciprocal non-disclosure agreements

with our key customers to safeguard any jointly developed intellectual property.

We also rely on unpatented know-how in the design and production of our nozzle systems, subsystems and complete solutions.

have executed non-disclosure and non-compete agreements with all of our employees to safeguard our intellectual property.

We execute reciprocal

non-disclosure agreements with our key customers to safeguard any jointly developed intellectual property.

We operate in competitive markets in many of our industry segments.

We compete against

alternative coating technologies, as well as global and regional manufacturers of nozzles and other products based on price, quality,

product features, application engineering and follow-up service.

We maintain our competitive position by providing highly effective solutions

that meet our customers’ requirements and needs.

In several emerging markets, we encounter less competition compared to more established

markets based on the uniqueness of our ultrasonic technology in these applications.

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.

and Canada accounted

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.

that relations with our employees are generally good.

We compete against alternative coating technologies, as well as global and regional manufacturers of nozzles and other products based

on price, quality, product features, application engineering and follow-up service.

We maintain our competitive position by providing

highly effective solutions that meet our customers’ requirements and needs.

In several emerging markets, we encounter less competition

compared to more established markets based on the uniqueness of our ultrasonic technology in these applications.

Information Regarding Sales Outside

the United States and Canada and Significant Customers

During fiscal 2023 and fiscal 2022, net sales to customers outside

and Canada accounted for approximately $8,254,000, or 55% of total net sales, and $11,653,000, or 68% of total net sales, respectively.

Our two largest customers accounted for 14% of net sales in fiscal

As of February 28, 2023, we employed 73 full-time and 11 part-time

We believe that relations with our employees are generally good.

Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934,

Therefore, we file “reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).

The SEC maintains a website at www.sec.gov that contains the reports, proxy statements and other information for registrants that file

electronically, as we do.

Additionally, these reports may be read and copied at the Public Reference Room of the SEC at 100 F Street,

N.E., Washington, DC 20549.

Information regarding the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330.

We are subject to the informational requirements of the Securities

Exchange Act of 1934, as amended.

Therefore, we file “reports, proxy statements and other information with the Securities and Exchange

Commission (“SEC”).

The SEC maintains a website at www.sec.gov that contains the reports, proxy statements and other information

for registrants that file electronically, as we do.

Additionally, these reports may be read and copied at the Public Reference Room of

the SEC at 100 F Street, N.E., Washington, DC 20549.

Information regarding the SEC’s Public Reference Room may be obtained by calling

1-800-SEC-0330.

We maintain a website at http://www.sono-tek.com.

On our site, we provide copies of our

Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at no charge as soon as reasonably practicable after filing electronically such material

with the SEC.

On our site, we

provide copies of our Forms 8-K, 10-K, 10-Q, Proxy and Annual Report as soon as reasonably practicable after filing electronically

such material with the SEC.

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

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.

Ongoing impacts from COVID-19 or another

pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, prospects, financial condition

and operating results.

The COVID-19 pandemic has adversely impacted our

business, and it, as well as other possible health pandemics, epidemics or outbreaks, may materially and adversely impact our business,

prospects, financial condition and operating results in the future.

Our engineering and product development operations, among others,

cannot all be conducted in a remote working structure and often require on-site access to materials and equipment.

We have customers with

international operations in varying industries.

We also depend on suppliers and manufacturers worldwide.

We are currently experiencing

disruptions and delays in our supply chain.

Depending upon the duration of the ongoing effects of the COVID-19 pandemic, which may linger

for some time even if significant health risks abate, our customers, suppliers, manufacturers and partners may suspend or delay their

engagement with us or take other actions or experience their own negative impacts, any of which could result in a material adverse effect

on our financial condition and ability to meet current timelines.

The COVID-19 pandemic has adversely affected and may continue to adversely

affect our ability to recruit skilled employees to join our team and to meet our product development timelines.

Our response to the ongoing

COVID-19 pandemic and its ongoing impacts on our supply chain and business activities may prove to be inadequate, and we may be unable

to operate in the manner necessary to avoid interruptions, reputational harm and delays in our product development and shipments, any

of which could have a material adverse effect on our business, prospects, financial condition and operating results.

In addition, pre-COVID-19

supply chain, economic and business conditions may not ever return.

To the extent COVID-19 continues to impact our

business, financial position and results of operations, it may also have the effect of heightening certain of the other risks described

in this Annual Report on Form 10-K, such as those relating to our international operations and global strategies and our dependence on

third-party suppliers.

We do not have long-term commitments for significant revenues

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largest customers accounted for approximately 14% 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.

For the year ended February 28, 2022, our two largest customers accounted

for approximately 24% of our net sales.

If we are unable to diversify our customer base, our future results could 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.

If any one 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

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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

enhance our current products and systems with new, improved and competitive technology;

respond to technological changes in a cost-effective and timely manner.

If we are unable to successfully respond to technological

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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 changing requirements and preferences of the potential customers in our markets;

the accurate prediction of market requirements, including regulatory issues;

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;

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;

the successful development of our relationships with existing and potential customers;

changes in industry standards.

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chain constraints and material shortages that have occurred in the recent months, and may continue through fiscal year 2024.

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

16 unchanged sentences

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.

In addition to our net sales to customers within the U.S.

and Canada, we may become increasingly

dependent on net 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, 2023 and 2022, our net sales outside of the U.S.

and Canada accounted for approximately 55% and 68%, respectively,

of our total net sales.

We continue to expect that a significant portion of our future revenues will be from international sales.

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

8 unchanged sentences

the impact of COVID-19 on the global markets;

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

for our products;

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

management communication and integration problems resulting from cultural and geographic dispersion;

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;

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;

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;

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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.

Inflation rose sharply beginning in late 2021

and continued rising through 2022 at levels not seen for over 40 years.

Although the Federal Reserve has significantly increased interest

rates in response to rising inflation, inflationary pressures are currently expected to remain elevated throughout 2023.

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.

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

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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.

Future equity financings and issuances of shares under equity

compensation plans 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

Additional shares are subject to issuance through various equity compensation

plans or through the exercise of currently outstanding equity awards.

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.

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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 are subject to reduced disclosure requirements that are less comprehensive than applicable to 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,

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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.

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.

The FASB periodically issues

new accounting standards on a variety of topics.

For information regarding new accounting standards, please refer to Note 1 and 2,

“Business Description and Significant Accounting Policies,” 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,

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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;

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.

We also 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

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fundamentals and prospects of our business.

Major bank failure or sustained

financial market illiquidity, or illiquidity at our clearing, cash management and custodial financial institutions, could adversely affect

our business, financial condition and results of operations.

We face certain risks

in the event of a sustained deterioration of financial market liquidity, as well as in the event of sustained deterioration in the liquidity,

or failure, of our clearing, cash management and custodial financial institutions.

In particular:

· We may be unable to access funds in our investment

portfolio, deposit accounts and clearing accounts on a timely basis to settle our payments or to make money transfers.

Any resulting need

to access other sources of liquidity or short-term borrowing would increase our costs.

Any delay or inability to settle our payments or

to make money transfers could adversely impact our business, financial condition and results of operations.

· In the event of a major bank failure, we could

face major risks to the recovery of our bank deposits used for the purpose of settling our payments and to the recovery of a significant

portion of our investment portfolio.

A substantial portion of our cash, cash equivalents and interest-bearing deposits are either held

at financial institutions that are not subject to insurance protection against loss or exceed the deposit insurance limit.

· We may be unable to borrow from financial institutions

or institutional investors on favorable terms, which could adversely impact our ability to pursue our growth strategy and fund key strategic

If financial liquidity deteriorates, there can

be no assurance we will not experience an adverse effect, which may be material, on our ability to access capital and on our business,

financial condition and results of operations.

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