What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-05-28 compared with 2024-05-23 · 198 added, 229 removed, 162 unchanged (72% of the section changed)

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

Highlights for fiscal 2024 include:

Net sales for fiscal 2024 increased 31% to $19.7 million from $15.1 million, driven by strong shipments to the Alternative/Clean Energy, Industrial and Medical Markets.

The Alternative/Clean Energy Market grew by 96%, an increase of $2.94 million, in part due to a $766,000 shipment of a production scale system to a customer in the solar market;

with three additional systems valued at $730,000 each to be manufactured for the same customer remaining in backlog and all scheduled to ship in FY2025.

Gross profit margin for fiscal 2024 decreased to 50% compared to 50.8% in fiscal 2023.

Decreased profit margin was a result of product mix and a Q4 FY2024 realignment of our organizational framework as an outcome of completion of several successful R&D endeavors, which shifted some costs from R&D to cost of goods sold (COGS).

Operating income for fiscal 2024 increased 73% to $1.2 million compared to $683,000 in fiscal 2023, due to the current period’s increase in gross profit offset by an increase in operating expenses.

Despite record sales, equipment related backlog at February 29, 2024 reached a historical fiscal year end high of $9.1 million compared to the backlog at February 28, 2023 of $8.5 million, an increase of 7%.

The increase is due to continued strong orders in the second, third and fourth quarters of fiscal 2024 from the clean energy sector.

Net income was $1.4 million compared to $636k in the prior fiscal year.

The increase in net income in fiscal year 2024 is a result of an increase in operating income and interest and dividend income partially offset by an increase in operating expenses, an increase in income tax expense and the creation of a $138k reserve related to certain sales tax expenses.

As of February 29, 2024, we had no outstanding debt.

Cash, cash equivalents and marketable securities increased $400,000 to $11.8 million at February 29, 2024 compared to $11.4 million on February 28, 2023.

Interest income, dividend income and unrealized gain on marketable securities increased to $562,000 reflecting the high interest rate environment during fiscal 2024.

Sono-Tek Corporation Fiscal Year 2025 Highlights (compared

with fiscal 2024 unless otherwise noted)

We refer to the twelve-month periods ended February 28, 2025 and February 29, 2024 as fiscal 2025 and fiscal 2024, respectively.

Record $20.5 million, up 4%

from $19.7 million in fiscal 2024, driven by strong shipments to the Alternative/Clean Energy Market.

This marks the highest annual revenue

in company history.

· Gross Profit:

$9.74 million, down 1%

or $106K from the prior year.

Gross margin decreased to 47.5% from 50%, mainly due to product mix and the reclassification of labor costs

from engineering to cost of goods sold.

· Operating Income:

Decreased $172,000

to $1.01 million compared to $1.20 million in fiscal 2024, due to the decrease in gross profit combined with higher operating expenses.

· Net Income:

Approximately $1.3 million,

down from $1.4 million in fiscal 2024, reflecting a combination of lower gross profit and higher operating expenses.

Equipment and service-related

backlog of $8.67 million at fiscal year-end, down 6.6% from the prior year-end record high of $9.28 million.

US/Canada sales increased

15% (+$1.6 million), driven by a record shipment of five high Average Selling Price “ASP” systems totaling $3.85 million—the

largest number of high ASP systems shipped in a year.

· Product Categories:

Integrated Coating

Systems increased 28% (+$814K), and Multi-Axis Systems grew 6% (+$603K), both supported by significant orders from the solar and clean

energy sectors.

· End Markets:

Alternative/Clean Energy

rose 64% (+$3.84 million) driven by production-scale system shipments to the solar market and electrolysis markets, including four high

ASP system deliveries totaling $3.38 million.

The Industrial market declined 47% (-$1.68 million) as our customers saw reduced demand

for float glass coating systems due to rising competition from China-based float glass producers.

· Balance Sheet:

No outstanding debt as

of February 28, 2025, with cash, cash equivalents, and marketable securities totaling $11.9 million, compared to $11.8 million at the

prior year-end.

· Other Income:

Interest income, dividend

income, and unrealized gains on marketable securities totaled $524K, down $38K due to a slight reduction in interest rates.

Market and Geographic Diversity

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Sales and Gross Profit:

Fiscal Year Ended

Cost of Goods Sold

Gross Profit %

Gross profit increased $2,193,000, or 29% to $9,845,000 for fiscal

Gross profit decreased $106,000, or 1% to $9,739,000 for fiscal 2025

compared with $9,845,000 in fiscal 2024.

Gross profit margin decreased to 50.0% for fiscal 2024, compared to 50.8% for fiscal 2023.

Overall, the gross profit margin on our products remained relatively consistent when compared to fiscal 2023.

In fiscal 2024 the decrease in gross profit margin is due to increased

indirect salaries, an increase in transportation expenses, increased installation costs and increased warranty costs.

In fiscal 2023,

our warranty costs were lower than expected.

Warranty costs fluctuate year to year and are a function of product mix.

In addition, our

gross profit margin decreased due to the reallocation and recharacterization of specific labor expenses from the engineering department

to cost of goods sold.

In light of the successful culmination of several innovative R&D endeavors, we have

strategically realigned our operational structure.

Historically, certain salary expenditures associated with these initiatives were classified

under the R&D category during the developmental phase.

However, following the recent successful completion of several of these development

projects, we have transitioned some of these expenses to the manufacturing labor category.

This transition necessitated a change in our

organizational framework, where a select group of individuals now fall under the purview of the manufacturing organization rather than

the engineering team.

Effective December 1, 2023, coinciding with the commencement of the fourth quarter of fiscal 2024, we shifted the

cost allocation associated with these individuals to Cost of Goods Sold.

This realignment of labor allocation carries no discernible

impact on our overarching financial performance;

however, it does yield noteworthy adjustments to our cost structure.

Notably, while our

R&D expenses experienced a modest reduction, our direct labor costs underwent a commensurate increase, resulting in an approximate

2% decline in gross margin for the fourth quarter of fiscal 2024.

This trend is anticipated to continue, with a similar annual impact

anticipated for fiscal 2025.

The gross profit percentage decreased to 47.5% for fiscal 2025, compared to 50.0% for fiscal

In fiscal 2025 the decrease in the gross profit percentage was a result

of product mix and the reallocation and recharacterization of specific labor expenses from the engineering department to cost of goods

sold that started in the fourth quarter of fiscal year 2024 as an outcome of the completion of several successful R&D endeavors.

Product Sales:

Twelve Months Ended

Fluxing Systems

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Multi-Axis Coating Systems

Total sales for the fiscal 2024 grew by 31%, propelled by heightened demand for our Multi-Axis

Coating systems which are commonly used in the clean energy sector.

Integrated Coating System sales accelerated by 159%, or $1.8M, to

$2.9M due to continued success with our newly developed float glass coating platform and a newly completed custom-built system tailored

for a key strategic partner within the solar energy market.

Following uncharacteristically high revenue for Printed Circuit Board “PCB”

Fluxing systems for our fiscal year ended February 28, 2023, PCB Fluxing sales dipped by 39% for fiscal 2024.

Also, sales to our OEM Printed

Circuit Board customers that integrate our ultrasonic nozzles into their own spray fluxers declined, causing OEM sales to decrease by

We believe the slowdown in sales to the PCB spray fluxer market has returned us to what is closer to our historical revenue norms.

The dip in OEM sales was largely mitigated by an increase in spare parts and service-related revenue, which is a growing revenue stream,

categorized in the ”Other” product category.

Total sales for fiscal year 2025 grew by 4%, driven by increased demand

for our Integrated Coating and Multi-Axis Coating systems which are commonly used in the clean energy sector.

Integrated Coating System

sales increased by 28%, or $814,000, to $3,703,000 due to continued success with a key strategic partner within the solar energy market.

Printed Circuit Board “PCB” Fluxing System sales declined

35%, or $257,000, largely due to weaker demand in Latin America.

The decrease was driven by a general slowdown in PCB equipment sales

in Mexico and the closure of one of our key distributors in the region.

To address this, we onboarded and trained a New Mexico-based distribution

partner, which we believe will contribute to improved spray fluxing sales in fiscal 2026.

Market Sales:

Twelve Months Ended

Electronics/Microelectronics

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Emerging R&D and Other

Sales to the Alternative/Clean Energy market recorded growth of 96% in fiscal 2024, which

were positively impacted by a growing number of our customers transitioning from our R&D systems to production scale systems that

carry much higher average selling prices.

Electronics market revenue experienced a modest uptick in fiscal year 2024.

was strongly influenced by three significant orders totaling $497,000, from the semiconductor market.

However, this positive momentum

was partially tempered by a $455,000 decrease in sales from our PCB spray fluxers.

Medical sales rebounded strongly in the second half of Fiscal 2024 and ended with 13% growth

for fiscal 2024.

Industrial sales remain very strong, showing growth of 48% for fiscal 2024, influenced

by shipment of two next-gen float glass coating systems totaling approximately $700,000, and the last two machines of a multi-system order

to a US based customer for $432,000.

Sales to the Alternative/Clean Energy market increased 64% in fiscal

2025, driven by a growing number of customers transitioning from our R&D systems to production scale systems, which carry significantly

This growth was partially offset by declines in the Medical and Industrial markets.

Medical sales decreased $930,000, or

22%, to $3.25 million compared to $4.18 million in the prior year, and Industrial sales declined $1.68 million, or 47%, to $1.92 million

compared to $3.61 million in the prior year.

Geographic Sales:

Twelve Months Ended

Asia Pacific (APAC)

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This is compared to 55% in fiscal 2024.

We continue to record strong sales from the U.S.

and Canada, growing 60% for fiscal 2024.

This achievement can be attributed to various factors, including proactive governmental

initiatives such as the CHIPS ACT and the Inflation Reduction Act.

Additionally, the ongoing trend of onshoring for high-technology products

has significantly bolstered our sales performance in these regions.

Asia sales remained flat for fiscal 2024.

While robust sales from the clean energy sector

were shown from India, South Korea and Singapore, China sales continue a downward trajectory amidst the uncertain economic landscape prevailing

in the region.

In Latin America,

we encountered a discernible decline of 21%, representing a reduction of $325,000.

This decrease can be largely attributed to the sluggish

performance in the spray fluxer segment, a market segment commonly associated with our customer base in this region.

In fiscal 2024, EMEA sales experienced a notable surge, marking

a 26% increase equivalent to $885,000.

This upward trajectory was driven by robust sales in Ireland, where we secured orders and shipments

for two unique machines catering to separate customers within the medical sector.

These systems are designed for the specialized coating

of unique implantable devices, reflecting our commitment to innovation in thin film coatings on next gen healthcare devices.

Germany had continued sales growth of our electrolysis membrane coating systems, impacted by government initiatives aimed at fostering

expansion of the clean energy sector.

Sales in the US & Canada increased 15% or $1.63 million, driven

by the delivery of five high ASP systems totaling $3.85 million, reinforcing our strategy to provide highly complex, high-volume systems

with premium pricing.

This represents the largest number of high ASP systems sold in a single year.

Growth in the US/Canada region was

partially offset by declines in other regions.

Latin America sales decreased 34% or $412,000, due to a $465,000 float glass coating system

sale into Mexico that occurred in the prior year that did not repeat in fiscal 2025.

Asia sales declined 16% or $510,000, influenced by

continued weak demand from China, where sales fell to $522,000 in fiscal 2025 from $775,000 in fiscal 2024.

China now represents approximately

2.5% of total sales, down significantly from its historical peak.

EMEA sales increased 2% or $98,000, supported by multiple system shipments

to customers in the green energy sector.

Operating Expenses:

Research and product development

product development

Marketing and selling

General and administrative

Total Operating Expenses

and administrative

Operating Expenses

Research and Product Development:

Research and product development costs increased $737,000 to $2,886,000

for fiscal 2024 due to increased salaries and related costs and an increase in research and development materials and supplies, which

are used in the focused growth initiatives we continue to implement.

Research and product development costs decreased $162,000 to $2,724,000

for fiscal 2025 due to a decrease in salary associated with the departure of a senior engineer, a decrease in research and development

materials and the reallocation and recharacterization of specific labor expenses from the engineering department to cost of goods sold

that started in the fourth quarter of fiscal year 2024.

Marketing and Selling:

Marketing and selling costs increased $526,000 to $3,696,000 for fiscal

2024 due to increased salaries and increased travel and trade show expenses.

Marketing and selling expenses decreased slightly in fiscal 2025 to

$3,678,000 due to a decrease in salary expense which was partially offset by an increase in commissions and travel and trade show expenses.

During fiscal 2025, we expended approximately $595,000 for travel

and trade show expenses compared with $505,000 for the prior fiscal year, an increase of $90,000.

The increased travel and trade show

expenses are a result of the global lifting of COVID-19 restrictions aligning closely with pre-pandemic levels.

In fiscal 2025, we expended approximately $767,000 for commissions

as compared with $674,000 for the prior fiscal year, an increase of $93,000.

The increase in commission expense is primarily the result

of an increase in sales being generated by our external distributors, which are commissioned at a higher rate than our in-house sales

The decrease in salary expense is primarily due to the reallocation

of the salary of our Chief Executive Officer, Steve Harshbarger, to the General and Administrative category as described more fully below

under the heading “General and Administrative”.

General and Administrative:

General and Administrative (G&A) costs increased $247,000 to $2,327,000

for fiscal 2024 due to an increase in salaries, professional fees and corporate expenses.

These increases were partially offset by a decrease

in stock-based compensation expense.

Effective January 1, 2024, Steve Harshbarger became our Chief Executive Officer and President,

having previously served as Chief Operating Officer and President prior to such date.

We have implemented adjustments to the allocation

of certain expenses in fiscal 2024 associated with this transition.

Specifically, we reclassified the expenses related to Mr.

for fiscal 2025 due to an increase in salaries, professional fees, corporate expenses and stock-based compensation.

These increases were

partially offset by the reversal of the sales tax accrual described more fully below.

Effective January 1, 2024, Steve Harshbarger became our Chief Executive Officer, having

previously served as President prior to such date.

On becoming Chief Executive Officer, we reclassified the expenses related to Mr.

Harshbarger's

compensation in connection with this positional change.

Prior to January 1, 2024, we categorized Mr.

Harshbarger’s salary under

sales expenses due to his instrumental involvement in nurturing strategic accounts.

In connection with Mr.

Harshbarger's assumption of

the principal executive officer role, the costs associated with his compensation have been reallocated to the G&A category ensuring

a more precise representation of resource allocation in our financial statements.

In the fourth quarter of fiscal 2024, we were notified by the State of California that

we were required to collect sales tax on our shipments to customers in California.

According to California, we have both physical and

economic nexus in the state and are required to collect sales tax.

We have taken the position that we do not have physical nexus, but

that we are subject to the economic nexus filing requirements.

The California economic nexus requirements have a look back period that

began on April 1, 2019.

We are in the process of reviewing our sales to California for the period beginning April

For taxable sales, we are in the process of trying to collect any sales tax due from our customers.

As of February 29, 2024,

on the basis of a preliminary analysis of our sales to our California customers since April 1, 2019, we have recorded an accrual in the

amount of $138,000 for the estimated sales tax, penalties and interest that we may be required to remit to the State of California.

Prior to January 1, 2024, we classified Mr.

Harshbarger’s salary under sales

expenses because of Mr.

Harshbarger’s instrumental role in that area.

For fiscal year 2025, the total reallocated amount of Mr.

Harshbarger’s salary was approximately $325,000.

In the fourth quarter of fiscal 2024, we were notified by the State

of California that we were required to collect sales tax on our shipments to customers in California.

For taxable sales, we collected

approximately $86,000 of delinquent sales tax from our customers in fiscal 2025.

As of February 29, 2024, on the basis of a preliminary

analysis of our sales to our California customers since April 1, 2019, we recorded an accrual in the amount of $138,000 for the estimated

sales tax, penalties and interest that we may have been required to remit to the State of California.

In the second quarter of fiscal 2025, we filed all necessary sales

tax returns with the State of California.

Our net expense for sales tax and interest amounted to $72,000.

In the second quarter of fiscal

2025, we reversed the remaining accrual of $66,000.

This reversal is recorded in general and administrative expenses.

Operating Income:

Our operating income increased $499,000 or 73%, to $1,182,000 in fiscal

Our operating income decreased $172,000 or 15%, to $1,010,000 in fiscal

2025 compared with $1,182,000 for the prior fiscal year.

In fiscal 2024, the increase in operating margin is a result of an increase in

revenue and gross profit offset by an increase in operating expenses.

Operating margin for fiscal 2024 increased to 6% compared with 5%

in the prior fiscal year.

As a percentage of net sales, operating expenses decreased 200 basis points to 44% in fiscal 2024 compared with

46% in fiscal 2023.

In fiscal 2025, the decrease in operating income is a result of a decrease in

gross profit combined with an increase in operating expenses.

Operating margin for fiscal 2025 decreased to 5% compared with 6% in fiscal

As a percentage of net sales, operating expenses decreased 100 basis points to 43% in fiscal 2025 compared with 44% in fiscal 2024.

Interest and Dividend Income:

Interest and dividend income increased $390,000 to $530,000 for fiscal

2024 as compared with $140,000 for the prior fiscal year.

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

investments into US Treasury securities and certificates of deposit combined with the increase in current interest rates.

investment policy is to invest excess cash in highly liquid, low risk US Treasury securities and certificates of deposit.

29, 2024, the majority of our holdings are rated at or above investment grade.

Interest and dividend income decreased $41,000 to $489,000 for fiscal

2025 as compared with $530,000 for the prior fiscal year, reflecting a minor reduction in interest rates earned on our cash balances in

Our present investment policy is to invest excess cash in highly liquid, low risk US Treasury securities and certificates

At February 28, 2025, the majority of our holdings are rated at or above investment grade.

Income Tax Expense:

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with $303,000 for the prior fiscal year.

The increase in income tax expense in fiscal 2024 is due to the increase in income before income

taxes offset by the application of available research and development tax credits.

Net income increased $805,000 or 127%, to $1,441,000 for fiscal 2024

The decrease in income tax expense in fiscal 2025 is due to the current period’s decrease in income

before income taxes offset by the application of available research and development tax credits.

Net income decreased $168,000 or 12%, to $1,273,000 for fiscal 2025

compared with $1,441,000 for the prior fiscal year.

The increase in net income in fiscal 2024 is a result of an increase in operating income

and interest and dividend income partially offset by an increase in operating expenses and an increase income tax expense.

The decrease in net income in fiscal 2025 is a result of a decrease in gross profit

combined with an increase in operating expenses partially offset by a decrease in income tax expense.

Liquidity and Capital Resources

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Cash and cash equivalents

$ (1,220,000 )

Marketable securities

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To reconcile increase in cash.

Accounts receivable decrease

Accounts receivable increase

Decrease due to timing of receipts.

Inventories increase

Additional inventory purchases and increase in work in process due to customer requirements and supply chain delays in receipt of required components.

Customer deposits increase

Inventories decrease

Decrease in finished goods for customer orders.

Customer deposits decrease

Received for new orders.

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Timing of disbursements.

Prepaid and Other Assets decrease

Prepaid and Other Assets increase

Decreased prepaid expenses.

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Equipment and facilities upgrade.

Treasury stock purchase

Purchase of treasury stock.

Net increase in cash

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current year’s net income of $1,273,000 and $248,000 in additional equity related to stock-based compensation awards.

of stock-based compensation are explained in Note 4 in our financial statements.

These increases

were partially offset by treasury stock purchases of $8,000.

The details of stock-based compensation are explained in Note 4 in our financial

Operating Activities – We generated $525,000

of cash in our operating activities in fiscal 2024 compared with generating $1,325,000 in fiscal 2023.

The decrease in cash generated

by operating activities was the result of an increase in inventories.

This use of cash was partially offset by increases in customer deposits,

increases in accounts payable and accrued expenses and decreases in accounts receivable and prepaid expenses.

In fiscal 2024, we used $2,027,000 of cash compared with using $875,000

in fiscal 2023 for the purchase of inventories, a 132% increase.

Approximately half of this increase aligns with Sono-Tek's 31% revenue

growth, necessitating additional inventory to fulfill order demand efficiently.

Of the remaining half of the inventory increase, approximately

$730,000, stems from finished goods and work-in-progress items associated with three substantial orders associated with high-volume production

These systems boast high average selling prices and lengthy lead times, with all three scheduled for shipment in fiscal year

In addition, approximately $220,000 of finished goods comprise buy-ahead

modules designed to mitigate supply chain challenges.

It's anticipated that this figure will decrease to $110,000 by Q3 FY2025, reflecting

improved supply chain conditions.

Investing Activities – In fiscal 2024, we used

$2,384,000 in our investing activities compared with using $2,811,000 of cash in fiscal 2023.

Capital spending in fiscal 2024 was $795,000

for the purchase or manufacture of equipment, furnishings and leasehold improvements and patent costs.

of cash in our operating activities in fiscal 2025 compared with generating $1,164,000 in fiscal 2024, a decrease of $639,000.

in cash generated by operating activities was the result of an increase in accounts receivable combined with a decrease in customer deposit

These uses of cash were partially offset by a decrease in inventories and an increase in income taxes payable.

In fiscal 2025, our accounts receivable increased $877,000 when compared

to the prior year.

The increase in accounts receivable is primarily due to a large number of sales occurring in the fourth quarter of

In fiscal 2025, customer deposit balances decreased $1,007,000 when

compared to the prior year.

The decrease in customer deposits is primarily due to a large number of shipments occurring in the fourth

quarter of fiscal 2025.

Investing Activities – In fiscal 2025,

our investing activities provided $2,550,000 of cash compared with using $2,384,000 of cash in fiscal 2024.

Capital spending in fiscal

2025 was $469,000 for the purchase or manufacture of equipment, furnishings and leasehold improvements.

This compares with $795,000 for

the purchase of equipment and furnishings in fiscal 2023.

In fiscal 2024, we used $1,589,000 of cash compared with using $2,255,000

for the purchase of marketable securities in fiscal 2023.

the prior year period.

In fiscal 2025, net sales of marketable securities generated $3,019,000

of cash compared with using $1,589,000 for the purchase of marketable securities in fiscal 2024.

Bank Credit Facilities:

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of February 28, 2025, there were no outstanding borrowings under the line of credit.

As of February 29, 2024, $72,000 of the Company’s credit line

was being utilized to collateralize letters of credit issued to customers that have remitted cash deposits to the Company on existing

The unused portion of the credit line was $1,428,000 as of February 29, 2024.

As of February 28, 2025, $106,000 of our credit line was being utilized

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

The unused portion of

the credit line was $1,394,000 as of February 28, 2025.

The letters of credit expire in fiscal year 2025.

We typically disclose our equipment-related backlog at the close of each

fiscal quarter.

However, we have not previously included our services-related backlog, encompassing repair parts, contract coating,

paid applications development time in our laboratories, and purchase orders for planned paid installation commitments, in our reported

backlog figures.

While historically the services-related backlog has represented an insignificant portion of our total backlog in

dollar terms, our strategic focus is aimed at growing this aspect of our business to become significant in the future.

Accordingly, beginning with our fiscal 2024 year-end figures included in

this discussion, we will incorporate service-related backlog into our reported total backlog number and present it separately.

its current size, we believe that service-related backlog holds potential for considerable growth.

At the end of fiscal year 2024,

our total backlog amounted to $9,277,168, comprised of $9,079,422 in equipment backlog and $197,746 in services-related backlog.

At the end of fiscal year 2025, our total backlog

amounted to $8,677,000, comprised of $8,618,000 in equipment backlog and $59,000 in services-related backlog.

Off - Balance Sheet Arrangements

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under different assumptions and conditions.

Management’s estimates and judgements are continually evaluated and are based

on historial experience and expectations regarding future events that are believed to be reasonable under the specific circumstances.

Management’s estimates and judgements are continually evaluated and are based on

historical experience and expectations regarding future events that are believed to be reasonable under the specific circumstances.

Critical accounting estimates are defined as those that are reflective

of significant judgments and uncertainties and may potentially result in materially different results under different assumptions and

As of February 29, 2024, management believes that there are no critical accounting policies applicable to the Company that

are reflective of significant judgments and or uncertainties.

Accounting for Income Taxes

The Company accounts for income taxes under the asset and

liability method.

Under this method, deferred income taxes are recognized for the tax consequences of “temporary

differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement

carrying amounts and the tax basis of existing assets and liabilities.

Based on management’s estimate, if it is more likely

than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

evaluates the valuation allowance based on current estimates and historical experience.

We use a recognition threshold and a measurement

attribute for financial statement recognition and measurement tax positions taken or expected to be taken in a return.

benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

February 29, 2024 and February 28, 2023, there were no uncertain tax provisions.

Stock-Based Compensation

The computation of the expense associated with stock-based compensation

requires the use of a valuation model.

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

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

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

The Company currently uses a Black-Scholes option pricing model

to calculate the fair value of its stock options.

The Company primarily uses historical data to determine the assumptions to be used in

the Black-Scholes model and has no reason to believe that future data is likely to differ materially from historical data.

However, changes

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

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

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

The Company accounts for income taxes under the asset and liability

Under this method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying

enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis

of existing assets and liabilities.

Based on management’s estimate, if it is more likely than not that some portion or all of a

deferred tax asset will not be realized, a valuation allowance is recognized.

Management evaluates the valuation allowance based on current

estimates and historical experience.

We use a recognition threshold and a measurement attribute for financial statement recognition and

measurement tax positions taken or expected to be taken in a return.

For those benefits to be recognized, a tax position must be more

likely than not to be sustained upon examination by taxing authorities.

As of February 28, 2025 and February 29, 2024, there were no uncertain

tax provisions.

Revenue Recognition

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for those goods or services.

Judgement is required when determining at what point in time

control of the Company’s manufactured equipment is transferred to its customers.

Management’s judgement is based on each

customer contract and the transfer of control of the equipment to the customer.

Judgement is required when determining at what point in time control

of the Company’s manufactured equipment is transferred to its customers.

Management’s judgement is based on each customer

contract and the transfer of control of the equipment to the customer.

The sales revenue to be recorded is based on each contract.

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its consolidated financial statements and related disclosures.

In November 2024, the FASB issued issued ASU 2024-03 – Income

Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income

Statement Expenses, which is intended to provide more detailed information about specified about specified categories of expenses (purchases

of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the consolidated

statement of operations.

The guidance in this ASU is effective for fiscal years beginning after December 15, 2026, and interim periods

within fiscal years beginning after December 15, 2027.

Early adoption is permitted.

The Company is currently evaluating the impact the

adoption of this ASU will have on its consolidated financial statements and related disclosures.

Other than ASU 2023-09 discussed above, accounting pronouncements

issued but not yet effective have been deemed to be not applicable or the adoption of such accounting pronouncements is not expected

to have a material impact on the financial statements of the Company.

issued but not yet effective have been deemed to be not applicable or the adoption of such accounting pronouncements is not expected to

have a material impact on the financial statements of the Company.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK – Not Required for Smaller Reporting Companies.

3 unchanged sentences

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 7. Management’s Discussion and Analysis