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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:
OR
|
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No.:
(Exact name of registrant as specified in its charter)
|
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| (State or other jurisdiction of | (IRS Employer |
| incorporation or organization) | Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone no., including area code:
(
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by checkmark whether the registrant has submitted electronically and
posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (section 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
|
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Smaller reporting company
|
|
Emerging Growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). YES
☐
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
| Outstanding as of October 10, 2025 | |
| Class | |
| Common Stock, par value $.01 per share |
SONO-TEK CORPORATION
INDEX
SONO-TEK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
|
August 31,
2025 |
February 28,
2025 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ |
|
$ |
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||||
| Marketable securities |
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|
Accounts receivable (less allowance of $
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| Inventories |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Land |
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| Buildings, equipment, furnishings and leasehold improvements, net |
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| Intangible assets, net |
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| Deferred tax asset |
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||||||
| TOTAL ASSETS | $ |
|
$ |
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||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ |
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$ |
|
||||
| Accrued expenses |
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| Customer deposits |
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| Income taxes payable |
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| Total current liabilities |
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| Deferred tax liability |
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||||||
| Total liabilities |
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||||||
| Commitments and Contingencies (Note 10) | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $ par value; shares authorized, issued and outstanding as of August 31, 2025 and issued and outstanding February 28, 2025, respectively |
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||||||
| Additional paid-in capital |
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||||||
| Accumulated earnings |
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||||||
| Treasury stock, at cost, shares and shares, August 31, 2025 and February 28, 2025, respectively |
(
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) |
(
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) | ||||
| Total stockholders’ equity |
|
|
||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ |
|
$ |
|
||||
See notes to unaudited condensed consolidated financial statements.
1
SONO-TEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
Six Months Ended
August 31, |
Three Months Ended
August 31, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net Sales | $ |
|
$ |
|
$ |
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$ |
|
||||||||
| Cost of Goods Sold |
|
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||||||||||||
| Gross Profit |
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||||||||||||
| Operating Expenses | ||||||||||||||||
| Research and product development costs |
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| Marketing and selling expenses |
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| General and administrative costs |
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| Total Operating Expenses |
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| Operating Income |
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| Interest and Dividend Income |
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| Net unrealized gain on marketable securities |
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| Income Before Income Taxes |
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| Income Tax Expense |
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||||||||||||
| Net Income | $ |
|
$ |
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$ |
|
$ |
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||||||||
| Basic Earnings Per Share | $ |
|
$ |
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$ |
|
$ |
|
||||||||
| Diluted Earnings Per Share | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Weighted Average Shares - Basic |
|
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|
||||||||||||
| Weighted Average Shares - Diluted |
|
|
|
|
||||||||||||
See notes to unaudited condensed consolidated financial statements.
2
SONO-TEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three and Six Months Ended August 31, 2025
|
Common Stock
Par Value $.01 |
|||||||||||||||||||||||
| Shares | Amount |
Additional
Paid – In Capital |
Accumulated
Earnings |
Treasury Stock |
Total Stockholders’
Equity |
||||||||||||||||||
| Balance - February 28, 2025 |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||
| Stock-based compensation expense | — |
|
|
||||||||||||||||||||
| Treasury Stock | — |
(
|
) |
(
|
) | ||||||||||||||||||
| Net Income | — |
|
|
||||||||||||||||||||
| Balance – May 31, 2025 (unaudited) |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||
| Stock-based compensation expense | — |
|
|
||||||||||||||||||||
| Treasury Stock | — |
(
|
) |
(
|
) | ||||||||||||||||||
| Net Income | — |
|
|
||||||||||||||||||||
| Balance – August 31, 2025 (unaudited) |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||
Three and Six Months Ended August 31, 2024
| Common Stock | Additional | Total | |||||||||||||||||
| Par Value $.01 | Paid – In | Accumulated | Stockholders’ | ||||||||||||||||
| Shares | Amount | Capital | Earnings | Equity | |||||||||||||||
| Balance - February 29, 2024 |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
| Stock based compensation expense | — |
|
|
||||||||||||||||
| Net Income | — |
|
|
||||||||||||||||
| Balance, May 31, 2024 (Unaudited) |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
| Stock based compensation expense | — |
|
|
||||||||||||||||
| Cashless exercise of stock options |
|
|
(
|
) | |||||||||||||||
| Net Income | — |
|
|
||||||||||||||||
| Balance, August 31, 2024 (Unaudited) |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
See notes to unaudited condensed consolidated financial statements.
3
SONO-TEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
Six Months Ended
August 31, |
||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income | $ |
|
$ |
|
||||
| Adjustments to reconcile net income to net cash (used in) operating activities: | ||||||||
| Depreciation and amortization |
|
|
||||||
| Stock based compensation expense |
|
|
||||||
| Inventory reserve |
|
|
||||||
| Unrealized gain on marketable securities |
(
|
) |
(
|
) | ||||
| Deferred tax expense (benefit) |
|
(
|
) | |||||
| Decrease (Increase) in: | ||||||||
| Accounts receivable |
(
|
) |
(
|
) | ||||
| Inventories |
|
|
||||||
| Prepaid expenses and other current assets |
|
|
||||||
| (Decrease) Increase in: | ||||||||
| Accounts payable |
(
|
) |
(
|
) | ||||
| Accrued expenses |
|
(
|
) | |||||
| Customer deposits |
(
|
) |
(
|
) | ||||
| Income taxes payable |
(
|
) |
(
|
) | ||||
| Net Cash Used in Operating Activities |
(
|
) |
(
|
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment, furnishings and leasehold improvements |
(
|
) |
(
|
) | ||||
| Sale of marketable securities |
|
|
||||||
| Purchase of marketable securities |
(
|
) |
(
|
) | ||||
| Net Cash (Used in) Provided by Investing Activities |
(
|
) |
|
|||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Purchase of treasury stock |
(
|
) | ||||||
| Net Cash Used in Financing Activities |
(
|
) | ||||||
| NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS |
(
|
) |
|
|||||
| CASH AND CASH EQUIVALENTS: | ||||||||
| Beginning of period |
|
|
||||||
| End of period | $ |
|
$ |
|
||||
| SUPPLEMENTAL CASH FLOW DISCLOSURE: | ||||||||
| Interest paid | $ | $ | ||||||
| Income Taxes Paid | $ |
|
$ |
|
||||
See notes to unaudited condensed consolidated financial statements.
4
SONO-TEK CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 2025 and 2024
NOTE 1: BUSINESS DESCRIPTION
Sono-Tek Corporation (the “Company”, “Sono-Tek”, “We” or “Our”) was incorporated in New York on March 21, 1975. We are 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 and 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.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information with the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended February 28, 2025 (“fiscal year 2025”) contained in the Company’s 2025 Annual Report on Form 10-K filed with the SEC on May 28, 2025 . The Company’s current fiscal year ends on February 28, 2026 (“fiscal 2026”).
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
-
Cash and cash equivalents consist of money
market mutual funds, short term commercial paper and short-term certificates of deposit with original maturities of 90 days or less. At
August 31, 2025, $
Consolidation - The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Sono-Tek Industrial Park, LLC (“SIP”) in conformity with generally accepted accounting principles in the United States (“GAAP”). SIP operates as a real estate holding company for the Company’s real estate operations. All intercompany accounts and transactions have been eliminated in consolidation.
Fair Value of Financial Instruments - The Company applies Accounting Standards Codification (“ASC”) 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
The carrying amounts of financial instruments reported in the accompanying unaudited condensed consolidated financial statements for current assets and current liabilities approximate the fair value because of the immediate or short-term maturities of the financial instruments.
5
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
Level 1 — Assets with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
The fair values of financial assets of the Company were determined using the following categories at August 31, 2025 and February 28, 2025, respectively:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Marketable Securities – August 31, 2025 | $ |
|
$ |
|
$ | $ |
|
|||||||||
| Marketable Securities – February 28, 2025 | $ |
|
$ |
|
$ | $ |
|
|||||||||
Marketable Securities include certificates of deposit and US Treasury securities that are
considered to be highly liquid and easily tradeable totaling $
Income Taxes
- The Company accounts for income taxes under the asset and
liability method. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. If it is more likely than not that some portion or all of a deferred tax asset will
not be realized, a valuation allowance is recognized. The Company uses a recognition threshold and a measurement attribute for financial
statement recognition and measurement of 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 August 31, 2025 and February
28, 2025, there were
On July 4, 2025, the One Big Beautiful Bill Act (the “Act” or “OBBBA”) was signed into law. The Act introduces significant changes to the Internal Revenue Code, including the permanent extension of many provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”) and various new tax incentives and adjustments. The financial reporting implications of the Act were recorded in the income tax provision for the quarter and year to date periods ended August 31, 2025, in accordance with ASC 740, Income Taxes.
The OBBBA did not change the statutory U.S. federal tax rate. Accordingly, the OBBBA did not compel the Company to remeasure its deferred tax assets and liabilities solely because of a rate change. However, the various changes in tax law did impact the Company’s current and deferred tax calculations.
The most significant tax provisions impacting the Company include:
Bonus Depreciation – The Act permanently restores 100% bonus depreciation for qualified property acquired and placed into service after January 19, 2025. This change will likely lead to a reduction in current tax payable for capital expenditures in fiscal year 2026.
6
Research and Development (“R&D) Costs – The Act reinstates the ability for entities to immediately expense domestic R&D costs for tax years beginning after December 31, 2024. Certain small businesses may also retroactively expense R&D costs, which were capitalized under the TCJA during the calendar years 2022 – 2024. The retroactive expensing of these R&D costs may generate tax refunds.
Inventories - Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method for raw materials, subassemblies and work-in-progress and the specific identification method for finished goods. Management compares the cost of inventory with the net realizable value and, if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower than cost. On an ongoing basis, inventory is reviewed for potential write-down for estimated obsolescence or unmarketable inventory based upon forecasts for future demand and market conditions.
Land and Buildings - Land and buildings are stated at cost. Buildings are being depreciated by use of the straight-line method based on an estimated useful life of forty years.
At August 31, 2025 and February 28, 2025, the Company had land stated at cost of $
At August 31, 2025 and February 28, 2025, the Company had buildings, equipment, furnishings
and leasehold improvements totaling, $
Management Estimates - The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements Not Yet Adopted - In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU requires greater disaggregation of information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This ASU applies to all entities subject to income taxes and is intended to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and assess income tax information that affects cash flow forecasts and capital allocation decisions. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. This ASU should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.
In November 2024, the FASB 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 categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the consolidated statement of income. 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.
Product Warranty - Estimated future product warranty expense is recorded when the product is sold.
Revenue Recognition - The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:
| · | Identification of the contract, or contracts, with a customer |
7
| · | Identification of the performance obligations in the contract | |
| · | Determination of the transaction price | |
| · | Allocation of the transaction price to the performance obligations in the contract | |
| · | Recognition of revenue when, or as, performance obligations are satisfied |
NOTE 3: REVENUE RECOGNITION
The Company’s sales revenue is derived primarily from short term contracts with customers, which, are generally in effect for less than twelve months. Sales revenue from manufactured equipment transferred at a single point in time accounts for a majority of the Company’s revenue.
Sales revenue is recognized when control of the Company’s manufactured equipment is transferred to its customers, in an amount that reflects the consideration the Company expects to receive based upon the agreed transaction price. The Company’s performance obligations are satisfied when its customers take control of the purchased equipment, which is based on the contract terms. Based on prior experience, the Company reasonably estimates its sales returns and warranty reserves. Sales are presented net of discounts and allowances. Discounts and allowances are determined when a sale is negotiated. The Company does not grant its customers or independent representatives, the ability to return equipment nor does it grant price adjustments after a sale is complete.
The Company does not capitalize any sales commission costs related to the acquisition of a contract. All commissions related to a performance obligation that are satisfied at a point in time are expensed when the customer takes control of the purchased equipment.
The Company applies the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one-year or less.
At August 31, 2025, the Company had received approximately $
At February 28, 2025, the Company had received approximately $
The Company’s sales revenue by product line is as follows:
| Three Months Ended August 31, | Six Months Ended August 31, | |||||||||||||||||||||||
| 2025 | % of total | 2024 | % of total | 2025 | % of total | 2024 | % of total | |||||||||||||||||
| Fluxing Systems | $ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
||||||||||||
| In-Line Coating Systems |
|
|
|
|
|
|
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|
||||||||||||||||
| Multi-Axis Coating Systems |
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|
|
|
|
|
|
|
||||||||||||||||
| OEM Systems |
|
|
|
|
|
|
|
|
||||||||||||||||
| Spare Parts, Services and Other |
|
|
|
|
|
|
|
|
||||||||||||||||
| TOTAL | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
NOTE 4: INVENTORIES
Inventories consist of the following:
| August 31, | February 28, | |||||||
| 2025 | 2025 | |||||||
| Raw materials and subassemblies | $ |
|
$ |
|
||||
| Finished goods |
|
|
||||||
| Work in process |
|
|
||||||
| Total | $ |
|
$ |
|
||||
8
The Company maintains a valuation allowance for slow moving inventory for raw materials
and finished goods. The valuation allowance creates a new cost basis for the inventory, and it is
not
subsequently marked
up through a reduction in the valuation allowance based on any changes in the underlying facts and circumstances. When the valuation allowance
is initially recorded, the increase to the allowance is recognized as an increase in cost of sales. The valuation allowance is only reduced
if or when the underlying inventory is sold or destroyed, at which time cost of sales recognized would include the previous adjusted
cost basis. During the six months ended August 31, 2025 and August 31, 2024, the Company recorded approximately $
Stock Options - In May 2023, the Company’s Board of Directors authorized the creation of the 2023 Stock Incentive Plan (the “2023 Plan”) pursuant to which the Company may grant up to options or shares to officers, directors, employees and consultants of the Company and its subsidiaries. The Company’s shareholders approved the adoption of the 2023 Plan in August 2023. The 2023 Plan replaced the 2013 Stock Incentive Plan (the “2013 Plan”) under which no additional options or shares could be granted after June 2023. At August 31, 2025, and options were outstanding, respectively, under the 2023 Plan and the 2013 Plan.
The Company accounts for stock-based compensation under ASC 718, “Share Based Payments”, which requires companies to expense the value of employee stock options and similar awards. The Company accounts for forfeitures as they occur.
During the six months ended August 31, 2025, the Company granted options to acquire shares to employees exercisable at prices ranging from $ to $ and options to acquire shares to non-employee members of the board of directors with an exercise price of $ . The options granted to employees and directors vest over three years and expire ten years from the date of issuance. The options granted during the first six months of fiscal 2026 had a combined weighted average grant date fair value of $ per share.
|
Six Months Ended
August 31, 2025 |
||
| Expected Life | - years | |
| Risk free interest rate | - | |
| Expected volatility | - | |
| Expected dividend yield |
For the three and six months ended August 31, 2025, the Company recognized $ and $ in stock-based compensation expense, respectively. Such amounts are included in general and administration expenses on the unaudited condensed consolidated statements of income. For the three and six months ended August 31, 2024, the Company recognized approximately $ and $ of stock-based compensation expense, respectively. Total compensation expense related to non-vested options not yet recognized as of August 31, 2025 was $ and will be recognized over the next three years based on vesting date. The amount of future stock option compensation expense could be affected by any future option grants or by any forfeitures.
The aggregate intrinsic value of the Company’s vested and exercisable options at August 31, 2025 was approximately $ .
9
|
Six Months Ended
August 31, |
Three Months Ended
August 31, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Numerator for basic and diluted earnings per share | $ |
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$ |
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$ |
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$ |
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| Denominator for diluted earnings per share |
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| Basic Earnings Per Share | $ |
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$ |
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$ |
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$ |
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| Diluted Earnings Per Share | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
NOTE 7: REVOLVING LINE OF CREDIT
The Company has a $
As of August 31, 2025, $
The Company has a $
NOTE 8: CUSTOMER CONCENTRATIONS AND FOREIGN SALES
Export sales to customers located outside the United States and Canada were approximately as follows:
|
Six Months Ended
August 31, |
Three Months Ended
August 31, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Asia Pacific (APAC) | $ |
|
$ |
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$ |
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$ |
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| Europe, Middle East, Asia (EMEA) |
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| Latin America |
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| $ |
|
$ |
|
$ |
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$ |
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During the first half of fiscal 2026 and fiscal 2025, sales to foreign customers accounted
for approximately $
During the second quarter of fiscal 2026 and fiscal 2025, sales to foreign customers accounted
for approximately $
10
The Company had one customer which accounted for
The Company had one customer which accounted for
NOTE 9: SEGMENT DATA
The Company operates in one segment. The chief operating decision maker, who is responsible for allocating resources and assessing performance, has been identified as the Chief Executive Officer (the “CODM”). The CODM assesses the financial performance of the Company and decides how to allocate resources based on Operating income.
The following table presents the Company’s segment data (rounded to the nearest thousand):
11
|
Six Months Ended
August 31, |
Three Months Ended
August 31, |
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| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net Sales | $ |
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$ |
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$ |
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| Materials & Freight |
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| Outside Installations |
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(
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| Misc Other |
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(
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(
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| Total Operating Expenses |
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| Operating Income |
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| Interest Income & Unrealized Gain |
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| Income Before Taxes |
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| Income Tax Expense |
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| Net Income | $ |
|
$ |
|
$ |
|
$ |
|
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12
NOTE 10: COMMITMENTS AND CONTINGENCIES
The Company did not have any material commitments or contingencies as of August 31, 2025.
The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition, and cash flows. As of August 31, 2025, the Company did not have any pending legal actions.
13
ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
We discuss expectations regarding our future performance, such as our business outlook, in our annual and quarterly reports, news releases, and other written and oral statements. These “forward-looking statements” are based on currently available competitive, financial and economic data and our operating plans. They are inherently uncertain, and investors must recognize that events could turn out to be significantly different from our expectations and could cause actual results to differ materially. These factors include, among other considerations, general economic and business conditions; political, regulatory, tax, competitive and technological developments affecting our operations or the demand for our products; inflationary and supply chain pressures; the recovery of the Electronics/Microelectronics and Medical markets; rebound of sales to the industrial market in the second quarter of fiscal year 2026; maintenance of increased order backlog; the imposition of tariffs; timely development and market acceptance of new products and continued customer validation of our coating technologies; adequacy of financing; capacity additions, the ability to enforce patents; maintenance of operating leverage; consummation of order proposals; completion of large orders on schedule and on budget; continued sales growth in the medical and alternative energy markets; successful transition from primarily selling ultrasonic nozzles and components to a more complex business providing complete machine solutions and higher value subsystems which are sold at higher average selling prices (“ASP”); and realization of quarterly and annual revenues within the forecasted range of sales guidance.
We undertake no obligation to update any forward-looking statement.
Overview
Founded in 1975, Sono-Tek Corporation is a global leader in designing and manufacturing ultrasonic coating systems that are shaping industries and driving innovation worldwide. Our ultrasonic coating systems are used to apply thin films onto parts used in diverse industries, including microelectronics, alternative energy, medical devices, advanced industrial manufacturing, and research and development sectors worldwide. Sono-Tek’s move into the clean energy sector is showing transformative results in next-gen solar cells, fuel cells, green hydrogen generation, and carbon capture applications as we shape a sustainable future.
Our product line is rapidly evolving, transitioning from R&D to high-volume production machines with significantly higher average selling prices, showcasing our market leadership and adaptability. Over the last decade, we have shifted our business from primarily selling ultrasonic nozzles and components to providing complete machine solutions and higher-value subsystems to original equipment manufacturers (OEMs). This strategy has resulted in significant growth of our average unit selling price, with our larger machines often selling for over $300,000 and system prices sometimes reaching over $1,000,000. Consequently, we have broadened our addressable market and believe we can grow sales on a larger scale. We expect that we will experience wide variations in both order flow and shipments from quarter to quarter.
Our comprehensive suite of thin film coating solutions and application consulting services, provided by our expert applications engineers to guide our customers in developing the complete coating process, ensures unparalleled results for our clients and help some of the world’s most promising companies achieve technological breakthroughs and bring them to market. In anticipation of customer demands, our significant focus on R&D efforts allows us to keep pace with industry trends while continuously innovating. We strategically deliver our products through a network of direct sales personnel, carefully chosen independent distributors, and experienced sales representatives located in North America, Latin America, Europe, and Asia, ensuring efficient market reach across diverse sectors around the globe. Approximately 47% of our sales were generated outside the United States and Canada in the first six months of fiscal year 2026.
14
We continue to expand our sales capabilities by increasing the size of our direct sales force and adding new distributors and sales representatives. In addition, we have established testing labs at our distribution partner sites in China, Taiwan, Germany, Turkey, Korea, and Japan, while also expanding our first testing lab co-located with our manufacturing facilities in New York. These labs provide significant value for demonstrating the capabilities of our equipment to prospective customers and enable us to develop custom solutions to meet their needs.
Our growth strategy is focused on leveraging our innovative technologies, proprietary know-how, unique talent and experience, and global reach to develop thin-film coating technologies that enable better outcomes for our customers’ products and processes.
Second Quarter Fiscal 2026 Highlights (compared with the second quarter of fiscal 2025 unless otherwise noted) We refer to the three-month periods ended August 31, 2025 and 2024 as the second quarter of fiscal 2026 and fiscal 2025, respectively.
| · | Net Sales for the quarter were $5,163,000, up slightly year over year, compared to $5,162,000 for the prior year period. | |
| · | Gross Profit increased 3% or $74,000 to $2,590,000 and the Gross Profit % increased 150 basis points to 50.2% due to a favorable product mix of mature high ASP systems with reduced costs and favorable warranty expenses in the current period. | |
| · | Operating income increased significantly by 47% or $135,000, to $421,000 due to the increase in gross profit combined with a decrease in operating expenses. | |
| · | Interest and dividend income remained steady at $82,000 for the second quarter of fiscal year 2026. | |
| · | Combined equipment and service-related backlog on August 31, 2025 remained robust at $11,210,000, 2% below the prior year record. Sequentially, backlog increased 50% from the first quarter of fiscal 2026, reflecting new order momentum from the medical market. |
First Half Fiscal 2026 Highlights (compared with the first half of fiscal 2025 unless otherwise noted) We refer to the six-month periods ended August 31, 2025 and 2024 as the first half of fiscal 2026 and fiscal 2025, respectively.
| · | Net Sales for the first half of fiscal 2026 increased by 1% or $103,000 to $10,296,000, achieving growth guidance even with a customers requested shipment delay. | |
| · | Gross Profit increased 6% to $5,254,000, and the Gross Profit % increased 220 basis points to 51% primarily due to product mix and favorable warranty expenses in the current period. | |
| · | Operating Income increased 73% or $381,000 to $905,000, underscoring operating leverage from stronger gross profit and a decrease in operating expenses. | |
| · | Interest and dividend income remained steady at $224,000 for the first half of fiscal year 2026. | |
| · | As of August 31, 2025, the Company had no outstanding debt and had cash, cash equivalents and marketable securities totaling $10.6 million. |
15
RESULTS OF OPERATIONS
Sales:
Product Sales
|
Three Months Ended
August 31, |
Change |
Six Months Ended
August 31, |
Change | |||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | |||||||||||||||||||||||||
| Fluxing Systems | $ | 165,000 | $ | 119,000 | 46,000 | 39% | $ | 317,000 | $ | 253,000 | 64,000 | 25% | ||||||||||||||||||||
| In-Line Coating Systems 1 | 1,530,000 | 2,023,000 | (493,000 | ) | (24% | ) | 4,584,000 | 2,770,000 | 1,814,000 | 65% | ||||||||||||||||||||||
| Multi-Axis Coating Systems | 2,030,000 | 1,931,000 | 99,000 | 5% | 2,707,000 | 4,595,000 | (1,888,000 | ) | (41% | ) | ||||||||||||||||||||||
| OEM Systems | 394,000 | 205,000 | 189,000 | 92% | 524,000 | 537,000 | (13,000 | ) | (2% | ) | ||||||||||||||||||||||
| Spare Parts, Services and Other | 1,044,000 | 884,000 | 160,000 | 18% | 2,164,000 | 2,038,000 | 126,000 | 6% | ||||||||||||||||||||||||
| TOTAL | $ | 5,163,000 | $ | 5,162,000 | 1,000 | 0% | $ | 10,296,000 | $ | 10,193,000 | 103,000 | 1% | ||||||||||||||||||||
| 1. | During the current reporting period, the Company updated the title of its product category previously referred to as “Integrated Coating Systems” to “In-Line Coating Systems.” This change was made to provide greater clarity in describing this product line of our business. The definition and contents of this category remain unchanged. In-Line Coating Systems include Sono-Tek products that are typically stationary platforms with minimal motion control, and may occasionally incorporate a simple axis of movement such as a rotation fixture. These systems are commonly installed over moving substrates such as conveyors or webs, which may be provided either by Sono-Tek or by the customer. They often employ multiple ultrasonic nozzles to provide uniform coverage over larger areas in continuous production environments. In-Line Coating Systems are unlike our Multi-Axis Coating Systems, which commonly utilize XYZ motion platforms or 6+ axis robotic configurations. |
In-Line Coating Systems declined 24% in the second quarter of fiscal 2026 compared to the prior year period, primarily due to a customer-requested shipment delay. Despite this quarterly dip, In-Line Coating Systems posted strong growth of 65% during the first half of fiscal 2026, driven by six high ASP solar coating system shipments totaling $4.4 million. Multi-Axis Coating Systems increased modestly by 5% in the second quarter of fiscal 2026 but decreased 41% in the first half of fiscal 2026 following a particularly strong first half of fiscal 2025 that included significant semiconductor-related orders that did not repeat in the current period. OEM Systems rose 92% in the second quarter of fiscal 2026 on strong OEM fluxer demand and new optics-related OEM wins, though first half of fiscal 2026 results were relatively flat. Fluxing Systems improved 39% in the second quarter of fiscal 2026 and 25% for the first half of fiscal 2026 influenced by strong fluxer sales in Asia.
Market Sales
|
Three Months Ended
August 31, |
Change |
Six Months Ended
August 31, |
Change | |||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | |||||||||||||||||||||||||
| Electronics/Microelectronics | $ | 1,455,000 | $ | 1,477,000 | (22,000 | ) | (1% | ) | $ | 2,399,000 | $ | 3,045,000 | (646,000 | ) | (21% | ) | ||||||||||||||||
| Medical | 1,004,000 | 402,000 | 602,000 | 150% | 1,812,000 | 1,259,000 | 553,000 | 44% | ||||||||||||||||||||||||
| Alternative/Clean Energy | 2,433,000 | 2,498,000 | (65,000 | ) | (3% | ) | 5,681,000 | 4,780,000 | 901,000 | 19% | ||||||||||||||||||||||
| Emerging R&D and Other | 33,000 | 30,000 | 3,000 | 10% | 47,000 | 41,000 | 6,000 | 15% | ||||||||||||||||||||||||
| Industrial | 238,000 | 755,000 | (517,000 | ) | (68% | ) | 357,000 | 1,068,000 | (711,000 | ) | (67% | ) | ||||||||||||||||||||
| TOTAL | $ | 5,163,000 | $ | 5,162,000 | 1,000 | 0% | $ | 10,296,000 | $ | 10,193,000 | 103,000 | 1% | ||||||||||||||||||||
Medical sales surged 150% in the second quarter of fiscal 2026, led by balloon coating system shipments across the U.S., Europe, and China, with growth of 44% in the first half of fiscal 2026, including both balloon and stent coating systems. Industrial sales declined 68% in the second quarter of fiscal 2026 and 67% in the first half of fiscal 2026, influenced by a large float glass coating order in the first half of fiscal 2025 that did not repeat. Alternative Energy sales were essentially flat in the second quarter of fiscal 2026, though up 19% for the first half of fiscal 2026 on strong solar system shipments. Electronics sales remained relatively steady in the second quarter of fiscal 2026 but declined 21% for the first half of fiscal 2026 due to lower semiconductor demand compared to last year’s elevated levels.
16
Geographic Sales
|
Three Months Ended
August 31, |
Change |
Six Months Ended
August 31, |
Change | |||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | |||||||||||||||||||||||||
| U.S. & Canada | $ | 2,720,000 | $ | 3,495,000 | (775,000 | ) | (22% | ) | $ | 6,263,000 | $ | 6,587,000 | (324,000 | ) | (5% | ) | ||||||||||||||||
| Asia Pacific (APAC) | 930,000 | 368,000 | 562,000 | 153% | 1,527,000 | 880,000 | 647,000 | 74% | ||||||||||||||||||||||||
| Europe, Middle East, Asia (EMEA) | 1,424,000 | 1,136,000 | 288,000 | 25% | 2,321,000 | 2,381,000 | (60,000 | ) | (3% | ) | ||||||||||||||||||||||
| Latin America | 89,000 | 163,000 | (74,000 | ) | (45% | ) | 185,000 | 345,000 | (160,000 | ) | (46% | ) | ||||||||||||||||||||
| TOTAL | $ | 5,163,000 | $ | 5,162,000 | 1,000 | 0% | $ | 10,296,000 | $ | 10,193,000 | 103,000 | 1% | ||||||||||||||||||||
In the first half of fiscal 2026, approximately 39% of sales originated outside of the United States and Canada compared with 35% in the first half of fiscal 2025.
In the second quarter of fiscal 2026, approximately 47% of sales originated outside of the United States and Canada compared with 32% in the second quarter of fiscal 2025.
Asia Pacific sales increased sharply, up 153% in the quarter and 74% year-to-date, led by medical coating device demand in China and alternative energy orders in Japan and South Korea. U.S. and Canada sales declined 22% in the second quarter of fiscal 2026 and 5% for the first half of fiscal 2026, reflecting weaker green energy demand from the US compared to prior year periods. Latin America declined 45% in the second quarter of fiscal 2026 and 46% in the first half of fiscal 2026, reflecting slow activity of PCB fluxing systems in Mexico.
Gross Profit:
|
Three Months Ended
August 31, |
Change |
Six Months Ended
August 31, |
Change | |||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | |||||||||||||||||||||||||
| Net Sales | $ | 5,163,000 | $ | 5,162,000 | 1,000 | 0% | $ | 10,296,000 | $ | 10,193,000 | 103,000 | 1% | ||||||||||||||||||||
| Cost of Goods Sold | 2,573,000 | 2,646,000 | (73,000 | ) | (3%) | 5,042,000 | 5,222,000 | (180,000) | (3% | ) | ||||||||||||||||||||||
| Gross Profit | $ | 2,590,000 | $ | 2,516,000 | 74,000 | 3% | $ | 5,254,000 | $ | 4,971,000 | 283,000 | 6% | ||||||||||||||||||||
| Gross Profit % | 50.2% | 48.7% | 51.0% | 48.8% | ||||||||||||||||||||||||||||
For the second quarter of fiscal 2026, gross profit increased by $74,000, or 3%, compared with the prior year period. The gross profit percentage was 50.2% compared with 48.7% for the prior year period. The increase in the gross profit percentage was influenced by product mix and favorable warranty expenses in the period.
For the first half of fiscal 2026, gross profit increased by $283,000, or 6%, to $5,254,000 compared with $4,971,000 in the first half of fiscal 2025. The gross profit percentage was 51.0% compared with 48.8% for the prior year period. The increase in the gross profit percentage was influenced by product mix and favorable warranty expenses in the period. This included significant sales of In-Line Coating Systems tied to repeat high ASP orders that shipped to a U.S. based customer, where sales typically involve minimal distributor discounts supporting stronger margins.
Operating Expenses:
|
Three Months Ended
August 31, |
Change |
Six Months Ended
August 31, |
Change | |||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | |||||||||||||||||||||||||
| Research and product development | $ | 627,000 | $ | 696,000 | (69,000 | ) | (10% | ) | $ | 1,296,000 | $ | 1,427,000 | (131,000 | ) | (9% | ) | ||||||||||||||||
| Marketing and selling | 871,000 | 988,000 | (117,000 | ) | (12% | ) | 1,730,000 | 1,886,000 | (156,000 | ) | (8% | ) | ||||||||||||||||||||
| General and administrative | 670,000 | 546,000 | 124,000 | 23% | 1,324,000 | 1,133,000 | 191,000 | 17% | ||||||||||||||||||||||||
| Total Operating Expenses | $ | 2,168,000 | $ | 2,230,000 | (62,000 | ) | (3% | ) | $ | 4,350,000 | $ | 4,446,000 | (96,000 | ) | (2% | ) | ||||||||||||||||
17
Research and Product Development:
Research and product development costs decreased in both the second quarter and the first half of fiscal 2026 due to a decrease in salary expense associated with the departure of a senior engineer, research and development materials, supplies and insurance expense. These decreases were partially offset by additional lab salaries.
Marketing and Selling :
Marketing and selling expenses decreased in both the second quarter and the first half of fiscal 2026 due to a decrease in salary expense related to the departure of a salesperson and a decrease in trade show expenses and travel and entertainment expenses. These decreases were partially offset by an increase in salaries related to our sales application lab. Our sales and marketing costs are variable, and a large portion of the costs are dependent upon trade shows and where geographically our sales are generated. We anticipate that our costs will increase in the future as we increase our trade show presence and the potential change in geographic origin of our sales from our in-house sales team to our external distributors.
In the second quarter and first half of fiscal 2026, commission expense decreased approximately $36,000 and $79,000, respectively. The decline was driven by a higher mix of sales closed directly by our in-house team. Our in-house team earns a consistent commission percentage on all sales; when sales are made through distributors or manufacturer representatives, we also incur their additional commissions (and related channel costs), which increases total selling costs. The shift toward direct sales reduced those third-party costs in the current period.
General and Administrative:
General and administrative expenses increased in both the second quarter and first half of fiscal 2026 due to increases in salaries, corporate investor coverage, corporate expenses and stock-based compensation. These increases were partially offset by decreases in legal and accounting fees.
Operating Income :
In the second quarter of fiscal 2026, operating income increased $135,000, or 47%, to $421,000 compared with $286,000 for the second quarter of fiscal 2025. Operating margin for the quarter increased to 8% compared with 6% in the prior year period. In the second quarter of fiscal 2026, an increase in gross profit, combined with a decrease in operating expenses were key factors in the increase of operating income.
In the first half of fiscal 2026, operating income increased $381,000, to $905,000, compared with $524,000 for the first half of fiscal 2025. Operating margin for the first half of fiscal 2026 increased to 9% compared with 5% in the prior year period. In the first half of fiscal 2026, an increase in gross profit, combined with a decrease in operating expenses were key factors in the increase of operating income.
Interest, Dividend Income and Unrealized Gain:
Interest and dividend income remained steady at $82,000 in the second quarter of fiscal 2026 as compared with $85,000 for the second quarter of fiscal 2025. In the first half of fiscal 2026 interest and dividend income decreased by $4,000 to $224,000 as compared with $228,000 for the first half of fiscal 2025. Our present investment policy is to invest excess cash in highly liquid, lower risk US Treasury securities. At August 31, 2025, the majority of our holdings are rated at or above investment grade.
Net unrealized gain decreased $21,000 to $23,000 in the second quarter of fiscal 2026 as compared to $44,000 in the second quarter of fiscal 2025. In the first half of fiscal 2026, unrealized gain decreased $52,000 to $2,000 as compared with $54,000 in the first half of fiscal 2026.
Income Tax Expense:
We recorded income tax expense of $103,000 for the second quarter of fiscal 2026 compared with $74,000 for the second quarter of fiscal 2025. For the first half of fiscal 2026, we recorded income tax expense of $221,000 compared with $134,000 for the first half of fiscal 2025.
18
The increase in income tax expense in the second quarter fiscal 2026 is due to the increase in income before income taxes combined with an increase in permanent timing differences. These increases were partially offset by the reduction of income taxes due to the application of available research and development tax credits from this quarter’s research and development expenditures.
The deferred tax asset decreased approximately $158,000, to $1,367,000 at August 31, 2025 from $1,525,000 at February 28, 2025. Additionally, the deferred tax liability decreased approximately $44,000, to $88,000 at August 31, 2025 from $132,000 at February 28, 2025. The net decrease in the deferred tax asset and liability was approximately $202,000 for the first half of fiscal 2026. This decrease is primarily due to the retroactive expensing of research and development expenses that were capitalized for tax purposes, prior to the enactment of the One Big Beautiful Bill Act (the “Act” or “OBBBA”) on July 4. 2025.
The Act introduces significant changes to the Internal Revenue Code, including the permanent extension of many provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”) and various new tax incentives and adjustments. The financial reporting implications of the Act were recorded in the income tax provision for the quarter and year to date periods ended August 31, 2025, in accordance with ASC 740, Income Taxes.
The OBBBA did not change the statutory U.S. federal tax rate. Accordingly, the OBBBA did not compel us to remeasure our deferred tax assets and liabilities solely because of a rate change. However, the various changes in tax law did impact our current and deferred tax calculations.
The most significant tax provisions impacting us include:
Bonus Depreciation – The Act permanently restores 100% bonus depreciation for qualified property acquired and placed into service after January 19, 2025. This change will likely lead to a reduction in current tax payable for capital expenditures in fiscal year 2026.
Research and Development (“R&D) Costs – The Act reinstates the ability for entities to immediately expense domestic R&D costs for tax years beginning after December 31, 2024. Certain small businesses may also retroactively expense R&D costs, which were capitalized under the TCJA during the calendar years 2022 – 2024. The retroactive expensing of these R&D costs may generate tax refunds.
Net Income:
Net income increased by $83,000 to $424,000 for the second quarter of fiscal 2026 compared with $341,000 for the second quarter of fiscal 2025. The increase in net income during the second quarter is primarily a result of an increase in gross profit combined with a decrease in operating expenses, partially offset by an increase in income tax expense.
Net income increased by $237,000 to $909,000 for the first half of fiscal 2026 compared with $672,000 for the first half of fiscal 2025. The increase in net income during the first half of fiscal 2026 is primarily a result of an increase in gross profit combined with a decrease in operating expenses, partially offset by an increase in income tax expense.
Liquidity and Capital Resources
Working Capital – Our working capital increased $1,219,000 to $14,720,000 at August 31, 2025 from $13,501,000 at February 28, 2025. The increase in working capital was mostly the result of the current period’s net income and noncash charges partially offset by purchases of equipment.
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We aggregate cash and cash equivalents and marketable securities in managing our balance sheet and liquidity. For purposes of the following analysis, the total is referred to as “Cash.” At August 31, 2025 and February 28, 2025, our working capital included:
|
August 31,
2025 |
February 28,
2025 |
Cash
Increased (Decrease) |
||||||||||
| Cash and cash equivalents | $ | 3,832,000 | $ | 5,202,000 | $ | (1,370,000 | ) | |||||
| Marketable securities | 6,736,000 | 6,728,000 | 8,000 | |||||||||
| Total | $ | 10,568,000 | $ | 11,930,000 | $ | (1,362,000 | ) | |||||
The following table summarizes the accounts and the major reasons for the $1,362,000 decrease in “Cash”:
|
Impact on
Cash |
Reason | |||||
| Net income, adjusted for non-cash items | $ | 1,550,000 | To reconcile increase in cash. | |||
| Accounts receivable increase | (1,865,000 | ) | Timing of cash receipts. | |||
| Inventories decrease | 255,000 | Decrease in inventory due to completed sales. | ||||
| Customer deposits decrease | (506,000 | ) | Decrease due to completed sales. | |||
| Accounts payable decrease | (245,000 | ) | Timing of disbursements. | |||
| Accrued expenses increase | 134,000 | Timing of disbursements. | ||||
| Prepaid and Other Assets decrease | 47,000 | Decrease in prepaid expenses. | ||||
| Income tax payable decrease | (468,000 | ) | Timing of disbursements. | |||
| Equipment purchases | (113,000 | ) | Equipment and facilities upgrade. | |||
| Treasury stock purchases | (151,000 | ) | Purchase of treasury stock. | |||
| Net decrease in cash | $ | (1,362,000 | ) | |||
Stockholders’ Equity – Stockholders’ Equity increased $904,000 from $17,792,000 at February 28, 2025 to $18,696,000 at August 31, 2025. The increase is a result of the current period’s net income of $909,000 and $146,000 in additional equity related to stock-based compensation awards. These increases were partially offset by treasury stock purchases of $151,000. The details of stock-based compensation awards are explained in Note 5 in our financial statements.
Operating Activities – We used $1,099,000 of cash in our operating activities in the first half of fiscal 2026 compared to using $90,000 of cash in the first half fiscal 2025, an increase of $1,009,000. The increase in cash used in our operating activities was the result of an increase in accounts receivable combined with decreases in accounts payable, income taxes payable and customer deposit balances.
During the past year, we have experienced a shift in customer mix toward larger, more financially stable companies that generally operate under stricter standard payment terms. As a result, customer deposits decreased and accounts receivable increased, reflecting a normalization of payment practices relative to prior years when we secured high upfront deposits.
In the first half of fiscal year 2026, our accounts receivable increased $1,865,000 when compared to the prior year period. The increase in accounts receivable is primarily due to revised payment terms provided to one customer that purchased six units during the first half of fiscal year 2026, with a total sales price of $4.4 million. After completion of the first quarter of fiscal year 2026, the customer requested a modification to the timing of one of their scheduled payments due to a shift in their production plans from overseas to the United States. Because we have already collected a significant cash down payment on the order and we anticipate only a modest delay of approximately two months on a portion of the next payment, we accommodated the customer’s request. The customer has indicated that they will return to the originally agreed payment schedule thereafter. Based on our long-standing relationship and ongoing communications, we do not currently foresee any collection issues with this customer.
In the first half of fiscal year 2026, our inventories decreased $255,000 when compared to the prior year. The decrease in inventories is due to the completion of customer orders in the second half of fiscal 2026.
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In the second half of fiscal year 2026, our income taxes payable decreased $252,000 when compared to the prior year. The decrease in income taxes payable is due to cash payments on our current year tax returns and required estimated payments.
Investing Activities – For the first half of fiscal year 2026, our investing activities used $120,000 of cash compared with providing $3,808,000 for the first half of fiscal 2025. For the first half of fiscal years 2026 and 2025, we used $113,000 and $191,000, respectively, for the purchase or manufacture of equipment, furnishings and leasehold improvements.
In the first half of fiscal year 2026, net purchases of marketable securities used $8,000 of cash compared with providing $3,999,000 from the net sales of marketable securities in the prior year period.
Financing Activities – In the first half of fiscal year 2026, we used $151,000 of cash for the purchase of treasury stock.
Net Decrease in Cash and Cash Equivalents – In the first half of fiscal 2026, our cash balance decreased by $1,370,000 as compared to an increase of $3,718,000 in the first half of fiscal 2025. In the first half of fiscal 2026, our operating activities used $1,099,000 of cash and purchases of our marketable securities used $8,000. In addition, we used $113,000 for the purchase or manufacture of equipment, furnishings and leasehold improvements and we used $151,000 for the purchase of treasury stock.
Critical Accounting Estimates
The discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Management’s estimates and judgments 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 conditions. The Company believes that critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies see Note 2 to the Company’s consolidated financial statements included in Form 10-K for the year ended February 28, 2025.
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. 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. 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 August 31, 2025 and August 31, 2024, there were no uncertain tax provisions.
On July 4, 2025, the One Big Beautiful Bill Act (the “Act” or “OBBBA”) was signed into law. The Act introduces significant changes to the Internal Revenue Code, including the permanent extension of many provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”) and various new tax incentives and adjustments. The financial reporting implications of the Act were recorded in the income tax provision for the quarter and year to date periods ended August 31, 2025, in accordance with ASC 740, Income Taxes.
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The OBBBA did not change the statutory U.S. federal tax rate. Accordingly, the OBBBA did not compel the Company to remeasure its deferred tax assets and liabilities solely because of a rate change. However, the various changes in tax law did impact the Company’s current and deferred tax calculations.
The most significant tax provisions impacting the Company include:
Bonus Depreciation – The Act permanently restores 100% bonus depreciation for qualified property acquired and placed into service after January 19, 2025. This change will likely lead to a reduction in current tax payable for capital expenditures in fiscal year 2026.
Research and Development (“R&D) Costs – The Act reinstates the ability for entities to immediately expense domestic R&D costs for tax years beginning after December 31, 2024. Certain small businesses may also retroactively expense R&D costs, which were capitalized under the TCJA during the calendar years 2022 – 2024. The retroactive expensing of these R&D costs may generate tax refunds.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services.
Judgment is required when determining at what point in time control of the Company’s manufactured equipment is transferred to its customers. Management’s judgment 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.
Impact of New Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU requires greater disaggregation of information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This ASU applies to all entities subject to income taxes and is intended to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and assess income tax information that affects cash flow forecasts and capital allocation decisions. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.
In November 2024, the FASB 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 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 and ASU 2024-03 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.
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ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
The Company does not issue or invest in financial instruments or derivatives for trading or speculative purposes. Substantially all of the operations of the Company are conducted in the United States, and, as such, are not subject to material foreign currency exchange rate risk. All of our sales transactions are completed in US dollars.
Although the Company's assets included $3,832,000 in cash and $6,736,000 in marketable securities, the market rate risk associated with changing interest rates in the United States is not material.
ITEM 4 – Controls and Procedures
The Company has established and maintains “disclosure controls and procedures” (as those terms are defined in Rules 13a –15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”). R. Stephen Harshbarger, Chief Executive Officer (principal executive) and Stephen J. Bagley, Chief Financial Officer (principal accounting officer) of the Company, have evaluated the Company’s disclosure controls and procedures as of August 31, 2025. Based on this evaluation, they have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to Management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding timely disclosure.
In addition, there were no changes in the Company’s internal controls over financial reporting during the second fiscal quarter of fiscal year 2026 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
There are no material changes from risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended February 28, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| Issuer Purchases of Equity Securities Pursuant to Stock Repurchase Program (1) | ||||||||
| Period |
Total number
of shares purchased (2) |
Average
price paid per share |
Total number of shares purchased as part of publicly announced plans or programs (2) | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs | ||||
| Month #4 (June 1, 2025 through June 30, 2025) | - | - | - | — | ||||
| Month #5 (July 1, 2025 through July 31, 2025) | 8,832 | $3.50 | 8,832 | — | ||||
| Month #6 (August 1, 2025 through August 31, 2025). | 11,808 | $3.41 | 11,808 | — | ||||
| Total | 20,640 | $71,166 | 20,640 | $1,841,011 | ||||
| (1) | On November 4, 2024, we announced that we had authorized a Stock Repurchase Program to acquire up to $2,000,000 of our outstanding common stock. We formally established the Stock Repurchase Program on January 21, 2025. The Stock Repurchase Program shall remain in place for a one-year period expiring on January 21, 2026, unless sooner terminated by its terms. |
| (2) | Represents shares repurchased through the Stock Repurchase Program. We did not acquire any shares outside of the Stock Repurchase Program. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
| (a) | None | |
| (b) | There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors. | |
| (c) |
During the quarter ended August 31, 2025,
|
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Item 6. Exhibits and Reports
| 31.1 – 31.2 | Rule 13a - 14(a)/15d – 14(a) Certification |
| 32.1 – 32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104 | Cover page formatted as Inline XBRL and contained in Exhibit 101 |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: October 14, 2025
| SONO-TEK CORPORATION | |||
| (Registrant) | |||
| By: | /s/ R. Stephen Harshbarger | ||
| R. Stephen Harshbarger | |||
| Chief Executive Officer | |||
| By: | /s/ Stephen J. Bagley | ||
| Stephen J. Bagley | |||
| Chief Financial Officer | |||
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