SONO TEK CORP

Previous wording

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.

Current wording

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 fourth quarter of fiscal year 2026; continued depletion of excess inventory created by our OEM Partners; continued positive impact of recent distributor changes on Printed Circuit Board revenues; 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.

Previous wording

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.

Current wording

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, ensure 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 37% of our sales were generated outside the United States and Canada in the first nine months of fiscal year 2026.

Previous wording

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.

Current wording

Third Quarter Fiscal 2026 Highlights (compared with the third quarter of fiscal 2025 unless otherwise noted) We refer to the three-month periods ended November 30, 2025 and 2024 as the third quarter of fiscal 2026 and fiscal 2025, respectively.

Previous wording

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.

Current wording

Nine Month Fiscal 2026 Highlights (compared with the first nine months of fiscal 2025 unless otherwise noted) We refer to the nine-month periods ended November 30, 2025 and 2024 as the first nine-months of fiscal 2026 and fiscal 2025, respectively.

Previous wording

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.

Current wording

In the first nine months of fiscal 2026, approximately 37% of sales originated outside of the United States and Canada compared with 39% in the first nine months of fiscal 2025.

Previous wording

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.

Current wording

In the third quarter of fiscal 2026, approximately 32% of sales originated outside of the United States and Canada compared with 46% in the third quarter of fiscal 2025.

Previous wording

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.

Current wording

For the third quarter of fiscal 2026, gross profit increased $169,000, or 7%, compared with the third quarter of fiscal 2025. For the third quarter of fiscal 2026, the gross profit percentage was 50% compared with 45% for the prior year period. The increase in the gross profit percentage was influenced by product mix, including a favorable mix of mature high ASP systems with reduced manufacturing costs and favorable warranty expenses in the current period. In addition, sales to the United States were strong, which typically carry less distributor discounting.

Previous wording

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.

Current wording

Gross profit increased $452,000, or 6%, to $7,766,000 for the first nine months of fiscal 2026 compared with $7,314,000 in the first nine months of fiscal 2025. The gross profit percentage was 51% compared with 48% for the prior year period. The increase in the gross profit percentage was influenced by product mix, including a favorable mix of mature high ASP systems with reduced manufacturing costs and favorable warranty expenses in the current period. In addition, sales to the United States were strong, which typically carry less distributor discounting.

Previous wording

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.

Current wording

Research and product development costs decreased in the first nine months of fiscal 2026 due to a decrease in salary expense associated with the departure of a senior engineer, research and development materials, supplies, insurance expense and travel expenses. These decreases were partially offset by additional lab salaries.

Previous wording

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.

Current wording

Marketing and selling expenses decreased slightly in both the third quarter and the first nine months of fiscal 2026 due to a decrease in salary expense related to the departure of a salesperson and a decrease in travel and entertainment expenses. These decreases were partially offset by an increase in salaries related to our sales application lab and increased trade show expenses. 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.

Previous wording

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.

Current wording

In the third quarter and the first nine months of fiscal 2026, commission expense decreased approximately $73,000 and $153,000, 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 increase total selling costs. The shift toward direct sales reduced those third-party costs in the current period.

Previous wording

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.

Current wording

In the first nine months of fiscal 2026 general and administrative expenses increased due to increases in salaries, corporate expenses and stock-based compensation. These increases were partially offset by decreases in legal and audit fees and travel and entertainment expenses.

Previous wording

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.

Current wording

In the third quarter of fiscal 2026, operating income increased $121,000, or 61%, to $319,000 compared with $198,000 for the third quarter of fiscal 2025. Operating margin for the third quarter of fiscal 2026 was 6% compared with 4% in the prior year period. In the third quarter of fiscal 2026, an increase in gross profit was the key factor in the increase in operating income.

Previous wording

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.

Current wording

In the first nine months of fiscal 2026, operating income increased $501,000, or 69%, to $1,223,000 compared with $722,000 for the first nine months of fiscal 2025. Operating margin for the first nine months of fiscal 2026 was 8% compared with 5% in the prior year period. In the first nine months of fiscal 2026, an increase in gross profit was the key factor in the increase in operating income.

Previous wording

Interest, Dividend Income and Unrealized Gain:

Current wording

Interest, Dividend Income and Unrealized Gain/(Loss):

Previous wording

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.

Current wording

Interest and dividend income decreased by $23,000 to $108,000 in the third quarter of fiscal 2025 as compared with $132,000 for the third quarter of fiscal 2024, reflecting a minor reduction in interest rates earned on our cash balances in the third quarter of fiscal 2025. In the first nine months of fiscal 2025, interest and dividend income decreased by $27,000 to $332,000 as compared with $359,000 for the first nine months of fiscal 2024. Our present investment policy is to invest excess cash in highly liquid, low risk US Treasury securities. At November 30, 2025, the majority of our holdings were rated at or above investment grade.

Previous wording

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.

Current wording

We recorded income tax expense of $87,000 for the third quarter of fiscal 2026 compared with $40,000 for the third quarter of fiscal 2025. For the first nine months of fiscal 2026 we recorded income tax expense of $308,000 compared with $174,000 for the first nine months of fiscal 2025.

Previous wording

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.

Current wording

The increase in income tax expense in the third quarter and first nine months of 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 research and development expenditures.

Previous wording

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.

Current wording

The deferred tax asset decreased approximately $258,000, to $1,267,000 at November 30, 2025 from $1,525,000 at February 28, 2025. Additionally, the deferred tax liability decreased approximately $73,000, to $59,000 at November 30, 2025 from $132,000 at February 28, 2025. The net decrease in the deferred tax asset and liability was approximately $331,000 for the first nine months 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.

Previous wording

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.

Current wording

Net income increased by $66,000 or 24% to $340,000 for the third quarter of fiscal 2026 compared with $274,000 for the third quarter of fiscal 2025. The increase in net income during the third quarter is primarily the result of an increase in gross profit partially offset by an increase in operating expenses and income tax expense.

Previous wording

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.

Current wording

Net income increased by $303,000 or 32% to $1,249,000 for the first nine months of fiscal 2026 compared with $946,000 for the first nine months of fiscal 2025. The increase in net income in the first nine months of fiscal 2026 is primarily the result of an increase in gross profit partially offset by an increase in income tax expense.

Previous wording

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.

Current wording

Working Capital – Our working capital increased $1,854,000 to $15,355,000 at November 30, 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 and treasury stock.

Previous wording

The following table summarizes the accounts and the major reasons for the $1,362,000 decrease in “Cash”:

Current wording

The following table summarizes the accounts and the major reasons for the $211,000 decrease in “Cash”:

Previous wording

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.

Current wording

Stockholders’ Equity – Stockholders’ Equity increased $1,340,000 from $17,792,000 at February 28, 2025 to $19,132,000 at November 30, 2025. The increase is a result of the current period’s net income of $1,249,000, proceeds from exercise of stock options of $10,000, and $232,000 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.

Previous wording

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.

Current wording

Operating Activities – Our operating activities provided $110,000 of cash in the first nine months of fiscal 2026 compared to providing $1,199,000 of cash in the first nine months of fiscal 2025, a decrease of $1,089,000. The decrease in cash provided by our operating activities was the result of an increase in accounts receivable and prepaid expenses combined with decreases in accounts payable, income taxes payable and customer deposit balances.

Previous wording

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.

Current wording

In the first nine months of fiscal 2026, our accounts receivable increased $2,064,000 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 eight units during the first nine months of fiscal 2026, with a total sales price of $5.9 million. After completion of the first quarter of fiscal 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 had already collected a significant cash down payment on the order and we anticipated only a modest delay of approximately two months on a portion of the next payment, we accommodated the customer’s request. The customer has since returned to the originally agreed upon payment schedule. Based on our long-standing relationship and ongoing communications, we do not currently foresee any collection issues with this customer.

Previous wording

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.

Current wording

In the first nine months of fiscal 2026, our inventories decreased $772,000 when compared to the prior year. The decrease in inventories is due to the completion of customer orders in the first nine months of fiscal 2026.

Previous wording

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.

Current wording

In the first nine months of fiscal 2026, our income taxes payable decreased $453,000 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.

Previous wording

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.

Current wording

Investing Activities – For the first nine months of fiscal 2026, our investing activities provided $224,000 of cash compared with providing $4,765,000 for the first nine months of fiscal 2025. For the first nine months of fiscal 2026 and 2025, we used $180,000 and $403,000 of cash, respectively, for the purchase or manufacture of equipment, furnishings and leasehold improvements.

Previous wording

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.

Current wording

In the first nine months of fiscal 2026, net sales of marketable securities provided $405,000 of cash compared with providing $5,167,000 from the net sales of marketable securities in the prior year period.

Previous wording

***Financing Activities –***In the first half of fiscal year 2026, we used $151,000 of cash for the purchase of treasury stock.

Current wording

***Financing Activities –***In the first nine months of fiscal 2026, we used $151,000 of cash for the purchase of treasury stock.

Previous wording

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.

Current wording

Net Increase in Cash and Cash Equivalents – In the first nine months of fiscal 2026, our cash balance increased by $193,000 compared to an increase of $5,964,000 in the first nine months of fiscal 2025. In the first nine months of fiscal 2026, our operating activities provided $110,000 of cash and net sales of our marketable securities provided $405,000. In addition, we used $181,000 for the purchase or manufacture of equipment, furnishings and leasehold improvements and we used $151,000 for the purchase of treasury stock.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

Research and Development Costs – The Act reinstates the ability for entities to immediately expense domestic research and development costs for tax years beginning after December 31, 2024. Certain small businesses may also retroactively expense research and development costs, which were capitalized under the TCJA during the calendar years 2022 – 2024.

Previous wording

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.

Current wording

Other than ASU 2023-09, ASU 2024-03 and ASU-2025-05 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.