UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: November 30, 2025

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No.: 001-40763

SONO TEK CORP

(Exact name of registrant as specified in its charter)

New York	14-1568099
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

2012 Rt. 9W, Milton, NY 12547

(Address of Principal Executive Offices) (Zip Code)

Issuer's telephone no., including area code: (845) 795-2020

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	SOTK	NASDAQ

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. ☑ Yes ☐ No

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). ☑ Yes ☐ No

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 ☐
Non-Accelerated Filer ☑	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 ☑ No

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 January 9, 2026
Class
Common Stock, par value $.01 per share	15,710,389

SONO-TEK CORPORATION

INDEX

	Page
Part I - Financial Information

Item 1 – Condensed Consolidated Financial Statements:	1 - 4

Condensed Consolidated Balance Sheets – November 30, 2025 (Unaudited) and February 28, 2025	1

Condensed Consolidated Statements of Income – Nine and Three Months Ended November 30, 2025 and 2024 (Unaudited)	2

Condensed Consolidated Statements of Stockholders’ Equity – Nine and Three Months Ended November 30, 2025 and 2024 (Unaudited)	3

Condensed Consolidated Statements of Cash Flows – Nine Months Ended November 30, 2025 and 2024 (Unaudited)	4

Notes to Unaudited Condensed Consolidated Financial Statements	5 - 12

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	13 –21

Item 3 – Quantitative and Qualitative Disclosures about Market Risk	21

Item 4 – Controls and Procedures	22

Part II – Other Information	23

Item 1 – Legal Proceedings	23

Item 1A – Risk Factors	23

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3 – Defaults Upon Senior Securities	23

Item 4 – Mine Safety Disclosures	23

Item 5 – Other Information	23

Item 6 – Exhibits and Reports	23

Signatures and Certifications	24

SONO-TEK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	November 30, 2025 (Unaudited)			February 28, 2025
ASSETS

Current Assets:
Cash and cash equivalents	$	5,395,695		$	5,202,361
Marketable securities		6,323,566			6,727,678
Accounts receivable (less allowance of $12,225, respectively)		4,411,663			2,347,764
Inventories		3,656,898			4,474,401
Prepaid expenses and other current assets		305,690			236,261
Total current assets		20,093,512			18,988,465

Land		250,000			250,000
Buildings, equipment, furnishings and leasehold improvements, net		2,288,462			2,610,600
Intangible assets, net		31,794			37,386
Deferred tax asset		1,266,846			1,525,185

TOTAL ASSETS	$	23,930,614		$	23,411,636

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	534,692		$	859,483
Accrued expenses		2,008,801			1,718,574
Customer deposits		2,151,930			2,413,195
Income taxes payable		43,422			496,055
Total current liabilities		4,738,845			5,487,307

Deferred tax liability		59,349			132,134
Total liabilities		4,798,194			5,619,441

Commitments and Contingencies (Note 10)

Stockholders’ Equity
Common stock, $.01 par value; 25,000,000 shares authorized, 15,754,480 issued and 15,710,389 outstanding as of November 30, 2025 and 15,751,153 issued and 15,749,037 outstanding February 28, 2025, respectively		157,545			157,512
Additional paid-in capital		10,260,711			10,018,034
Accumulated earnings		8,873,153			7,624,516
Treasury stock, at cost 44,091 shares and 2,116 shares, November 30, 2025 and February 28, 2025, respectively		(158,989	)		(7,867	)
Total stockholders’ equity		19,132,420			17,792,195

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	23,930,614		$	23,411,636

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Nine Months Ended November 30,				Three Months Ended November 30,
	2025		2024		2025			2024

Net Sales	$	15,299,839	$	15,383,416	$	5,004,370		$	5,190,596
Cost of Goods Sold		7,533,347		8,069,633		2,492,129			2,847,397
Gross Profit		7,766,492		7,313,783		2,512,241			2,343,199

Operating Expenses
Research and product development costs		1,934,109		2,054,846		638,361			627,543
Marketing and selling expenses		2,656,804		2,814,804		927,300			929,196
General and administrative costs		1,952,085		1,722,210		627,608			588,823
Total Operating Expenses		6,542,998		6,591,860		2,193,269			2,145,562

Operating Income		1,223,494		721,923		318,972			197,637

Interest and Dividend Income		332,147		359,248		108,487			131,518
Net unrealized gain/(loss) on marketable securities		912		38,776		(658	)		(15,165	)

Income Before Income Taxes		1,556,553		1,119,947		426,801			313,990

Income Tax Expense		307,916		174,247		86,842			39,812

Net Income	$	1,248,637	$	945,700	$	339,959		$	274,178

Basic Earnings Per Share	$	0.08	$	0.06	$	0.02		$	0.02

Diluted Earnings Per Share	$	0.08	$	0.06	$	0.02		$	0.02

Weighted Average Outstanding Shares - Basic		15,721,548		15,750,980		15,708,817			15,751,153

Weighted Average Outstanding Shares - Diluted		15,736,330		15,771,039		15,724,960			15,771,511

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three and Nine Months Ended November 30, 2025


	Common Stock Par Value $.01
	Shares		Amount		Additional Paid – In Capital		Accumulated Earnings		Treasury Stock			Total Stockholders’ Equity
Balance - February 28, 2025		15,751,153	$	157,512	$	10,018,034	$	7,624,516	$	(7,867	)	$	17,792,195
Stock-based compensation expense						75,163							75,163
Treasury Stock										(79,479	)		(79,479	)
Net Income				-		-		484,985		—			484,985
Balance – May 31, 2025 (unaudited)		15,751,153	$	157,512	$	10,093,197	$	8,109,501	$	(87,346	)	$	18,272,864
Stock-based compensation expense						70,755							70,755
Treasury Stock										(71,643	)		(71,643	)
Net Income				-		-		423,693		—			423,693
Balance – August 31, 2025 (unaudited)		15,751,153	$	157,512	$	10,163,952	$	8,533,194	$	(158,989	)	$	18,695,669
Stock-based compensation expense						86,179							86,179
Proceeds from exercise of stock options		3,327		33		10,580							10,613
Net income				-		-		339,959		-			339,959
Balance – November 30, 2025 (unaudited)		15,754,480	$	157,545	$	10,260,711	$	8,873,153	$	(158,989	)	$	19,132,420

Three and Nine Months Ended November 30, 2024


	Common Stock Par Value $.01				Additional Paid – In			Accumulated		Total Stockholders’
	Shares		Amount		Capital			Earnings		Equity
Balance, February 29, 2024		15,750,880	$	157,509	$	9,770,387		$	6,351,102	$	16,278,998
Stock based compensation expense						54,231					54,231
Net Income				-		-			330,837		330,837
Balance, May 31, 2024 (unaudited)		15,750,880	$	157,509	$	9,824,618		$	6,681,939	$	16,664,066
Stock based compensation expense						42,799					42,799
Cashless exercise of stock options		273		3		(3	)				—
Net Income				-		-			340,685		340,685
Balance, August 31, 2024 (unaudited)		15,751,153	$	157,512	$	9,867,414		$	7,022,624	$	17,047,550
Stock based compensation expense						79,046					79,046
Net income				-		-			274,178		274,178
Balance, November 30, 2024 (unaudited)		15,751,153	$	157,512	$	9,946,460		$	7,296,802	$	17,400,774

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended November 30,
	2025			2024

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,248,637		$	945,700
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		508,572			529,163
Stock based compensation expense		232,097			176,076
Inventory reserve		45,927			32,524
Unrealized (gain) on marketable securities		(912	)		(38,776	)
Deferred tax expense		185,554			(167,946	)
Decrease (Increase) in:
Accounts receivable		(2,063,899	)		(808,594	)
Inventories		771,576			451,946
Prepaid expenses and other current assets		(69,429	)		84,440
(Decrease) Increase in:
Accounts payable		(324,791	)		67,089
Accrued expenses		290,227			185,558
Customer deposits		(261,265	)		(56,405	)
Income taxes payable		(452,633	)		(201,457	)
Net Cash Provided by Operating Activities		109,661			1,199,318

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, furnishings and leasehold improvements		(180,842	)		(403,053	)
Sale of marketable securities		2,732,453			13,740,454
Purchase of marketable securities		(2,327,429	)		(8,572,755	)
Net Cash Provided by Investing Activities		224,182			4,764,646

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		10,613			—
Purchase of treasury stock		(151,122	)		—
Net Cash Used in Financing Activities		(140,509	)		—


NET INCREASE IN CASH AND CASH EQUIVALENTS		193,334			5,963,964

CASH AND CASH EQUIVALENTS
Beginning of period		5,202,361			2,134,786
End of period	$	5,395,695		$	8,098,750

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid	$	—		$	—
Income Taxes Paid	$	578,599		$	543,814

See notes to unaudited condensed consolidated financial statements.

SONO-TEK CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED NOVEMBER 30, 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/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 November 30, 2025, $2,718,000 of the Company’s bank deposits exceeded the insured limit provided by the Federal Deposit Insurance Corporation.

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.

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 and liabilities 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 November 30, 2025 and February 28, 2025, respectively:

	Level 1		Level 2		Level 3		Total

Marketable Securities – November 30, 2025	$	6,212,951	$	110,615	$	—	$	6,323,566

Marketable Securities – February 28, 2025	$	6,135,914	$	591,764	$	—	$	6,727,678

Marketable Securities include mutual funds, certificates of deposit and US Treasury securities totaling $6,323,566 and $6,727,678 as of November 30, 2025 and February 28, 2025, respectively, that are considered to be highly liquid and easily tradeable. Mutual funds and US Treasury securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 and certificates of deposit are classified as Level 2 within the Company’s fair value hierarchy.

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 November 30, 2025 and February 28, 2025, there were no accruals for uncertain tax positions.

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 November 30, 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.

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.

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 November 30, 2025 and February 28, 2025, the Company had land stated at cost of $250,000.

At November 30, 2025 and February 28, 2025, the Company had buildings, equipment, furnishings and leasehold improvements totaling, $2,288,462 and $2,610,600, respectively, net of accumulated depreciation.

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.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses. This ASU provides entities the ability to use a practical expedient when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue from Contracts with Customers. The purpose of this ASU is to simplify the estimation of credit losses on current accounts receivable and current contract assets accounted for ASC 606. This ASU is effective for annual periods beginning after December 15, 2025, 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.

Product Warranty - Expected 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
	·	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 November 30, 2025, the Company had received approximately $2,152,000 in cash deposits, representing contract liabilities.

At February 28, 2025, the Company had received approximately $2,413,000 in cash deposits, representing contract liabilities, and had issued letters of credit in the amount of $106,000 to secure these cash deposits. During the nine months ended November 30, 2025, the Company recognized $2,303,000 of these deposits as revenue.

The Company’s sales revenue by product line is as follows:

	Three Months Ended November 30,								Nine Months Ended November 30,
	2025		% of total		2024		% of total		2025		% of total		2024		% of total
Fluxing Systems	$	222,000		4%	$	71,000		1%	$	583,000		4%	$	324,000		2%
In-Line Coating Systems		1,844,000		37%		81,000		2%		6,428,000		42%		2,850,000		19%
Multi-Axis Coating Systems		1,666,000		33%		3,563,000		69%		4,373,000		29%		8,158,000		53%
OEM Systems		425,000		9%		259,000		5%		936,000		6%		796,000		5%
Other		847,000		17%		1,217,000		23%		2,980,000		19%		3,255,000		21%
TOTAL	$	5,004,000			$	5,191,000			$	15,300,000			$	15,383,000

NOTE 4: INVENTORIES

Inventories consist of the following:

	November 30,		February 28,
	2025		2025
Raw materials and subassemblies	$	1,841,217	$	2,322,821
Finished goods		1,109,079		1,012,600
Work in process		706,602		1,138,980
Net inventories	$	3,656,898	$	4,474,401

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 nine months ended November 30, 2025 and 2024, the Company recorded approximately $46,000 and $33,000, respectively in additional allowances for slow moving inventory.

NOTE 5: STOCK-BASED COMPENSATION

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 2,500,000 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 November 30, 2025, 395,201 and 195,810 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.

During the nine months ended November 30, 2025, the Company granted options to acquire 154,328 shares to employees exercisable at prices ranging from $3.25 to $3.77 and options to acquire 35,088 shares to non-employee members of the board of directors with an exercise price of $3.25. The options granted to employees and directors vest over three years and expire ten years from the date of grant. The options granted during the first nine months of fiscal 2025 had a combined weighted average grant date fair value of $3.26 per share.

The weighted-average fair value of options are estimated on the date of grant using the Black-Scholes options-pricing model. The weighted-average Black-Scholes assumptions are as follows:

	Nine Months Ended November 30, 2025
Expected Life		5 - 8 years
Risk free interest rate		3.81% - 4.32%
Expected volatility		54.49% - 56.95%
Expected dividend yield		0%

For the three and nine months ended November 30, 2025 and 2024, net income and earnings per share reflect the actual deduction for stock-based compensation expense. For the three months ended November 30, 2025 and 2024, the Company recognized approximately $86,000 and $79,000 of stock based compensation expense, respectively. For the nine months ended November 30, 2025 and 2024, the Company recognized approximately $232,000 and $176,000 of stock based compensation expense, respectively. Such amounts are included in general and administrative expenses on the unaudited condensed consolidated statements of income. Total compensation expense related to non-vested options not yet recognized as of November 30, 2025 was $538,000 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 November 30, 2025 was approximately $52,000.

NOTE 6: EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:


	Nine Months Ended November 30,				Three Months Ended November 30,
	2025		2024		2025		2024

Numerator for basic and diluted earnings per share	$	1,248,637	$	945,700	$	339,959	$	274,178

Denominator for basic earnings per share – weighted average		15,721,548		15,750,980		15,708,817		15,751,153

Effects of dilutive securities
Stock options for employees and directors		14,782		20,059		16,143		20.358

Denominator for diluted earnings per share		15,736,330		15,771,039		15,724,960		15,771,511

Basic earnings per share	$	0.08	$	0.06	$	0.02	$	0.02
Diluted earnings per share	$	0.08	$	0.06	$	0.02	$	0.02

NOTE 7: REVOLVING LINE OF CREDIT

The Company has a $1,500,000 revolving line of credit at prime which was 7.0% at November 30, 2025 and 7.5% at February 28, 2025. The revolving credit line is collateralized by the Company’s accounts receivable and inventory. The revolving credit line is payable on demand and must be retired for a 30-day period, once annually. If the Company fails to perform the 30-day annual pay down or if the bank elects to terminate the credit line, the bank may, at its option, convert the outstanding balance to a 36-month term note with payments including interest in 36 equal installments.

As of November 30, 2025, $106,000 of the Company’s credit line was being utilized to collateralize Letters of Credit issued by the Company. As of November 30, 2025, there were no outstanding borrowings under the line of credit and the unused portion of the credit line was $1,394,000.

The Company has a $750,000 equipment line of credit at prime plus 0.50%, which was 7.0% at November 30, 2025. At November 30, 2025, there were no outstanding borrowings under the equipment line of credit.

NOTE 8: CUSTOMER CONCENTRATIONS AND FOREIGN SALES

Export sales to customers located outside the United States and Canada were approximately as follows:

	Nine Months Ended November 30,				Three Months Ended November 30,
	2025		2024		2025		2024
Asia Pacific (APAC)	$	2,262,000	$	1,994,000	$	734,000	$	1,114,000
Europe, Middle East, Asia (EMEA)		3,027,000		3,338,000		706,000		957,000
Latin America		337,000		642,000		149,000		297,000
	$	5,626,000	$	5,974,000	$	1,589,000	$	2,368,000

In the first nine months of fiscal 2026 and fiscal 2025, sales to foreign customers accounted for approximately $5,626,000 and $5,974,000, or 37% and 39%, respectively, of total revenues.

During the third quarter of fiscal 2026 and fiscal 2025, sales to foreign customers accounted for approximately $1,589,000 and $2,368,000, or 32% and 46%, respectively, of total revenues.

The Company had one customer which accounted for 38% of sales during the first nine months of fiscal 2026. The Company had one customer which accounted for 29% of sales during the third quarter of fiscal 2026. One customer accounted for 67% of the outstanding accounts receivables at November 30, 2025.

The Company had one customer which accounted for 14% of sales during the first nine months of fiscal 2025. The Company had one customer which accounted for 23% of sales during the third quarter of fiscal 2025. Two customers accounted for 25% of the outstanding accounts receivable at February 28, 2025.

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):

	Nine Months Ended November 30,				Three Months Ended November 30,
	2025		2024		2025			2024

Net Sales	$	15,300,000	$	15,383,000	$	5,004,000		$	5,191,000
Direct Cost of Goods Sold
Materials & Freight		5,792,000		6,034,000		1,930,000			2,125,000
Production Labor		341,000		650,000		191,000			232,000
Depreciation		154,000		183,000		52,000			65,000
Other		295,000		294,000		84,000			92,000
		6,582,000		7,161,000		2,257,000			2,514,000
Service Department
Salaries		404,000		415,000		127,000			140,000
Travel		126,000		176,000		51,000			52,000
Outside Installations		135,000		36,000		(25,000	)		42,000
Warranty Costs		92,000		103,000		14,000			33,000
Other		195,000		179,000		68,000			66,000
		952,000		909,000		235,000			333,000
Total Cost of Goods & Service		7,534,000		8,070,000		2,492,000			2,847,000
Gross Profit		7,766,000		7,313,000		2,512,000			2,344,000
Research & Product Development
Salaries		1,407,000		1,414,000		456,000			435,000
Insurance		96,000		125,000		30,000			40,000
Depreciation		173,000		171,000		82,000			54,000
R & D Materials		136,000		182,000		34,000			48,000
Other		122,000		163,000		36,000			51,000
		1,934,000		2,055,000		638,000			628,000
Marketing and Selling
Salaries		1,351,000		1,342,000		449,000			440,000
Insurance		157,000		145,000		56,000			46,000
Commissions		476,000		628,000		148,000			222,000
Travel & Entertainment		91,000		143,000		31,000			47,000
Advertising / Trade Show		353,000		327,000		153,000			92,000
Depreciation		77,000		72,000		26,000			38,000
Other		152,000		158,000		64,000			44,000
		2,657,000		2,815,000		927,000			929,000

General and Administrative
Salaries		838,000		779,000			282,000		253,000
Insurance		140,000		132,000			48,000		45,000
Professional Fees		264,000		289,000			96,000		87,000
Corporate Expenses		340,000		311,000			85,000		78,000
Stock Based Compensation		232,000		176,000			86,000		79,000
Depreciation		54,000		57,000			19,000		21,000
Misc Other		84,000		(23,000	)		11,000		26,000
		1,952,000		1,721,000			627,000		589,000
Total Operating Expenses		6,543,000		6,591,000			2,192,000		2,146,000
Operating Income		1,223,000		722,000			320,000		198,000
Interest Income & Unrealized Gain		333,000		398,000			107,000		116,000
Income Before Taxes		1,556,000		1,120,000			427,000		314,000
Income Tax Expense		308,000		174,000			87,000		40,000
Net Income	$	1,248,000	$	946,000		$	340,000	$	274,000

NOTE 10: COMMITMENTS AND CONTINGENCIES

The Company did not have any material commitments or contingencies as of November 30, 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 November 30, 2025, the Company did not have any pending legal actions.

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 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.

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, 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.

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.

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.

	·	Net Sales for the third quarter of fiscal 2026 were $5.0 million, down $186,000, or 3.6%, compared to $5.19 million for the prior year period. This marks the seventh consecutive quarter with revenue exceeding $5 million.
	·	Gross Profit increased 7.2% or $169,000 to $2.512 million and the Gross Profit % increased 500 basis points to 50% due to product mix, including a favorable mix of mature high ASP systems with reduced costs and favorable warranty expenses in the current period, and strong sales to the U.S., which typically carry less distributor discounting.
	·	Combined equipment and service-related backlog at November 30, 2025 reached a record $12.26 million, up 16% year-over-year and up 9% sequentially.
	·	Operating income increased 61.4% or $121,000 to $319,000 due to the increase in gross profit combined with operating leverage.
	·	Net income increased 24.0% or $66,000 to $340,000 for the quarter.
	·	Sales increased year over year in electronics, industrial, medical, and emerging R&D, with the only market decline in alternative energy due to reduced U.S. electrolysis-related demand following shifting government policy incentives.

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.

•

Net Sales were $15.3 million, essentially flat year over year, decreasing by 1%, Net income increased 32.0% or $303,000 to $1.249 million for the first nine months.

•

Medical sales increased 37% year over year (up $793,000), supported by strong balloon catheter system shipments across the U.S., Europe, and China, solid stent coating activity, and expanding new medical applications, while order momentum and backlog continue to accelerate in the medical device market.

•

In-Line coating sales increased 126% (up $3.578 million), reflecting shipment of eight high-ASP systems totaling approximately $5.9 million to a major solar customer, partially offset by a 46% decline in multi-axis system sales (down $3.785 million) due to slower electrolysis demand following government policy changes.

•

Gross profit increased $452,000 or 6%, to $7,766,000 and the gross profit percentage was 51% compared to 48% influenced by 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 US were strong, which typically carry less distributor discounting.

Operating income increased 69%, to $1,223,000 and operating margin was 8% reflecting the increase in gross profit.

As of November 30, 2025, the Company had no outstanding debt and had cash, cash equivalents and marketable securities totaling $12,262,000.

RESULTS OF OPERATIONS

Sales:

Product Sales

	Three Months Ended November 30,				Change					Nine Months Ended November 30,				Change
	2025		2024		$			%		2025		2024		$			%
Fluxing Systems	$	222,000	$	71,000		151,000		213%		$	583,000	$	324,000		259,000		80%
In-Line Coating Systems		1,844,000		81,000		1,763,000		2,177%			6,428,000		2,850,000		3,578,000		126%
Multi-Axis Coating Systems		1,666,000		3,563,000		(1,897,000	)	(53%	)		4,373,000		8,158,000		(3,785,000	)	(46%	)
OEM Systems		425,000		259,000		166,000		64%			936,000		796,000		140,000		18%
Other		847,000		1,217,000		(370,000	)	(30%	)		2,980,000		3,255,000		(275,000	)	(8%	)
TOTAL	$	5,004,000	$	5,191,000		(187,000	)	(4%	)	$	15,300,000	$	15,383,000		(83,000	)	(1%	)

Total sales for the first nine months of fiscal 2026 were essentially flat, decreasing by 1%, while total sales for the third quarter of fiscal 2026 decreased by 4%. The decrease in revenue for the first nine months of fiscal 2026 is the result of a 46% decrease in Multi Axis Coating Systems revenue partially offset by a 126% increase in In-Line Coating Systems revenue. For the third quarter of fiscal 2026, sales of our Multi Axis Coating Systems decreased by 53%, but this decrease was mostly offset by a 2177% increase in In-Line Coating Systems revenue.

OEM Systems revenue for the third quarter and first nine months of fiscal 2026 increased by 64% and 18%, respectively. The increase was driven by higher demand from both fluxing-related OEM customers and medical device OEM partners, reflecting continued adoption of our ultrasonic coating technology within customer-integrated production platforms and expanding OEM relationships in medical and industrial applications.

Fluxing Systems revenue for the third quarter and first nine months of fiscal 2026 increased by 213% and 80%, respectively. The increase was driven primarily by stronger demand in Asia, outside of China, from PCB manufacturing companies.

The Other revenue category decreased by 30% in the third quarter of fiscal 2026 and 8% for the first nine months of fiscal 2026, reflecting the timing of service-related activities and spare parts sales that occurred in the prior-year periods.

Market Sales

	Three Months Ended November 30,				Change						Nine Months Ended November 30,				Change
	2025		2024		$			%			2025		2024		$			%
Electronics/Microelectronics	$	1,287,000	$	1,016,000		271,000			27%		$	3,686,000	$	4,060,000		(374,000	)		(9%	)
Medical		1,136,000		897,000		239,000			27%			2,949,000		2,156,000		793,000			37%
Alternative Energy		1,912,000		2,959,000		(1,047,000	)		(35%	)		7,592,000		7,740,000		(148,000	)		(2%	)
Emerging R&D and Other		18,000		17,000		1,000			6%			65,000		57,000		8,000			14%
Industrial		651,000		302,000		349,000			116%			1,008,000		1,370,000		(362,000	)		(26%	)
TOTAL	$	5,004,000	$	5,191,000		(187,000	)		(4%	)	$	15,300,000	$	15,383,000		(83,000	)		(1%	)

During the third quarter of fiscal 2026, sales performance varied across end markets. Medical, electronics, and industrial markets all increased year over year, while alternative energy declined. Medical market growth was driven by strong demand for stent coating systems, balloon catheter coating platforms, and emerging diagnostic device applications. Electronics market growth reflected increased demand for fluxing systems and the shipment of a semiconductor coating system to a customer in South Korea. Industrial market sales increased due to the shipment of a large textile coating platform to a United States government customer. The decline in alternative energy sales during the quarter was primarily attributable to reduced demand for electrolysis-related applications following shifts in U.S. government policy incentives affecting carbon capture and fuel cell projects.

For the first nine months of fiscal 2026, medical market sales increased 37% year over year, driven by shipments of balloon catheter coating systems to customers in the United States, Europe, and China, continued stent coating activity, and expanding medical applications. Medical-related order activity and backlog continued to strengthen during the period. Alternative energy sales for the first nine months of fiscal 2026 were essentially flat, as strong shipments of high-ASP in-line coating systems to the solar industry offset lower demand for electrolysis-related applications in the United States. Electronics and industrial market sales declined year over year, primarily due to strong prior-year comparisons and customer timing, including the non-recurrence of a large European glass coating order in the industrial market. Emerging research and development market sales remained relatively flat as projects continued to transition into established production markets.

Geographic Sales

	Three Months Ended November 30,				Change						Nine Months Ended November 30,				Change
	2025		2024		$			%			2025		2024		$			%
U.S. & Canada	$	3,415,000	$	2,823,000		592,000			21%		$	9,674,000	$	9,409,000		265,000			3%
Asia Pacific (APAC)		734,000		1,114,000		(380,000	)		(34%	)		2,262,000		1,994,000		268,000			13%
Europe, Middle East, Asia (EMEA)		706,000		957,000		(251,000	)		(26%	)		3,027,000		3,338,000		(311,000	)		(9%	)
Latin America		149,000		297,000		(148,000	)		(50%	)		337,000		642,000		(305,000	)		(48%	)
TOTAL	$	5,004,000	$	5,191,000		(187,000	)		(4%	)	$	15,300,000	$	15,383,000		(83,000	)		(1%	)

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.

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.

Sales in the United States and Canada remained strong during the current periods, influenced in part by shipments of high-ASP in-line coating systems to a significant solar customer.

Asia sales declined in the third quarter primarily due to timing following a strong prior year quarter, but increased for the first nine months of fiscal 2026, driven by medical activity in China and alternative energy demand in Japan and South Korea.

Latin America sales declined in both the third quarter and first nine months of fiscal 2026, reflecting the non-recurrence of an orthopedic system shipment in the prior-year third quarter and slower fluxing activity in Mexico during the current year.

Gross Profit:

	Three Months Ended November 30,				Change						Nine Months Ended November 30,				Change
	2025		2024		$			%			2025		2024		$			%
Net Sales	$	5,004,000	$	5,191,000		(187,000	)		(4%	)	$	15,300,000	$	15,383,000		(83,000	)		(1%	)
Cost of Goods Sold		2,492,000		2,848,000		(356,000	)		(13%	)		7,534,000		8,069,000		(535,000	)		(7%	)
Gross Profit	$	2,512,000	$	2,343,000		169,000			7%		$	7,766,000	$	7,314,000		452,000			6%

Gross Profit %		50%		45%								51%		48%

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.

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.

Operating Expenses:

	Three Months Ended November 30,				Change					Nine Months Ended November 30,				Change
	2025		2024		$			%		2025		2024		$			%
Research and product development	$	638,000	$	628,000		10,000			2%	$	1,934,000	$	2,055,000		(121,000	)		(6%	)
Marketing and selling		927,000		929,000		(2,000	)		0%		2,657,000		2,815,000		(158,000	)		(6%	)
General and administrative		628,000		589,000		39,000			7%		1,952,000		1,722,000		230,000			13%
Total Operating Expenses	$	2,193,000	$	2,146,000	$	47,000			2%	$	6,543,000	$	6,592,000	$	(49,000	)		(1%	)

Research and Product Development:

Research and product development costs increased in the third quarter of fiscal 2026 due to an increase in lab salaries. This increase was partially offset by decreases in research and development materials, supplies, salaries and travel expenses. These decreases were partially offset by additional lab salaries.

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.

Marketing and Selling:

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.

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.

General and Administrative:

General and administrative expenses increased in the third quarter of fiscal 2026 due to increased salaries, legal and audit fees, corporate expenses and stock-based compensation. These increases were partially offset by decreases in travel and entertainment and other expenses.

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.

Operating Income:

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.

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.

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

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.

Net unrealized gain decreased to a $15,000 net unrealized loss in the third quarter of fiscal 2025 compared to a gain of $20,000 in the prior year period. In the first nine months of fiscal 2025, net unrealized gain increased $8,000 to $39,000 compared with $31,000 in the prior year period.

Income Tax Expense:

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.

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.

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.

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:

Net Income:

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.

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.

Liquidity and Capital Resources

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.

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 November 30, 2025 and February 28, 2025, our working capital included:

	November 30, 2025		February 28, 2025		Cash Increase (Decrease)
Cash and cash equivalents	$	5,396,000	$	5,202,000	$	194,000
Marketable securities		6,323,000		6,728,000		(405,000	)
Total	$	11,719,000	$	11,930,000	$	(211,000	)

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

	Impact on Cash			Reason
Net income, adjusted for non-cash items	$	2,221,000		To reconcile increase in cash.
Accounts receivable increase		(2,064,000	)	Timing of cash receipts.
Inventories decrease		771,000		Decrease in inventory due to completed sales.
Customer deposits decrease		(261,000	)	Decrease due completed sales.
Accounts payable decrease		(325,000	)	Timing of disbursements.
Accrued expenses increase		290,000		Timing of disbursements.
Prepaid and Other Assets increase		(69,000	)	Increased in prepaid expenses.
Income taxes payable decrease		(453,000	)	Timing of disbursements.
Equipment purchases		(181,000	)	Equipment and facilities upgrade.
Proceeds from exercise of stock options		11,000		Received from stock options.
Treasury stock purchases		(151,000	)	Purchase of treasury stock.
Net decrease in cash	$	(211,000	)

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.

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.

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 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.

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.

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.

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.

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.

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

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.

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 judgements are continually evaluated and are based on historical experience and expectations regarding future events that are believed to be reasonable under the specific circumstances.

Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties and may potentially result in materially different results under different assumptions and 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 November 30, 2025 and November 30, 2024, there were no uncertain tax provisions.

The most significant tax provisions impacting the Company include:

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.

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, 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.

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 $5,396,000 in cash and $6,324,000 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 November 30, 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 third fiscal quarter of fiscal year 2026 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

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

None

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 November 30, 2025, no director or officer of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended.

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

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: January 13, 2026

		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

SEC Form 10-Q filed by Sono-Tek Corporation