SONO TEK CORP 10-Q

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: August 31, 2026 OR ☐ 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 October 9, 2026 Class Common Stock, par value $.01 per share 15,751,736 SONO-TEK CORPORATION INDEX Page Part I - Financial Information Item 1 – Condensed Consolidated Financial Statements: 1 - 4 Condensed Consolidated Balance Sheets – August 31, 2026 (Unaudited) and February 28, 2026 1 Condensed Consolidated Statements of Income – Six and Three Months Ended August 31, 2026 and 2025 (Unaudited) 2 Condensed Consolidated Statements of Stockholders’ Equity – Three and Six Months Ended August 31, 2026 and 2025 (Unaudited) 3 Condensed Consolidated Statements of Cash Flows – Six Months Ended August 31, 2026 and 2025 (Unaudited) 4 Notes to Unaudited Condensed Consolidated Financial Statements 5 - 13 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14 –22 Item 3 – Quantitative and Qualitative Disclosures about Market Risk 23 Item 4 – Controls and Procedures 23 Part II - Other Information 24 Item 1 – Legal Proceedings 24 Item 1A – Risk Factors 24 Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 24 Item 3 – Defaults Upon Senior Securities 24 Item 4 – Mine Safety Disclosures 24 Item 5 – Other Information 24 Item 6 – Exhibits and Reports 24 Signatures and Certifications 25 Item 1 – Condensed Consolidated Financial Statements SONO-TEK CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS August 31, 2026 February 28, 2026 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 10,249,779 $ 7,339,403 Marketable securities 7,505,420 7,469,649 Accounts receivable (less allowance of $12,225, respectively) 1,230,260 3,350,953 Inventories 3,833,809 3,923,350 Prepaid expenses and other current assets 535,491 743,295 Total current assets 23,354,759 22,826,650 Land 250,000 250,000 Buildings, equipment, furnishings and leasehold improvements, net 2,036,827 2,173,443 Intangible assets, net 26,316 29,791 Deferred tax asset 731,673 1,141,611 TOTAL ASSETS $ 26,399,575 $ 26,421,495 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 779,158 $ 1,038,885 Accrued expenses 1,988,412 2,227,401 Customer deposits 2,324,246 3,069,743 Income taxes payable 188,503 255,398 Total current liabilities 5,280,319 6,591,427 Deferred tax liability 54,324 55,909 Total liabilities 5,334,643 6,647,336 Commitments and Contingencies (Note 10) Stockholders’ Equity Common stock, $ .01 par value; 25,000,000 shares authorized, 15,716,723 and 15,710,389 issued and outstanding as of August 31, 2026 and February 28, 2026 157,167 157,104 Additional paid-in capital 10,370,106 10,186,858 Accumulated earnings 10,537,659 9,430,197 Total stockholders’ equity 21,064,932 19,774,159 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 26,399,575 $ 26,421,495 See notes to unaudited condensed consolidated financial statements. 1 SONO-TEK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Six Months Ended August 31, Three Months Ended August 31, 2026 2025 2026 2025 Net Sales $ 10,893,312 $ 10,295,469 $ 5,232,153 $ 5,162,696 Cost of Goods Sold 4,912,537 5,041,218 2,465,298 2,572,959 Gross Profit 5,980,775 5,254,251 2,766,855 2,589,737 Operating Expenses Research and product development costs 1,296,143 1,295,748 679,160 627,278 Marketing and selling expenses 2,025,731 1,729,504 1,000,747 871,353 General and administrative costs 1,380,209 1,324,477 705,417 669,952 Total Operating Expenses 4,702,083 4,349,729 2,385,324 2,168,583 Operating Income 1,278,692 904,522 381,531 421,154 Interest and Dividend Income 268,559 223,660 153,936 81,562 Net unrealized (loss)/gain on marketable securities ( 63,704 ) 1,570 ( 37,433 ) 23,493 Income Before Income Taxes 1,483,547 1,129,752 498,034 526,209 Income Tax Expense 376,085 221,074 131,740 102,516 Net Income $ 1,107,462 $ 908,678 $ 366,294 $ 423,693 Basic Earnings Per Share $ 0.07 $ 0.06 $ 0.02 $ 0.03 Diluted Earnings Per Share $ 0.07 $ 0.06 $ 0.02 $ 0.03 Weighted Average Shares - Basic 15,714,954 15,727,844 15,716,723 15,721,162 Weighted Average Shares - Diluted 15,789,915 15,740,384 15,806,121 15,731,571 See notes to unaudited condensed consolidated financial statements. 2 SONO-TEK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Three and Six Months Ended August 31, 2026 Common Stock Par Value $.01 Shares Amount Additional Paid – In Capital Accumulated Earnings Treasury Stock Total Stockholders’ Equity Balance - February 28, 2026 15,710,389 $ 157,104 $ 10,186,858 $ 9,430,197 — $ 19,774,159 Stock-based compensation expense 85,825 85,825 Cashless exercise of stock options 3,934 39 ( 39 ) — Proceeds from exercise of stock options 2,400 24 9,864 9,888 Net Income - - 741,168 — 741,168 Balance – May 31, 2026 (unaudited) 15,716,723 $ 157,167 $ 10,282,508 $ 10,171,365 — $ 20,611,040 Stock-based compensation expense 87,598 87,598 Net Income - - 366,294 - 366,294 Balance – August 31, 2026 (unaudited) 15,716,723 $ 157,167 $ 10,370,106 $ 10,537,659 — $ 21,064,932 Three and Six Months Ended August 31, 2025 Common Stock Par Value $.01 Shares Amount Additional Paid – In Capital Accumulated Earnings Treasury Stock Total Stockholders’ Equity Balance - February 28, 2025 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 See notes to unaudited condensed consolidated financial statements. 3 SONO-TEK CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended August 31, 2026 2025 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,107,462 $ 908,678 Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation and amortization 242,618 313,567 Stock based compensation expense 173,423 145,918 Inventory reserve 93,070 67,464 Unrealized loss (gain) on marketable securities 63,704 ( 1,570 ) Deferred income tax benefit, net 408,353 114,340 Decrease (Increase) in: Accounts receivable 2,120,693 ( 1,864,590 ) Inventories ( 3,529 ) 254,910 Prepaid expenses and other current assets 207,804 47,566 (Decrease) Increase in: Accounts payable ( 259,727 ) ( 244,971 ) Accrued expenses ( 238,989 ) 134,385 Customer deposits ( 745,497 ) ( 506,566 ) Income taxes payable ( 66,895 ) ( 468,242 ) Net Cash Provided by (Used in) Operating Activities 3,102,490 ( 1,099,111 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment, furnishings and leasehold improvements ( 102,527 ) ( 112,774 ) Sale of marketable securities 1,179,008 1,692,347 Purchase of marketable securities ( 1,278,483 ) ( 1,699,568 ) Net Cash (Used in) Investing Activities ( 202,002 ) ( 119,995 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 9,888 — Purchase of treasury stock — ( 151,122 ) Net Cash Provided by (Used in) Financing Activities 9,888 ( 151,122 ) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,910,376 ( 1,370,228 ) CASH AND CASH EQUIVALENTS: Beginning of period 7,339,403 5,202,361 End of period $ 10,249,779 $ 3,832,133 SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ — $ — Income Taxes Paid $ 34,626 $ 574,975 See notes to unaudited condensed consolidated financial statements. 4 SONO-TEK CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED AUGUST 31, 2026 and 2025 NOTE 1: BUSINESS DESCRIPTION Sono-Tek Corporation (the “Company”, “Sono-Tek”, “We” or “Our”) was incorporated in New York on March 21, 1975. We are the world leader in the design and manufacture of ultrasonic coating systems for applying precise, thin film coatings to add functional properties, protect or strengthen surfaces on parts and components for the microelectronics/electronics, alternative energy, medical, industrial and emerging research & development and other markets. We design and manufacture custom-engineered ultrasonic coating systems incorporating our patented technology, in combination with strong applications engineering knowledge, to assist our customers in achieving their desired coating solutions. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information with the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation, consisting of normal recurring adjustments, have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended February 28, 2026 (“fiscal year 2026”) contained in the Company’s 2026 Annual Report on Form 10-K filed with the SEC on May 28, 2026 . The Company’s current fiscal year ends on February 28, 2027 (“fiscal 2027”). NOTE 2: SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents - Cash and cash equivalents consist of money market mutual funds, short term commercial paper and short-term certificates of deposit with original maturities of 90 days or less. At August 31, 2026, $ 6,676,392 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. 5 The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below: Level 1 — Assets with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities. Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities. The fair values of financial assets of the Company were determined using the following categories at August 31, 2026 and February 28, 2026, respectively: Schedule of significant accounting policies - fair values of financial assets of the company Level 1 Level 2 Level 3 Total Marketable Securities – August 31, 2026 $ 7,505,420 $ — $ — $ 7,505,420 Marketable Securities – February 28, 2026 $ 7,359,354 $ 110,295 $ — $ 7,469,649 Marketable Securities include certificates of deposit and US Treasury securities that are considered to be highly liquid and easily tradeable totaling $ 7,505,420 and $ 7,469,649 as of August 31, 2026 and February 28, 2026, respectively. 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. The Company’s marketable securities are considered to be trading securities as defined under ASC 320 “Investments – Debt and Equity Securities.” Income Taxes - The Company accounts for income taxes under the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The Company uses a recognition threshold and a measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. As of August 31, 2026 and February 28, 2026, there were no accruals for uncertain tax positions. Inventories - Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method for raw materials, subassemblies and work-in-progress and the specific identification method for finished goods. Management compares the cost of inventory with the net realizable value and, if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower than cost. On an ongoing basis, inventory is reviewed for potential write-down for estimated obsolescence or unmarketable inventory based upon forecasts for future demand and market conditions. Land and Buildings - Land and buildings are stated at cost. Buildings are being depreciated by use of the straight-line method based on an estimated useful life of forty years. At August 31, 2026 and February 28, 2026, the Company had land stated at cost of $ 250,000 . 6 At August 31, 2026 and February 28, 2026, the Company had buildings, equipment, furnishings and leasehold improvements totaling $ 2,036,827 and $ 2,173,443 , 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. New Accounting Pronouncements Effective in Current Period - In March 2025, the FASB issued ASU 2025-05 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which clarifies the measurement of expected credit losses for accounts receivable and contract assets arising from revenue transactions within the scope of Topic 606. The amendments require entities to measure expected credit losses for these financial assets using a methodology consistent with the current expected credit loss model while clarifying the interaction between the guidance in Topic 326 and Topic 606. The guidance in this ASU is effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal years of adoption. The Company has adopted this ASU and it did not have a material impact on the Company’s consolidated financial statements and related disclosures. Recent Accounting Pronouncements Not Yet Adopted - 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 December 2025, the FASB issued ASU 2025-11 - Interim Reporting (Topic 270): Improvements to Interim Reporting Guidance, which is intended to improve the clarity and organization of the interim reporting guidance in Topic 270. The amendments clarify the scope and presentation requirements for interim financial statements and introduce a general disclosure principle requiring entities to disclose events or transactions occurring since the end of the last annual reporting period that have a material impact on the entity. The guidance also incorporates certain interim disclosure requirements from other Topics into Topic 270 to improve accessibility of the interim reporting guidance. The amendments in this ASU are effective for interim reporting periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2025-11 will have on its consolidated financial statements and disclosures. Product Warranty - Estimated future product warranty expense is recorded when the product is sold. Revenue Recognition - The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract 7 • 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 Stock-Based Compensation - The Company currently uses a Black-Scholes option pricing model to calculate the fair value of its stock options. The fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk-free interest rate; volatility; and expected lives of the awards. The Company primarily uses historical data to determine the assumptions to be used in the Black-Scholes model. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. ASC 718 requires the recognition of the fair value of stock compensation expense to be recognized over the vesting term of such award. The Company accounts for forfeitures as they occur. NOTE 3: REVENUE RECOGNITION The Company’s sales revenue is derived primarily from short term contracts with customers, which are generally in effect for less than twelve months. Sales revenue from manufactured equipment transferred at a single point in time accounts for a majority of the Company’s revenue. Sales revenue is recognized when control of the Company’s manufactured equipment is transferred to its customers, in an amount that reflects the consideration the Company expects to receive based upon the agreed transaction price. The Company’s performance obligations are satisfied when its customers take control of the purchased equipment, which is based on the contract terms. Based on prior experience, the Company reasonably estimates its sales returns and warranty reserves. Sales are presented net of discounts and allowances. Discounts and allowances are determined when a sale is negotiated. The Company does not grant its customers or independent representatives, the ability to return equipment nor does it grant price adjustments after a sale is complete. The Company does not capitalize any sales commission costs related to the acquisition of a contract. All commissions related to a performance obligation that are satisfied at a point in time are expensed when the customer takes control of the purchased equipment. The Company applies the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one-year or less. At August 31, 2026, the Company had received approximately $ 2,324,000 in cash deposits, representing contract liabilities. At February 28, 2026, the Company had received approximately $ 3,070,000 in cash deposits, representing contract liabilities. During the six months ended August 31, 2026, the Company recognized $ 2,970,000 of these deposits as revenue. The Company’s sales revenue by product line is as follows: Schedule of revenue recognition - sales revenue by product line Three Months Ended August 31, Six Months Ended August 31, 2026 % of total 2025 % of total 2026 % of total 2025 % of total Fluxing Systems $ 27,000 1 % $ 165,000 3 % $ 119,000 1 % $ 317,000 3 % In-Line Coating Systems 1,778,000 34 % 1,530,000 30 % 3,937,000 36 % 4,584,000 45 % Multi-Axis Coating Systems 1,975,000 38 % 2,030,000 39 % 4,050,000 37 % 2,707,000 26 % OEM Systems 642,000 12 % 394,000 8 % 873,000 8 % 524,000 5 % Spare Parts, Services and Other 810,000 15 % 1,044,000 20 % 1,914,000 18 % 2,164,000 21 % TOTAL $ 5,232,000 $ 5,163,000 $ 10,893,000 $ 10,296,000 8 NOTE 4: INVENTORIES Inventories consist of the following: Schedule of inventory, current August 31, February 28, 2026 2026 R aw materials and subassemblies $ 1,680,472 $ 1,931,294 Finished goods 1,112,985 932,866 Work in process 1,040,352 1,059,190 Total $ 3,833,809 $ 3,923,350 The Company maintains a valuation allowance for slow moving inventory for raw materials and finished goods. The valuation allowance creates a new cost basis for the inventory, and it is not subsequently marked up through a reduction in the valuation allowance based on any changes in the underlying facts and circumstances. When the valuation allowance is initially recorded, the increase to the allowance is recognized as an increase in cost of sales. The valuation allowance is only reduced if or when the underlying inventory is sold or destroyed, at which time cost of sales recognized would include the previous adjusted cost basis. During the six months ended August 31, 2026 and August 31, 2025, the Company recorded approximately $ 93,000 and $ 67,000 , 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 August 31, 2026, 513,079 and 186,660 options were outstanding, respectively, under the 2023 Plan and the 2013 Plan. The Company accounts for stock-based compensation under ASC 718, “Share Based Payments”, which requires companies to expense the value of employee stock options and similar awards. The Company accounts for forfeitures as they occur. During the six months ended August 31, 2026, the Company granted options to acquire 95,904 shares to employees exercisable at prices ranging from $ 3.99 to $ 5.35 and options to acquire 26,980 shares to non-employee members of the board of directors with an exercise price of $ 5.35 . The options granted to employees and directors vest over three years and expire ten years from the date of issuance. The options granted during the first six months of fiscal 2027 had a combined weighted average grant date fair value of $ 3.19 per share. The weighted-average fair value of options is estimated on the date of grant using the Black-Scholes options-pricing model. The weighted-average Black-Scholes assumptions are as follows: Schedule of weighted-average black-scholes assumptions Six Months Ended August 31, 2026 Expected Life 5 - 8 years Risk free interest rate 3.92 % - 4.48 % Expected volatility 54.85 % - 56.27 % Expected dividend yield 0 % 9 For the three and six months ended August 31, 2026, the Company recognized $ 88,000 and $ 173,000 in stock-based compensation expense, respectively. Such amounts are included in general and administration expenses on the unaudited condensed consolidated statements of income. For the three and six months ended August 31, 2025, the Company recognized approximately $ 71,000 and $ 146,000 of stock-based compensation expense, respectively. Total compensation expense related to non-vested options not yet recognized as of August 31, 2026 was $ 667,000 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 August 31, 2026 was approximately $ 422,000 . NOTE 6: EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Schedule of computation of basic and diluted earnings per share Six Months Ended August 31, Three Months Ended August 31, 2026 2025 2026 2025 Numerator for basic and diluted earnings per share $ 1,107,462 $ 908,678 $ 366,294 $ 423,693 Denominator for basic earnings per share – weighted average 15,714,954 15,727,844 15,716,723 15,721,162 Effects of dilutive securities Stock options for employees, directors and outside consultants 74,961 12,540 89,398 10,409 Denominator for diluted earnings per share 15,789,915 15,740,384 15,806,121 15,731,571 Basic Earnings Per Share $ 0.07 $ 0.06 $ 0.02 $ 0.03 Diluted Earnings Per Share $ 0.07 $ 0.06 $ 0.02 $ 0.03 NOTE 7: REVOLVING LINE OF CREDIT The Company has a $ 1,500,000 revolving line of credit at prime which was 6.75 % at August 31, 2026 and February 28, 2026. 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. At August 31, 2026, there were no outstanding borrowings under the revolving line of credit. The Company has a $ 750,000 equipment line of credit at prime plus 0.50 % , which was 7.50 % at August 31, 2026. At August 31, 2026, 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: Schedule of customer concentrations and foreign sales Six Months Ended August 31, Three Months Ended August 31, 2026 2025 2026 2025 Asia Pacific (APAC) $ 1,244,000 $ 1,527,000 $ 507,000 $ 930,000 Europe, Middle East, Africa (EMEA) 1,883,000 2,321,000 952,000 1,424,000 Latin America 554,000 185,000 91,000 89,000 $ 3,681,000 $ 4,033,000 $ 1,550,000 $ 2,443,000 10 During the first half of fiscal 2027 and fiscal 2026, sales to foreign customers accounted for approximately $ 3,681,000 and $ 4,033,000 , or 34 % and 39 % , respectively, of total revenues. During the second quarter of fiscal 2027 and fiscal 2026, sales to foreign customers accounted for approximately $ 1,550,000 and $ 2,443,000 , or 30 % and 47 % , respectively, of total revenues. The Company had two customers which accounted for 37 % and 16 % of total sales during the first half of fiscal 2027. The Company had two customers which accounted for 34 % and 18 % of total sales during the second quarter of fiscal 2027. Two customers accounted for 38 % and 13 % of the outstanding accounts receivable at August 31, 2026. The Company had one customer which accounted for 43 % of total sales during the first half of fiscal 2026. The Company had one customer which accounted for 29 % of total sales during the second quarter of fiscal 2026. Three customers accounted for 61 % of the outstanding accounts receivable at February 28, 2026. 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): Schedule of segment data Six Months Ended August 31, Three Months Ended August 31, 2026 2025 2026 2025 Net Sales $ 10,893,000 $ 10,295,000 $ 5,232,000 $ 5,163,000 Direct Cost of Goods Sold Materials & Freight 3,824,000 3,861,000 1,937,000 1,990,000 Production Labor 212,000 151,000 102,000 76,000 Depreciation 102,000 102,000 68,000 52,000 Other 227,000 210,000 94,000 92,000 4,365,000 4,324,000 2,201,000 2,210,000 Service Department Salaries 287,000 278,000 141,000 139,000 Travel 92,000 75,000 40,000 38,000 Outside Installations ( 47,000 ) 160,000 ( 9,000 ) 148,000 Warranty Costs 50,000 78,000 15,000 ( 19,000 ) Other 165,000 126,000 77,000 57,000 547,000 717,000 264,000 363,000 Total Cost of Goods & Service 4,912,000 5,041,000 2,465,000 2,573,000 Gross Profit 5,981,000 5,254,000 2,767,000 2,590,000 Research & Product Development Salaries 943,000 950,000 485,000 476,000 Insurance 73,000 66,000 38,000 31,000 Depreciation 65,000 91,000 33,000 46,000 R & D Materials 102,000 102,000 63,000 36,000 Other 113,000 87,000 60,000 38,000 1,296,000 1,296,000 679,000 627,000 11 Marketing and Selling Salaries 1,014,000 902,000 514,000 456,000 Insurance 126,000 100,000 64,000 53,000 Commissions 426,000 328,000 200,000 175,000 Travel & Entertainment 57,000 60,000 28,000 31,000 Advertising / Trade Show 230,000 201,000 114,000 93,000 Depreciation 45,000 51,000 23,000 26,000 Other 128,000 88,000 59,000 37,000 2,026,000 1,730,000 1,002,000 871,000 General and Administrative Salaries 572,000 555,000 277,000 284,000 Insurance 110,000 92,000 55,000 47,000 Professional Fees 204,000 169,000 98,000 85,000 Corporate Expenses 221,000 255,000 130,000 124,000 Stock Based Compensation 173,000 146,000 88,000 71,000 Depreciation 30,000 36,000 15,000 19,000 Misc Other 70,000 71,000 41,000 41,000 1,380,000 1,324,000 704,000 671,000 Total Operating Expenses 4,702,000 4,350,000 2,385,000 2,169,000 Operating Income 1,279,000 904,000 382,000 421,000 Interest Income & Unrealized Gain 204,000 225,000 117,000 105,000 Income Before Taxes 1,483,000 1,129,000 498,000 526,000 Income Tax Expense 376,000 221,000 132,000 102,000 Net Income $ 1,107,000 $ 908,000 $ 366,000 $ 424,000 NOTE 10: COMMITMENTS AND CONTINGENCIES The Company did not have any material commitments or contingencies as of August 31, 2026. The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition, and cash flows. As of August 31, 2026, the Company did not have any pending legal actions. 12 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; maintenance of increased order backlog; the imposition of tariffs; timely development and market acceptance of new products and continued customer validation of our coating technologies; adequacy of financing; capacity additions, the ability to enforce patents; maintenance of operating leverage; consummation of order proposals; completion of large orders on schedule and on budget; continued sales growth in the medical and alternative energy markets; successful transition from primarily selling ultrasonic nozzles and components to a more complex business providing complete machine solutions and higher value subsystems which are sold at higher average selling prices (“ASP”); and realization of quarterly and annual revenues within the forecasted range of sales guidance. We undertake no obligation to update any forward-looking statement. Overview Founded in 1975, Sono-Tek Corporation is a global leader in designing and manufacturing ultrasonic coating systems that are shaping industries and driving innovation worldwide. Our ultrasonic coating systems are used to apply thin films onto parts used in diverse industries, including microelectronics, alternative energy, medical devices, advanced industrial manufacturing, and research and development sectors worldwide. Sono-Tek’s move into the clean energy sector is showing transformative results in next-gen solar cells, fuel cells, green hydrogen generation, and carbon capture applications as we shape a sustainable future. Our product line is rapidly evolving, transitioning from R&D to high-volume production machines with significantly higher average selling prices, showcasing our market leadership and adaptability. Over the last decade, we have shifted our business from primarily selling ultrasonic nozzles and components to providing complete machine solutions and higher-value subsystems to original equipment manufacturers (OEMs). This strategy has resulted in significant growth of our average unit selling price, with our larger machines often selling for over $300,000 and system prices sometimes reaching over $1,000,000. Consequently, we have broadened our addressable market and believe we can grow sales on a larger scale. We expect that we will experience wide variations in both order flow and shipments from quarter to quarter. Our comprehensive suite of thin film coating solutions and application consulting services, provided by our expert applications engineers to guide our customers in developing the complete coating process, ensures unparalleled results for our clients and help some of the world’s most promising companies achieve technological breakthroughs and bring them to market. In anticipation of customer demands, our significant focus on R&D efforts allows us to keep pace with industry trends while continuously innovating. We strategically deliver our products through a network of direct sales personnel, carefully chosen independent distributors, and experienced sales representatives located in North America, Latin America, Europe, and Asia, ensuring efficient market reach across diverse sectors around the globe. Approximately 34% of our sales were generated outside the United States and Canada in the first six months of fiscal year 2027. 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. 13 Our growth strategy is focused on leveraging our innovative technologies, proprietary know-how, unique talent and experience, and global reach to develop thin-film coating technologies that enable better outcomes for our customers’ products and processes. Second Quarter Fiscal 2027 Highlights (compared with the second quarter of fiscal 2026 unless otherwise noted) We refer to the three-month periods ended August 31, 2026 and 2025 as the second quarter of fiscal 2027 and fiscal 2026, respectively. • Net Sales for the quarter were up slightly year over year, increasing to $5,232,000 compared to $5,163,000 for the prior year period. • Gross Profit increased 7% to $2.77 million, compared to $2.59 million in the prior-year period. Gross profit margin expanded 300 basis points to 53%, up from 50% in the second quarter of fiscal 2026. The improvement reflects a favorable product mix, including shipments of higher-value systems with reduced production costs. In addition, a higher concentration of shipments to U.S.-based customers resulted in lower distributor discounts and commission expenses, while favorable installation expenses further supported stronger margin performance. • Operating income decreased by 9% or $39,000, to $382,000 due to an increase in operating expenses. • Interest and dividend income increased to $154,000 compared to $82,000 for the prior year period due to an increase in available cash balances. • Combined equipment and service-related backlog on August 31, 2026 remained robust at $9,510,000, a decrease of $1,700,000 when compared to the end of the second quarter of fiscal 2026. Sequentially, backlog increased approximately $1,780,000, or 23%, from $7,730,000 at the end of the first quarter of fiscal 2027. First Half Fiscal 2027 Highlights (compared with the first half of fiscal 2026 unless otherwise noted) We refer to the six-month periods ended August 31, 2026 and 2025 as the first half of fiscal 2027 and fiscal 2026, respectively. • Net Sales for the first half of fiscal 2027 increased by 6% or $598,000 to $10,893,000, driven by strong sales to the medical sector. • Gross Profit increased 14% to $5,981,000, and the Gross Profit % increased 400 basis points to 55% primarily due to product mix, a higher proportion of direct U.S. sales that do not carry distributor discounts and favorable installation expenses in the current period. • Operating Income increased 41% or $374,000 to $1,279,000, underscoring operating leverage from stronger gross profit. • Interest and dividend income increased to $269,000 compared to $224,000 for the prior year period. • As of August 31, 2026, the Company had no outstanding debt and had cash, cash equivalents and marketable securities totaling $17.7 million. 14 RESULTS OF OPERATIONS Sales: Product Sales Three Months Ended August 31, Change Six Months Ended August 31, Change 2026 2025 $ % 2026 2025 $ % Fluxing Systems $ 27,000 $ 165,000 (138,000 ) (84% ) $ 119,000 $ 317,000 (198,000 ) (62% ) In-Line Coating Systems 1,778,000 1,530,000 248,000 16% 3,937,000 4,584,000 (647,000 ) (14% ) Multi-Axis Coating Systems 1,975,000 2,030,000 (55,000 ) (3% ) 4,050,000 2,707,000 1,343,000 50% OEM Systems 642,000 394,000 248,000 63% 873,000 524,000 349,000 67% Spare Parts, Services and Other 810,000 1,044,000 (234,000 ) (22% ) 1,914,000 2,164,000 (250,000 ) (12% ) TOTAL $ 5,232,000 $ 5,163,000 69,000 1% $ 10,893,000 $ 10,296,000 597,000 6% Sales of In-Line Coating Systems increased 16% in the second quarter of fiscal 2027 due to strong medical sales in the United States. Despite this quarterly increase, In-Line Coating Systems sales decreased 14% during the first half of fiscal 2027. The decrease is primarily attributed to the shipment of six high ASP systems valued at $4.42 million that occurred in the first half of fiscal 2026 that did not repeat in fiscal 2027. Sales of Multi-Axis Coating Systems decreased by 3% in the second quarter of fiscal 2027. In the first half of fiscal 2027, Multi-Axis Coating Systems increased 50% or approximately $1.3 million, driven by strong sales of specialty stent-coating systems to the U.S. medical device market. Sales of OEM Systems increased 63% to $642,000 in the second quarter and 67% to $873,000 in the first half of fiscal 2027. The increase in OEM sales in the second quarter and the first half of fiscal 2027 were driven by continued strong fluxing-system sales to a European OEM partner and strong semiconductor sales to an OEM in China. Market Sales Three Months Ended August 31, Change Six Months Ended August 31, Change 2026 2025 $ % 2026 2025 $ % Electronics/Microelectronics $ 1,204,000 $ 1,455,000 (251,000 ) (17% ) $ 2,068,000 $ 2,399,000 (331,000 ) (14% ) Medical 3,105,000 1,004,000 2,101,000 209% 7,050,000 1,812,000 5,238,000 289% Alternative/Clean Energy 535,000 2,433,000 (1,898,000 ) (78% ) 855,000 5,681,000 (4,826,000 ) (85% ) Emerging R&D and Other 3,000 33,000 (30,000 ) (91% ) 5,000 47,000 (42,000 ) (89% ) Industrial 385,000 238,000 147,000 62% 915,000 357,000 558,000 156% TOTAL $ 5,232,000 $ 5,163,000 69,000 1% $ 10,893,000 $ 10,296,000 597,000 6% Medical sales increased 209% to $3,105,000 in the second quarter of fiscal 2027 and 289% to $7,050,000 in the first half of fiscal 2027, led by shipments of balloon coating systems and specialty stent-coating systems. Industrial sales increased 62% to $385,000 in the second quarter of fiscal 2027 and 156% to $915,000 in the first half of fiscal 2027, reflecting a system sold to the defense sector for an optics-related application. Electronics/Microelectronics sales decreased 17% to $1,204,000 in the second quarter of fiscal 2027 and 14% to $2,068,000 in the first half of fiscal 2027. Advanced Energy sales declined during the period, reflecting continued lower demand across the broader market. The Company expects this lower level of underlying demand to continue through the remainder of fiscal 2027 and into fiscal 2028. However, subsequent to the end of the second quarter, the Company announced approximately $7.19 million in orders from an existing Advanced Energy customer for ten production systems, with shipments expected primarily in fiscal 2028. This unusually large order is expected to result in a significant increase in reported Advanced Energy sales in fiscal 2028, despite the Company's expectation that underlying demand from the broader Advanced Energy market will remain at reduced levels. 15 Geographic Sales Three Months Ended August 31, Change Six Months Ended August 31, Change 2026 2025 $ % 2026 2025 $ % U.S. & Canada $ 3,682,000 $ 2,720,000 962,000 35% $ 7,212,000 $ 6,263,000 949,000 15% Asia Pacific (APAC) 507,000 930,000 (423,000 ) (45% ) 1,244,000 1,527,000 (283,000 ) (19% ) Europe, Middle East, Africa (EMEA) 952,000 1,424,000 (472,000 ) (33% ) 1,883,000 2,321,000 (438,000 ) (19% ) Latin America 91,000 89,000 2,000 2% 554,000 185,000 369,000 199% TOTAL $ 5,232,000 $ 5,163,000 69,000 1% $ 10,893,000 $ 10,296,000 597,000 6% In the second quarter of fiscal 2027, approximately 30% of sales originated outside of the United States and Canada compared with 47% in the second quarter of fiscal 2026. In the first half of fiscal 2027, approximately 34% of sales originated outside of the United States and Canada compared with 39% in the first half of fiscal 2026. U.S. and Canada sales increased 35% in the second quarter of fiscal 2027 and 15% in the first half of fiscal 2027, driven by strong sales to the U.S. medical-device market, including the stent and drug-coated balloon markets. Asia Pacific sales decreased approximately 45% in the second quarter and 19% in the first half of fiscal 2027, reflecting lower sales in South Korea, Taiwan and Japan. These decreases were partially offset by increased sales in China, including strong first-half medical and semiconductor sales. Latin America sales increased 2% in the second quarter of fiscal 2027 and were essentially flat with the prior-year quarter. Sales increased 199% in the first half of fiscal 2027, including a $242,000 medical system shipped to Costa Rica. EMEA sales decreased 33% in the second quarter and 19% in the first half of fiscal 2027, primarily reflecting softer clean-energy sales in the region. The first-half decrease was partially offset by strong sales to a European fluxing OEM partner and solid medical-sector sales. Gross Profit: Three Months Ended August 31, Change Six Months Ended August 31, Change 2026 2025 $ % 2026 2025 $ % Net Sales $ 5,232,000 $ 5,163,000 69,000 1% $ 10,893,000 $ 10,296,000 597,000 6% Cost of Goods Sold 2,465,000 2,573,000 (108,000 ) (4% ) 4,912,000 5,042,000 (130,000 ) (3% ) Gross Profit $ 2,767,000 $ 2,590,000 177,000 7% $ 5,981,000 $ 5,254,000 727,000 14% Gross Profit % 53% 50% 55% 51% For the second quarter of fiscal 2027, gross profit increased by $177,000, or 7%, to $2,767,000 compared with $2,590,000 in the prior year period. The gross profit percentage improved by 300 basis points, rising to 53% from 50%. The increase in the gross profit percentage was influenced by product mix, a higher proportion of direct U.S. sales that do not carry distributor discounts and favorable installation expenses in the period. For the first half of fiscal 2027, gross profit increased by $727,000, or 14%, to $5,981,000 compared with $5,254,000 in the first half of fiscal 2026. The gross profit percentage improved by 400 basis points, rising to 55% from 51%. The increase in the gross profit percentage was influenced by product mix, a higher proportion of direct U.S. sales that do not carry distributor discounts and favorable installation and warranty expenses in the period. 16 Gross margin performance during the first half of fiscal 2027 benefited from several factors, including the Company's continued focus on pricing and cost management, a favorable mix of higher-value systems, and a higher proportion of direct sales to U.S.-based customers, which generally do not carry distributor discounts and commissions. The Company has continued to expand its participation in larger, more complex production applications, which has also required increased investment in sales and marketing to support these opportunities. While these strategic initiatives contributed to the improved gross margin performance, the product and geographic mix during the first half of fiscal 2027 was unusually favorable. Gross margins can vary significantly from period to period based on the specific systems shipped, customer and geographic mix, distributor involvement, installation requirements and other factors. Accordingly, the gross margin levels achieved during the first half of fiscal 2027 should not necessarily be viewed as indicative of margins expected in future periods. Operating Expenses: Three Months Ended August 31, Change Six Months Ended August 31, Change 2026 2025 $ % 2026 2025 $ % Research and product development $ 679,000 $ 627,000 52,000 8% $ 1,296,000 $ 1,296,000 0 0% Marketing and selling 1,001,000 871,000 130,000 15% 2,026,000 1,730,000 296,000 17% General and administrative 705,000 670,000 35,000 5% 1,380,000 1,324,000 56,000 4% Total Operating Expenses $ 2,385,000 $ 2,168,000 217,000 10% $ 4,702,000 $ 4,350,000 352,000 8% Research and Product Development: Research and product development costs increased in the second quarter of fiscal 2027 due to increases in employee health insurance, an increase in research and development materials and an increase in miscellaneous engineering expenses. Research and product development costs remained steady at $1,296,000 in the first half of fiscal years 2027 and 2026. In the first half of fiscal 2027 we experienced increases in employee health insurance expense and miscellaneous engineering expenses which were offset by decreases in salaries and supplies. Marketing and Selling : Marketing and selling expenses increased in both the second quarter and the first half of fiscal 2027 due to an increase in salary expense related to our sales application lab, an increase in salesperson and forward deployed engineering salaries, an increase in employee health insurance expense, an increase in trade show expenses and an increase in other miscellaneous 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 those generated by our in-house sales team to more sales by our external distributors. In the second quarter of fiscal 2027, we expended approximately $200,000 for commissions as compared with $175,000 in the prior year period, an increase of $25,000. In the first half of fiscal 2027, we expended approximately $426,000 for commissions as compared with $328,000 in the prior year period, an increase of $98,000. The increase in commission expense during the current periods is due to the increase in sales. 17 We expect our marketing and sales expenses to increase in the second half of fiscal 2027 as we invest in additional sales personnel, forward deployed engineering personnel, and programming talent to support new business opportunities, particularly those associated with production systems that have high ASPs to drive future growth. General and Administrative: General and administrative expenses increased in both the second quarter and first half of fiscal 2027 due to increases in salaries, employee health insurance expense, corporate expenses, stock-based compensation and legal and accounting fees. Operating Income : In the second quarter of fiscal 2027, operating income decreased $39,000, or 9%, to $382,000 compared with $421,000 for the second quarter of fiscal 2026. Operating margin for the quarter decreased to 7% compared with 8% in the prior year period. In the second quarter of fiscal 2027, an increase in operating expenses, partially offset by an increase in gross profit, were key factors in the decrease in operating income. In the first half of fiscal 2027, operating income increased $374,000, to $1,279,000, compared with $905,000 for the first half of fiscal 2026. Operating margin for the first half of fiscal 2027 increased to 12% compared with 9% in the prior year period. In the first half of fiscal 2027, an increase in gross profit, partially offset by an increase in operating expenses, were key factors in the increase of operating income. Interest, Dividend Income and Unrealized Gain and Loss: Interest and dividend income increased $72,000 to $154,000 in the second quarter of fiscal 2027 compared with $82,000 for the second quarter of fiscal 2026. In the first half of fiscal 2027 interest and dividend income increased $45,000 to $269,000 as compared with $224,000 for the first half of fiscal 2026. The increase in interest and dividend income in the second quarter and first half of fiscal 2027 is due to an increase in our available cash balances. In the first half of fiscal 2027, our net income and a decrease in our accounts receivable balances were key factors in the increase of our available cash balances. Our present investment policy is to invest excess cash in highly liquid, lower risk US Treasury securities. At August 31, 2026, the majority of our holdings are rated at or above investment grade. Net unrealized loss increased $60,000 to $37,000 in the second quarter of fiscal 2027 as compared to an unrealized gain of $23,000 in the second quarter of fiscal 2026. In the first half of fiscal 2027, unrealized loss increased $66,000 to $64,000 as compared with an unrealized gain of $2,000 in the first half of fiscal 2026. Income Tax Expense: We recorded income tax expense of $132,000 for the second quarter of fiscal 2027 compared with $103,000 for the second quarter of fiscal 2026. For the first half of fiscal 2027, we recorded income tax expense of $376,000 compared with $221,000 for the first half of fiscal 2026. The increase in income tax expense for the first half of fiscal 2027 is due to the increase in income before income taxes combined with an increase in state franchise taxes in the current period. The net decrease in the deferred tax asset and liability was approximately $408,000 for the first half of fiscal 2027. The net decrease in the deferred tax asset is due to the expected utilization of capitalized research and development expenses against taxable income. Net Income: Net income decreased by $58,000 to $366,000 for the second quarter of fiscal 2027 compared with $424,000 for the second quarter of fiscal 2026. The decrease in net income during the second quarter is primarily a result of an increase in gross profit partially offset by an increase in operating expenses. 18 Net income increased by $198,000 to $1,107,000 for the first half of fiscal 2027 compared with $909,000 for the first half of fiscal 2026. The increase in net income during the first half of fiscal 2027 is primarily a result of an increase in gross profit partially offset by an increase in operating expenses and an increase in income tax expense. Liquidity and Capital Resources: Working Capital – Our working capital increased $1,838,000 to $18,074,000 at August 31, 2026 from $16,236,000 at February 28, 2026. The increase in working capital was primarily the result of the current period's net income and non-cash charges partially offset by purchases of equipment. We aggregate cash, cash equivalents and marketable securities in managing our balance sheet and liquidity. For purposes of the following analysis, the total is referred to as “Cash.” At August 31, 2026 and February 28, 2026, our working capital included: August 31, 2026 February 28, 2026 Cash Increase Cash and cash equivalents $ 10,250,000 $ 7,339,000 $ 2,911,000 Marketable securities 7,505,000 7,470,000 35,000 Total $ 17,755,000 $ 14,809,000 $ 2,946,000 The following table summarizes the accounts and the major reasons for the $2,946,000 increase in “Cash”: Impact on Cash Reason Net income, after adjustments to reconcile to net cash $ 2,025,000 To reconcile increase in cash. Accounts receivable decrease 2,121,000 Timing of cash receipts. Inventories increase (4,000 ) Customer deposits decrease (745,000 ) Decrease due to completed sales. Accounts payable decrease (260,000 ) Timing of disbursements. Accrued expenses decrease (239,000 ) Timing of disbursements. Prepaid and Other Assets decrease 208,000 Decreased prepaid expenses. Income taxes payable decrease (67,000 ) Timing of disbursements. Equipment purchases (103,000 ) Equipment and facilities upgrade. Proceeds from exercise of stock options 10,000 Received for stock options. Net increase in cash $ 2,946,000 Stockholders’ Equity – Stockholders’ Equity increased $1,291,000 from $19,774,000 at February 28, 2026 to $21,065,000 at August 31, 2026. The increase is a result of the current period’s net income of $1,107,000, proceeds from exercise of stock options of $10,000 and $174,000 in additional equity related to stock-based compensation awards. The details of stock-based compensation awards are explained in Note 5 in our financial statements. Operating Activities – We generated $3,102,000 of cash in our operating activities in the first half of fiscal 2027 compared with using $1,100,000 in the prior year period, an increase of $4,202,000. The increase in cash generated by operating activities was the result of a decrease in accounts receivable in the current period, partially offset by a decrease in customer deposits. During the first half of fiscal 2027, our accounts receivable decreased $2,121,000 to $1,230,000 at August 31, 2026 from $3,351,000 at February 28, 2026. In the first half of fiscal year 2027, we collected all of the February 28, 2026 outstanding accounts receivable. The outstanding accounts receivable balance at February 28, 2026 included approximately $884,000 due from one customer that we had provided extended payment terms to in the first half of fiscal year 2026, the customer paid this balance in the first half of fiscal year 2027. 19 Our accounts receivable and customer deposits are interrelated in our business model. Our standard practice is to receive a cash deposit for our customer orders. Upon shipment of an order, the customer deposit is applied against the outstanding receivable. Our accounts receivable and customer deposit balances will vary depending upon customer activity. It is possible going forward that our accounts receivable balances will increase and there will be a corresponding reduction in our available cash balances. Investing Activities – For the first half of fiscal year 2027, our investing activities used $202,000 of cash compared with using $120,000 for the first half of fiscal 2026. For the first half of fiscal years 2027 and 2026, we used $103,000 and $113,000, respectively, for the purchase or manufacture of equipment, furnishings and leasehold improvements. In the first half of fiscal year 2027, net purchases of marketable securities used $99,000 of cash compared with $9,000 in the prior year period. Financing Activities – In the first half of fiscal year 2027, we received $10,000 for the exercise of stock options. In the first half of fiscal year 2026, we used $151,000 for the purchase of treasury stock. Net Increase in Cash and Cash Equivalents – In the first half of fiscal 2027, our cash balance increased by $2,910,000 as compared to a decrease of $1,370,000 in the first half of fiscal 2026. In the first half of fiscal 2027, our operating activities generated $3,102,000 of cash and purchases of our marketable securities used $99,000. In addition, we used $103,000 for the purchase or manufacture of equipment, furnishings and leasehold improvements. Critical Accounting Estimates The discussion and analysis of the Company’s financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions and conditions. Management’s estimates and judgments are continually evaluated and are based on historical experience and expectations regarding future events that are believed to be reasonable under the specific circumstances. Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties and may potentially result in materially different results under different assumptions and conditions. The Company believes that critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies see Note 2 to the Company’s consolidated financial statements included in Form 10-K for the year ended February 28, 2026. Accounting for Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. We use a recognition threshold and a measurement attribute for financial statement recognition and measurement tax positions taken or expected to be taken in a return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. As of August 31, 2026 and August 31, 2025, there were no uncertain tax provisions. 20 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 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. In March 2025, the FASB issued ASU 2025-05 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which clarifies the measurement of expected credit losses for accounts receivable and contract assets arising from revenue transactions within the scope of Topic 606. The amendments require entities to measure expected credit losses for these financial assets using a methodology consistent with the current expected credit loss model while clarifying the interaction between the guidance in Topic 326 and Topic 606. The guidance in this ASU is effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal years of adoption. The Company has adopted this ASU and it did not have a material impact on the Company’s consolidated financial statements and related disclosures. In December 2025, the FASB issued ASU 2025-11 - Interim Reporting (Topic 270): Improvements to Interim Reporting Guidance, which is intended to improve the clarity and organization of the interim reporting guidance in Topic 270. The amendments clarify the scope and presentation requirements for interim financial statements and introduce a general disclosure principle requiring entities to disclose events or transactions occurring since the end of the last annual reporting period that have a material impact on the entity. The guidance also incorporates certain interim disclosure requirements from other Topics into Topic 270 to improve accessibility of the interim reporting guidance. The amendments in this ASU are effective for interim reporting periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2025-11 will have on its consolidated financial statements and disclosures. Other than ASU 2024-03, ASU 2025-05 and ASU 2025-11 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. 21 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 $10,250,000 in cash and $7,505,000 in marketable securities, the market rate risk associated with changing interest rates in the United States is not material. ITEM 4 – Controls and Procedures The Company has established and maintains “disclosure controls and procedures” (as those terms are defined in Rules 13a –15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”). R. Stephen Harshbarger, Chief Executive Officer (principal executive) and Stephen J. Bagley, Chief Financial Officer (principal accounting officer) of the Company, have evaluated the Company’s disclosure controls and procedures as of August 31, 2026. Based on this evaluation, they have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to Management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding timely disclosure. In addition, there were no changes in the Company’s internal controls over financial reporting during the second fiscal quarter of fiscal year 2027 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting. 22 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, 2026. 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 None 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 23 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: October 14, 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 24