SOTK 10-K & 10-Q changes, risk factors and insider trading
Sono Tek Corp. · Nasdaq · Special Industry Machinery, Nec · CIK 806172 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
Not available: the section could not be located automatically in both filings (non-standard layout or incorporated by reference). See the original filing. Open the filing on SEC.gov.
Management's Discussion & Analysis (MD&A)
Largest changes
“Sales in the US & Canada increased 15% or $1.63 million, driven by the delivery of five high ASP systems totaling $3.85 million, reinforcing our strategy to provide highly complex, high-volume systems with premium pricing. This represents the largest number of high ASP systems sold in a single year. Growth in the US/Canada region was partially offset by declines in other regions. Latin America sales decreased 34% or $412,000, due to a $465,000 float glass coating system sale into Mexico that occurred in the prior year that did not repeat in fiscal 2025. …”see in full comparison
“In fiscal 2025 the decrease in the gross profit percentage was a result of product mix and the reallocation and recharacterization of specific labor expenses from the engineering department to cost of goods sold that started in the fourth quarter of fiscal year 2024 as an outcome of the completion of several successful R&D endeavors.”see in full comparison
Research and product development costs decreasedsee in full comparison$162,000$170,000 to$2,724,000$2,554,000 for fiscal20252026 due to a decrease in salary associated with the departure of a senior engineer, a decrease in research and developmentmaterialsmaterials, supplies, insurance expense andthetravelreallocationexpenses.andTheserecharacterizationdecreasesofwerespecificpartiallylaboroffsetexpensesbyfromadditionalthelabengineering department to cost of goods sold that started in the fourth quarter of fiscal year 2024.salaries.
“Sales in international markets declined, with Asia Pacific decreasing $128,000, or 5%, to $2,630,000, Europe, Middle East and Africa decreasing $689,000, or 16%, to $3,742,000, and Latin America decreasing $218,000, or 27%, to $591,000. These decreases reflect variability in regional demand and the timing of system shipments.”see in full comparison
“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. …”see in full comparison
“In accordance with the Act, for the fiscal year ended February 28, 2026, the Company has expensed the R&D costs incurred for the current calendar year end. Pursuant to the Act, R&D costs amounts previously capitalized and recorded as a deferred tax asset now are eligible to be expensed in full verses being amortized periodically over a five year term. Any prior year R&D amounts capitalized and not utilized in the current year will be carried over as a deferred tax asset. …”see in full comparison
Full comparison: every changed paragraph (62)
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; international hostilities, including war with Iran; 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; and realization of quarterly and annual revenues within the forecasted range of sales guidance.
We have an established infrastructure of application process development
laboratories located at our distributor sites in Japan, China, Germany, Taiwan,Singapore, South Korea and our home office in New York. These
laboratories laboratories
are equipped with Sono-Tek systems and technical personnel to conduct customer demonstrations and process development for
new coating
applications that our customers bring to us. Our engineering, service and sales teams all continue to grow as we expand our
addressable addressable
markets and enhance our product line to include larger more sophisticated machinery and systems with increased capabilities.
Gross profit decreasedincreased $106,000,$821,000, or 1%8% to $9,739,000$10,560,000 for fiscal 20252026
compared with $9,845,000$9,739,000 in fiscal 2024.2025. The gross profit percentage decreasedincreased to 47.5%51% for fiscal 2025,2026, compared to 50.0%48% for fiscal
2024. 2025.
In fiscal 2026 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. In addition, sales to the United States were strong, which carry fewer distributor related expenses.
In fiscal 2025 the decrease in the gross profit percentage was a result
of product mix and the reallocation and recharacterization of specific labor expenses from the engineering department to cost of goods
sold that started in the fourth quarter of fiscal year 2024 as an outcome of the completion of several successful R&D endeavors.
Total sales for fiscal year 2026 increased by 2%, driven primarily by significant growth in Integrated Coating Systems and Fluxing Systems, partially offset by declines in Multi-Axis Coating Systems and other product categories.
In-Line Coating System sales increased by 91%, or $3,367,000, to $7,070,000 due to shipments of multiple high ASP production systems, including several systems delivered to a key customer in the solar energy market. This increase reflects continued success in transitioning customers from research and development systems to production-scale platforms.
Fluxing System sales increased 53%, or $246,000, to $713,000, primarily driven by increased demand in Asia.
Multi-Axis Coating System sales decreased by $2,623,000, or 25%, to $8,055,000, primarily due to reduced demand in electrolysis-related applications within the Alternative/Clean Energy market.
OEM System sales decreased 18%, or $274,000, to $1,210,000, and Other product sales declined 7%, or $311,000, to $3,861,000, reflecting normal variability in customer demand and order timing.
Overall, product mix in fiscal 2026 continued to shift toward higher-value, production-scale systems, consistent with the Company’s strategic focus on expanding its portfolio of complex, high-ASP coating solutions.
Total sales for fiscal year 2025 grew by 4%, driven by increased demand
for our Integrated Coating and Multi-Axis Coating systems which are commonly used in the clean energy sector. Integrated Coating System
sales increased by 28%, or $814,000, to $3,703,000 due to continued success with a key strategic partner within the solar energy market.
Printed Circuit Board “PCB” Fluxing System sales declined
35%, or $257,000, largely due to weaker demand in Latin America. The decrease was driven by a general slowdown in PCB equipment sales
in Mexico and the closure of one of our key distributors in the region. To address this, we onboarded and trained a New Mexico-based distribution
partner, which we believe will contribute to improved spray fluxing sales in fiscal 2026.
Sales to the Medical market increased $1,754,000, or 54%, to $5,004,000 in fiscal 2026 compared to $3,250,000 in fiscal 2025. The increase was driven by strong demand for coating systems used in applications such as balloon catheter manufacturing, specialty stent coating needs, and custom medical device applications.
Electronics/Microelectronics sales increased $864,000, or 16%, to $6,290,000 in fiscal 2026 compared to $5,426,000 in fiscal 2025, reflecting continued demand for electrically active coatings for diagnostic-related applications.
Sales to the Alternative/Clean Energy market decreased $1,864,000, or 19%, to $7,974,000 in fiscal 2026 compared to $9,838,000 in fiscal 2025. The decrease was primarily attributable to reduced demand for electrolysis-related systems, influenced by reductions and eliminations of government incentives, partially offset by solar-related system shipments earlier in the fiscal year.
Industrial sales decreased $348,000, or 18%, to $1,575,000 in fiscal 2026 compared to $1,923,000 in fiscal 2025, reflecting continued variability in demand for industrial coating applications.
Emerging R&D and Other sales remained relatively unchanged and continue to represent an increasingly smaller portion of total revenue. As customer applications progress from development-stage activity to commercial adoption, the related revenue opportunity typically transitions into our larger addressable end markets, including Medical, Electronics/Microelectronics, Alternative/Clean Energy and Industrial.
Sales to the Alternative/Clean Energy market increased 64% in fiscal
2025, driven by a growing number of customers transitioning from our R&D systems to production scale systems, which carry significantly
higher ASPs. This growth was partially offset by declines in the Medical and Industrial markets. Medical sales decreased $930,000, or
22%, to $3.25 million compared to $4.18 million in the prior year, and Industrial sales declined $1.68 million, or 47%, to $1.92 million
compared to $3.61 million in the prior year.
In fiscal 2025,2026, approximately 61%67% of our sales were to US and Canadian
customers. This is compared to 55%61% in fiscal 2024.2025, reflecting a continued shift toward domestic, production-oriented customers and higher-value
system shipments.
Sales in the United States and Canada increased $1,440,000, or 12%, to $13,946,000 in fiscal 2026 compared to $12,506,000 in fiscal 2025. This increase was driven by increased shipments of production systems with high ASPs, including significant system deliveries to a major solar customer, as well as a greater concentration of revenue from domestic customers where we benefit from lower distribution and logistical costs.
Sales in international markets declined, with Asia Pacific decreasing $128,000, or 5%, to $2,630,000, Europe, Middle East and Africa decreasing $689,000, or 16%, to $3,742,000, and Latin America decreasing $218,000, or 27%, to $591,000. These decreases reflect variability in regional demand and the timing of system shipments.
Sales in the US & Canada increased 15% or $1.63 million, driven
by the delivery of five high ASP systems totaling $3.85 million, reinforcing our strategy to provide highly complex, high-volume systems
with premium pricing. This represents the largest number of high ASP systems sold in a single year. Growth in the US/Canada region was
partially offset by declines in other regions. Latin America sales decreased 34% or $412,000, due to a $465,000 float glass coating system
sale into Mexico that occurred in the prior year that did not repeat in fiscal 2025. Asia sales declined 16% or $510,000, influenced by
continued weak demand from China, where sales fell to $522,000 in fiscal 2025 from $775,000 in fiscal 2024. China now represents approximately
2.5% of total sales, down significantly from its historical peak. EMEA sales increased 2% or $98,000, supported by multiple system shipments
to customers in the green energy sector.
Research and product development costs decreased $162,000$170,000 to $2,724,000$2,554,000
for fiscal 20252026 due to a decrease in salary associated with the departure of a senior engineer, a decrease in research and development
materialsmaterials, supplies, insurance expense and thetravel reallocationexpenses. andThese recharacterizationdecreases ofwere specificpartially laboroffset expensesby fromadditional thelab engineering department to cost of goods sold
that started in the fourth quarter of fiscal year 2024.salaries.
Marketing and selling expenses decreased slightly$153,000 into $3,525,000 for fiscal 2025 to
$3,678,0002026 due to
a decrease in salary expenseexpense, whicha was partially offset by an increasedecrease in commissions and travel and trade show expenses.expenses and a decrease in commission expense.
During fiscal 2026, we expended approximately $568,000 for travel and trade show expenses compared with $595,000 for the prior fiscal year, a decrease of $27,000. 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 fiscal 2026, we expended approximately $635,000 for commissions as compared with $767,000 for the prior fiscal year, a decrease of $132,000. 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.
We expect our marketing and sales expenses to increase in 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.
During fiscal 2025, we expended approximately $595,000 for travel
and trade show expenses compared with $505,000 for the prior fiscal year, an increase of $90,000.
In fiscal 2025, we expended approximately $767,000 for commissions
as compared with $674,000 for the prior fiscal year, an increase of $93,000. The increase in commission expense is primarily the result
of an increase in sales being generated by our external distributors, which are commissioned at a higher rate than our in-house sales
team.
The decrease in salary expense is primarily due to the reallocation
of the salary of our Chief Executive Officer, Steve Harshbarger, to the General and Administrative category as described more fully below
under the heading “General and Administrative”.
General and Administrative (G&A) costs increased $247,000$329,000 to $2,327,000$2,656,000
for fiscal 20252026 due to an increase in salaries, professionalinsurance fees,expense, corporate expensesexpenses, stock-based compensation and stock-basedother compensation.expenses. These
increases were
partially offset by thea reversaldecrease ofin theprofessional sales tax accrual described more fully below.fees.
In fiscal 2026 stock-based compensation expense increased $69,000 to $317,000, compared with $248,000 in fiscal 2025. The increase in stock-based compensation expense in fiscal 2026 is due to option awards that were issued in the prior fiscal year. Option awards are expensed over three years based on vesting terms.
Effective January 1, 2024, Steve Harshbarger became our Chief Executive Officer, having
previously served as President prior to such date. On becoming Chief Executive Officer, we reclassified the expenses related to Mr. Harshbarger's
compensation in connection with this positional change. Prior to January 1, 2024, we classified Mr. Harshbarger’s salary under sales
expenses because of Mr. Harshbarger’s instrumental role in that area. For fiscal year 2025, the total reallocated amount of Mr.
Harshbarger’s salary was approximately $325,000.
In the fourth quarter of fiscal 2024, we were notified by the
State State
of California that we were required to collect sales tax on our shipments to customers in California. ForIn connection with
previous taxable sales, we collected
approximately $86,000 of delinquent sales tax from our customers in fiscal 2025. As of February
29, 2024, on the basis of a preliminary
analysis of our sales to our California customers sincecommencing on April 1, 2019, we recorded
an accrual in the amount of $138,000 for the estimated
sales tax, penalties and interest that we may have been required to remit to
the State of California.
Our operating income decreasedincreased $172,000$815,000 or 15%,81%, to $1,010,000$1,825,000 in fiscal
20252026 compared with $1,182,000$1,010,000 for the prior fiscal year. In fiscal 2025, the decrease in operating income is a result of a decrease in
gross profit combined with an increase in operating expenses. Operating margin for fiscal 20252026 decreasedincreased to 5%9% compared with 6% in fiscal
2024. As a percentage of net sales, operating expenses decreased 100 basis points to 43%5% in fiscal 20252025.
In comparedfiscal with2026, 44%the increase in fiscalgross 2024.profit was the key factor in the increase in operating income.
We recorded an income tax expense of $261,000$461,000 for fiscal 20252026 compared
with $303,000$261,000 for the prior fiscal year. The decreaseincrease in income tax expense in fiscal 20252026 is due to the current period’syear’s decrease increase
in income
before income taxes offset by the application of available research and development tax credits.
The deferred tax asset decreased approximately $384,000, to $1,142,000 at February 28, 2026 from $1,525,000 at February 28, 2025. Additionally, the deferred tax liability decreased approximately $76,000, to $56,000 at February 28, 2026 from $132,000 at February 28, 2025. The net decrease in the deferred tax asset and liability was approximately $307,000 for 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 introduced 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 fiscal 2026, in accordance with ASC 740, Income Taxes.
The OBBBA did not change the statutory U.S. federal tax rate. Accordingly, the OBBBA did not compel us to remeasure our deferred tax assets and liabilities solely because of a rate change. However, the various changes in tax law did impact our current and deferred tax calculations.
The most significant tax provisions impacting us include:
Bonus Depreciation – The Act permanently restores 100% bonus depreciation for qualified property acquired and placed into service after January 19, 2025.
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.
In accordance with the Act, for the fiscal year ended February 28, 2026, the Company has expensed the R&D costs incurred for the current calendar year end. Pursuant to the Act, R&D costs amounts previously capitalized and recorded as a deferred tax asset now are eligible to be expensed in full verses being amortized periodically over a five year term. Any prior year R&D amounts capitalized and not utilized in the current year will be carried over as a deferred tax asset. Some states have decoupled from the federal tax provisions of the Act and continue to follow the prior tax laws per the 2017 Tax Cuts and Jobs Act for capitalizing and amortizing R&D costs. The expensing of these costs is subject to taxable income limitations.
Net income decreasedincreased $168,000$533,000 or 12%,42%, to $1,273,000$1,806,000 for fiscal 20252026
compared with $1,441,000$1,273,000 for the prior fiscal year. The decreaseincrease in net income in fiscal 20252026 is a result of aan decreaseincrease in gross profit
combinedoffset withby ana slight increase in operating expenses and partially offset by aan decreaseincrease in income tax expense.
Working Capital – Our working capital increased
$1,378,000$2,735,000 to $16,236,000 at February 28, 2026 from $13,501,000 at February 28, 2025 from $12,123,000 at February 29, 2024.2025. The increase in working capital was primarily the
result of the current year’s net income and non-cash charges partially offset by purchases of equipment.equipment and redemptions of the Company’s
stock.
During fiscal 2026 the net increase in our marketable securities was $742,000. This increase is included in the net increase in cash in the table above.
Stockholders’ Equity – Stockholders’
equityEquity increased $1,513,000$1,982,000 from $16,279,000 at February 29, 2024 to $17,792,000 at February 28, 2025.2025 to $19,774,000 at February 28, 2026. The increase wasis a result of the
current year’s net income of $1,273,000$1,806,000, proceeds from exercise of stock options of $11,000, and $248,000$317,000 in additional equity related
to stock-based compensation awards. These increases
were partially offset by treasury stock purchases of $8,000.$151,000. The details of stock-based
compensation compensationawards are explained in Note 4 in our financial
statements.
During fiscal 2025 and fiscal 2026, we acquired a total of 44,091 shares of our common stock pursuant to a Stock Repurchase Plan which terminated in January 2026. Such shares were held as treasury stock until February 2026 when they were canceled, becoming authorized but unissued.
Operating Activities – We generated $525,000$3,246,000
of cash in our operating activities in fiscal 20252026 compared with generating $1,164,000$525,000 in fiscal 2024,2025, aan decreaseincrease of $639,000.$2,721,000. The decreaseincrease
in cash generated by operating activities was the result of increases in accounts payable, accrued expenses, an increase in accountscustomer receivable combined withdeposits
and a decrease in customer deposit
balances.inventories. These usessources of cash were partially offset by aan decreaseincrease in inventoriesaccounts receivable, an increase in prepaid
expenses and an increase in income taxes payable.
In fiscal 2025,2026, customer deposit balances decreasedincreased $1,007,000$657,000 when
compared to the prior year. The decreaseincrease in customer deposits is primarily due to a large number of shipments occurring in the fourth
quarter of fiscal 2025.2026.
Investing Activities – In fiscal 2025,2026,
our investing activities providedused $2,550,000$968,000 of cash compared with usingproviding $2,384,000 of cash$2,550,000 in fiscal 2024.2025. Capital spending in fiscal
2025 2026 was $469,000
$225,000 for the purchase or manufacture of equipment, furnishings and leasehold improvements. This compares with $795,000$469,000 for
the prior
year period.
In fiscal 2025,2026, netwe salesused $743,000 of marketable securities generated $3,019,000
of cash compared with using $1,589,000 for the purchase of marketable
securities securitiescompared with $3,019,000 being generated in fiscal 2024.2025.
As of February 28, 2025, $106,000 of our credit line was being utilized
to collateralize letters of credit issued to customers that have remitted cash deposits to us on existing orders. The unused portion of
the credit line was $1,394,000 as of February 28, 2025. The letters of credit expire in fiscal year 2025.
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.
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.
In accordance with the Act, for the fiscal year ended February 28, 2026, the Company has expensed the R&D costs incurred for the current calendar year end. Pursuant to the Act, R&D costs amounts previously capitalized and recorded as a deferred tax asset now are eligible to be expensed in full verses being amortized periodically over a five year term. Any prior year R&D amounts capitalized and not utilized in the current year will be carried over as a deferred tax asset. Some states have decoupled from the federal tax provisions of the Act and continue to follow the prior tax laws per the 2017 Tax Cuts and Jobs Act for capitalizing and amortizing R&D costs. The expensing of these costs is subject to taxable income limitations.
What changed in the latest 10-Q
Risk Factors
We could not find a separate Risk Factors item in the latest 10-Q. Some companies leave it out of quarterly reports; see the annual 10-K risk factors and the original filing. Open the filing on SEC.gov.
Management's Discussion & Analysis (MD&A)
Largest changes
“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. …”see in full comparison
“For the first quarter of fiscal year 2027, In-Line Coating Systems sales decreased $895,000, or 29%, to $2.16 million, impacted by a significant decrease in sales to the clean energy sector for a solar coating customer in the first quarter of fiscal year 2026 that did not repeat in the current quarter. Multi-Axis Coating Systems increased $1.39 million, or 206%, to $2.08 million. OEM Systems increased $101,000, or 78%, to $231,000, driven by strong sales to our fluxer OEM partners, and strong sales to a China-based OEM partners in the semiconductor market. …”see in full comparison
“Sales to the Alternative Energy/Clean market decreased $2.93 million, or 90%, to $319,000, impacted by reduced electrolysis demand following government policy shifts, and no solar shipments. Medical market sales increased $3.14 million, or 388%, to $3.95 million led by strong specialty stent coating in the US, and DEB coating system sales in the US, China and Europe. Sales to the Electronics/Microelectronics market declined $80,000, or 8%, to $863,000. …”see in full comparison
“In the first quarter of fiscal year 2027, sales to customers in the U.S. and Canada were $3,530,000, essentially flat compared to sales of $3,543,000 in the prior year period. Asia Pacific (APAC) sales grew 24%, or $141,000, to $738,000, influenced by increased sales to China in the medical sector for DEB coating. …”see in full comparison
“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.”see in full comparison
“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.”see in full comparison
Full comparison: every changed paragraph (72)
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,
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 second
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 revenues2027; 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.
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, ensureensures unparalleled
results results
for our clientsclients. andThese solutions 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,Asia. ensuringThis
network ensures efficient market reach across
diverse sectors around the globe. Approximately 37%38% of our sales were generated outside
the United States and Canada in the first nine
three months of fiscal year 2026.2027.
ThirdFirst Quarter Fiscal 2026Year 2027 Highlights (compared with the thirdfirst quarter
of of
fiscal 2025year 2026 unless otherwise noted) We refer to the three-month periods ended NovemberMay 30,31, 20252026 and 20242025 as the thirdfirst quarter of fiscal
2026year 2027 and fiscal 2025,year 2026, respectively.
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.
As of November 30, 2025, the Company had no outstanding debt and had cash, cash equivalents
and marketable securities totaling $12,262,000.
Product Sales:
For the first quarter of fiscal year 2027, In-Line Coating Systems sales decreased $895,000, or 29%, to $2.16 million, impacted by a significant decrease in sales to the clean energy sector for a solar coating customer in the first quarter of fiscal year 2026 that did not repeat in the current quarter. Multi-Axis Coating Systems increased $1.39 million, or 206%, to $2.08 million. OEM Systems increased $101,000, or 78%, to $231,000, driven by strong sales to our fluxer OEM partners, and strong sales to a China-based OEM partners in the semiconductor market. Fluxing Systems decreased 39%, or $60,000, to $92,000. Spare Parts, Services, and Other remained relatively stable at $1.1 million.
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:
Sales to the Alternative Energy/Clean market decreased $2.93 million, or 90%, to $319,000, impacted by reduced electrolysis demand following government policy shifts, and no solar shipments. Medical market sales increased $3.14 million, or 388%, to $3.95 million led by strong specialty stent coating in the US, and DEB coating system sales in the US, China and Europe. Sales to the Electronics/Microelectronics market declined $80,000, or 8%, to $863,000. Industrial sales increased $411,000, or 345%, to $530,000 influenced by some significant rework orders on older machines that needed upgrades, and an R&D textile coating machine for nano-coatings.
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:
In the first quarter of fiscal year 2027, sales to customers in the U.S. and Canada were $3,530,000, essentially flat compared to sales of $3,543,000 in the prior year period. Asia Pacific (APAC) sales grew 24%, or $141,000, to $738,000, influenced by increased sales to China in the medical sector for DEB coating. EMEA sales increased $34,000, or 4%, to $930,000, and Latin America sales increased $367,000, or 382%, to $463,000, influenced by a $242,000 shipment to Costa Rica for a specialty medical device coating application used in advanced cardiac procedures, requiring precise deposition of a functional coating onto complex device geometries.
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 increased $549,000, or 21%, to $3.21 million for the first quarter of fiscal 2027, compared with $2.67 million in the prior-year period. Gross profit percentage improved by 500 basis points, rising to 57% from 52%. The strong gross margin performance during the quarter benefited from an especially favorable product mix, including increased shipments of high-value medical device coating systems, particularly stent coating and Drug-Eluting Balloon coating platforms. Our improved gross margin achieved during the current quarter may vary going forward from quarter to quarter because of changing product mix, which may influence future gross margin performance. In addition, a concentration of shipments to U.S.-based customers resulted in lower distributor discounts and commission expenses, supporting stronger margin performance.
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.
Research and product development costs increaseddecreased in the thirdfirst quarter of fiscal 2026year 2027
due
to ana increasedecrease in labsalary salaries.expense, Thisa increase was partially offset by decreasesdecrease in research and development materials,materials supplies, salaries
and travela expenses.decrease in supplies. These decreases were
partially offset by additionalan labincrease salaries.in miscellaneous expenses.
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 expenses decreased slightlyincreased in both the third quarter and the first
nine monthsquarter of fiscal 2026year 2027 due to
an a decreaseincrease in salary expense related to theour departuresales ofapplication a salesperson and a decrease in travel and
entertainment expenses. These decreases were partially offset bylab, an increase in salariesinsurance relatedexpense, toan ourincrease salesin application lab and increased
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 our in-house sales team to our external distributors.
In the first quarter of fiscal 2027, we expended approximately $227,000 for commissions as compared with $152,000 in the prior year period, an increase of $75,000. The increase in commission expense during the current period is due to the increase in sales during the period and to increased commission rates for salesmen who had temporarily agreed to lower rates in the prior year period because of higher sales volumes associated with one customer.
We expect our marketing and sales expenses to increase in 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 average sales prices to drive future growth.
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 expenses increased in the thirdfirst quarter of fiscal 20262027 due
to to
increasedincreases salaries,in legalsalary andexpense, auditinsurance, fees,professional corporate expensesfees and stock-based compensation. These increases were partially offset by
a decreases
decrease in travel and entertainment and other corporate 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.
In the thirdfirst quarter of fiscal 2026,year 2027, our operating income increased $121,000, or 61%,$414,000 to $319,000$897,000
compared withto $198,000$483,000 forin the thirdfirst quarter of fiscal 2025.year Operating2026. marginThe forincrease is primarily due to the thirdcurrent quarter of fiscal 2026 was 6% compared with
4% in the prior year period. In the third quarter of fiscal 2026, anperiod’s increase in
gross profit was the key factor in the increase in operating
income.profit.
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,Interest and Dividend Income and Unrealized Gain/(Loss):
Interest and dividend income decreased by $23,000$27,000 to $108,000$115,000 in the thirdfirst quarter of fiscal
2025year 2027 as compared with $132,000$142,000 forin the thirdprior quarteryear ofperiod, fiscaldue 2024, reflectingto a minorslight 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.rates. Our present investment policy is to invest excess cash
in highly liquid, low
lower risk US Treasury securities. At NovemberMay 30,31, 2025,2026, the majority of our holdings wereare 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.
We recorded an income tax expense of $87,000$244,000 for the thirdfirst quarter
of fiscal year 2027 compared with $119,000 for the first quarter of fiscal 2026year compared
with2026. $40,000The forincrease the third quarter of fiscal 2025. For the first nine months of fiscal 2026 we recordedin income tax expense of $308,000
compared with $174,000 forin the firstcurrent
period nineis monthsdue to the increase in income before income taxes offset by the application of fiscalavailable 2025.research and development tax credits.
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:
Bonus Depreciation – The Act permanently restores 100% bonus depreciation for qualified
property acquired and placed into service after January 19, 2025. This change will likely lead to a reduction in current tax payable for
capital expenditures in fiscal year 2026.
Research and Development (“R&D) Costs – The Act reinstates the ability
for entities to immediately expense domestic R&D costs for tax years beginning after December 31, 2024. Certain small businesses may
also retroactively expense R&D costs, which were capitalized under the TCJA during the calendar years 2022 – 2024. The retroactive
expensing of these R&D costs may generate tax refunds.
Net income increased by $66,000 or 24%$256,000 to $340,000$741,000 forin the thirdfirst quarter of fiscal 2026year 2027 compared
compared with $274,000$485,000 forin the thirdprior quarteryear of fiscal 2025.period. The increase in net income during the third quarter is primarily thea 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.
Working Capital – Our working capital increased $1,854,000$1,226,000 to $15,355,000$17,461,000
at NovemberMay 30,31, 20252026 from $13,501,000$16,236,000 at February 28, 2025.2026. The increase in working capital was mostlyprimarily the result of the current period’speriod's
net income and noncashnon-cash charges partially offset by purchases of equipment and treasury stock.equipment.
We aggregate cash andcash, cash equivalents and marketable securities in managing our balance sheet
sheet and liquidity. For purposes of the following analysis, the total is referred to as “Cash.” At NovemberMay 30,31, 20252026 and
February 28, 2025,
2026, our working capital included:
The following table summarizes the accounts and the major reasons for the $211,000$1,843,000 decreaseincrease
in “Cash”:
Stockholders’ Equity – Stockholders’
Stockholder’s Equity increased $1,340,000
$837,000 from $17,792,000 $19,774,000
at February 28, 20252026 to $19,132,000$20,611,000 at NovemberMay 30,31, 2025.2026. The increase is a result of the current period’s net
income of $1,249,000,$741,000, proceeds
from exercise of stock options of $10,000, and $232,000$86,000 in additional equity related to stock-based compensation awards.
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 – OurWe generated $1,941,000 of cash in
our operating activities provided
$110,000 of cash in the first nine monthsquarter of fiscal 2026year 2027 compared towith providingusing $1,199,000 of cash$922,000 in the firstprior nineyear monthsperiod, an increase of fiscal 2025,
a decrease of $1,089,000.$2,863,000. The decreaseincrease in cash providedgenerated by our operating activities was the result of ana increasedecrease in accounts receivable
and prepaid expenses combined with decreases in accountsthe payable,current
period, incomepartially taxesoffset payableby anda decrease in customer deposit balances.deposits.
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 monthsquarter of fiscal year
2026,2027, our investing activities providedused $224,000$308,000 of cash compared with them providing $4,765,000$662,000 for the first nine monthsquarter of fiscal 2025.
2026. For the
first nine monthsquarters of fiscal 2026years 2027 and 2025,2026, we used $180,000$82,000 and $403,000 of cash,$52,000, respectively, for the purchase or manufacture
of equipment,
furnishings and leasehold improvements.
In the first nine monthsquarter of fiscal 2026,year 2027, net purchases of marketable securities
used $226,000 of cash compared to net sales of marketable securities provided
$405,000generating $715,000 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 monthsquarter of fiscal year
2027, we received $10,000 for the exercise of stock options. In the first quarter of fiscal year 2026, we used $151,000$79,000 of cash for the
purchase of treasury stock.
SOTK insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 4 filings (2 insiders, 4 trade dates, 30,000 shares, about $159.1K). Net open-market shares: -30,000 (purchases minus sales); net value about -$159.1K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-10-06 | Booth Brian Lewis |
Option exercise | 3,293 | $3.25 | $10.7K |
| 2026-10-06 | Booth Brian Lewis |
Shares withheld for tax | 1,572 | $6.81 | $10.7K |
| 2026-10-06 | Booth Brian Lewis |
Option exercise | 2,027 | $4.12 | $8.4K |
| 2026-10-06 | Booth Brian Lewis |
Shares withheld for tax | 1,226 | $6.81 | $8.3K |
| 2026-10-06 | Harshbarger R Stephen |
Option exercise | 13,171 | $3.25 | $42.8K |
| 2026-10-06 | Harshbarger R Stephen |
Shares withheld for tax | 6,286 | $6.81 | $42.8K |
| 2026-10-05 | Coccio Christopher L |
Option exercise | 13,158 | $3.25 | $42.8K |
| 2026-10-05 | Coccio Christopher L |
Shares withheld for tax | 6,897 | $6.20 | $42.8K |
| 2026-10-05 | Bagley Stephen James |
Option exercise | 5,488 | $3.25 | $17.8K |
| 2026-10-05 | Bagley Stephen James |
Shares withheld for tax | 2,877 | $6.20 | $17.8K |
| 2026-07-30 | Bagley Stephen James |
Open-market sale | 8,346 | $5.13 | $42.8K |
| 2026-07-27 | Bagley Stephen James |
Open-market sale | 1,200 | $5.08 | $6.1K |
| 2026-07-23 | Bagley Stephen James |
Open-market sale | 3,454 | $5.43 | $18.8K |
| 2026-07-21 | Coccio Christopher L |
Open-market sale | 17,000 | $5.38 | $91.5K |
| 2026-05-01 | Booth Brian Lewis |
Option exercise | 1,650 | $4.45 | $7.3K |
| 2026-05-01 | Booth Brian Lewis |
Option exercise | 3,299 | $5.48 | $18.1K |
| 2026-05-01 | Booth Brian Lewis |
Option exercise | 2,606 | $4.12 | $10.7K |
Well-known investors holding SOTK (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Renaissance Technologies | 2026-06-30 | 115,000 | $703.8K | 0.0% | Added 29% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 26,764 | $163.8K | 0.0% | Added 13% |