Quarterly Report for Quarter Ending August 31, 2026 (Form 10-Q)

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.

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.

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.

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.

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.

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.

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.

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.

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.