What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-01-09 compared with 2025-01-10 · 81 added, 85 removed, 146 unchanged (53% of the section changed)

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Additionally, approximately 11% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater pricing pressures.

During a time of global uncertainty and lower sales volumes, we have turned our attention to adjusting overhead expenses and operating expenses to help minimize the impact of the lower volumes of sales on operating income.

We implemented cost reductions in the third quarter of fiscal year 2024, adjusted and managed inventories (excluding the impact of foreign currency) and temporary suspended our regular quarterly cash dividend .

During a time of global uncertainty and lower sales volumes experienced recently, we have turned our attention to adjusting overhead expenses and operating expenses to help minimize the impact of the lower volumes of sales on operating income.

We implemented cost reductions in fiscal years 2024 and 2025, adjusted and managed inventories (excluding the impact of foreign currency) and suspended our regular quarterly cash dividend .

We used that cashflow to manage our capital allocation strategies to continue investing in new technologies, product development, and necessary capital expenditures to maximize cashflows without incurring any significant indebtedness as we continue to seek new acquisitions and other growth opportunities.

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We believe that our long history of profitability and the strength of our balance sheet can provide us with stability to manage through these business cycles and we rely on our past experience in making measured decisions for the long-term success of our business.

We have three brands of CNC machine tools in our product portfolio.

We have three CNC machine tool brands in our product portfolio.

Hurco is the technology innovation brand for customers who want to increase productivity and profitability by selecting a brand with the latest software and motion technology.

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However, we have added other non-Hurco branded products to our product portfolio that have contributed product diversity and market penetration opportunity.

These non-Hurco branded products are sold by our wholly-owned distributors and are comprised primarily of other general-purpose vertical milling centers and lathes, laser cutting machines, waterjet cutting machines, CNC grinders, compact horizontal machines, metal cutting saws, and CNC swiss lathes.

These non-Hurco branded products are sold by our wholly-owned distributors and are comprised primarily of other general-purpose vertical milling centers and lathes, laser cutting machines, CNC grinders, compact horizontal machines, metal cutting saws, and CNC Swiss lathes.

ProCobots is our wholly-owned subsidiary that provides automation solutions.

In addition, through our wholly-owned subsidiary in Italy, LCM, we produce high value machine tool components and accessories.

In addition, through our wholly-owned subsidiary in Italy, LCM Precision Technologies S.r.l.

(“LCM”), we produce high value machine tool components and accessories.

We principally sell our products through approximately 160 independent agents and distributors throughout the Americas, Europe, and Asia.

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The vast majority of our machine tools are manufactured and assembled to our specifications primarily by our wholly-owned subsidiary in Taiwan, HML.

Machine castings to support HML’s production are manufactured at our wholly-owned subsidiary in Ningbo, China, NHML.

Components to support our SRT line of five-axis machining centers, such as the direct-drive spindle, swivel head, and rotary table, are manufactured by our wholly-owned subsidiary in Italy, LCM.

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Selling, general and administrative expenses

Operating (loss) income

Net (loss) income

Operating income (loss)

Net income (loss)

Fiscal Year 2025 Compared to Fiscal Year 2024

Sales and Service Fees.

Sales and service fees for fiscal year 2024 were $186.6 million, a decrease of $41.2 million, or 18%, compared to fiscal year 2023, and included a favorable currency impact of $1.8 million, or less than 1%, when translating foreign sales to U.S.

Sales and service fees for fiscal year 2025 were $178.6 million, a decrease of $8.0 million, or 4%, compared to fiscal year 2024, and included a favorable currency impact of $2.0 million, or 1%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

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Increase/Decrease

Sales in the Americas for fiscal year 2024 decreased by 18%, compared to fiscal year 2023, primarily due to decreased shipments of Hurco and Takumi machines.

The decrease in sales of these machines was mainly attributable to decreased shipments of Hurco and Takumi 3-axis vertical machines, partially offset by increased sales of higher-performance Hurco 5-axis machines and Milltronics 3-axis vertical machines.

Sales in the Americas for fiscal year 2025 decreased by 5%, compared to fiscal year 2024, primarily due to a change in mix of machine model shipments in the fourth quarter.

The decrease in sales was attributable to decreased shipments of Hurco 5-axis vertical machines and entry-level Hurco and Milltronics 3-axis machines, partially offset by increased sales of higher-performance Hurco 3-axis vertical machines and multi-axis lathes.

Even though the mix of machine model shipments in fiscal year 2025 produced lower sales in dollars compared to the prior year, the overall volume of machine shipments in the Americas increased from fiscal 2024 to fiscal 2025.

European sales for fiscal year 2025 decreased by 4%, compared to fiscal year 2024, and included a favorable currency impact of 2%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The year-over-year decrease in European sales was primarily attributable to a decreased volume of shipments of Hurco and Takumi machines in Germany, Italy, and the United Kingdom, and of electro-mechanical components and accessories manufactured by LCM, partially offset by an increased volume of shipments of Hurco and Takumi machines in France and increased sales of ProCobots automation solutions.

Asian Pacific sales for fiscal year 2024 increased by 2%, compared to fiscal year 2023, and included an unfavorable currency impact of 1%, when translating foreign sales to U.S.

The year-over-year decrease in European sales was primarily attributable to a decreased volume of shipments of Hurco 5-axis vertical machines and entry-level Hurco 3-axis machines in Germany and France, and of electro-mechanical components and accessories manufactured by LCM, partially offset by an increased volume of shipments of Hurco machines in the United Kingdom.

Asian Pacific sales for fiscal year 2025 decreased by 1%, compared to fiscal year 2024, and included an unfavorable currency impact of less than 1%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The year-over-year increase in Asian Pacific sales for the fiscal year was primarily attributable to increased shipments of Hurco and Takumi machines in India and to one customer with multiple machine orders in China, partially offset by decreased shipments of Hurco and Takumi machines in China and Southeast Asia.

The decrease in Asian Pacific sales in fiscal year 2025 was primarily due to a decrease in sales of Hurco machines in India and China, partially offset by increased sales of Takumi machines in the Asian Pacific region.

Net Sales and Service Fees by Product Category

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† Amounts shown do not include computer control systems and software sold as an integrated component of computerized machine tools.

Sales of computerized machine tools for fiscal year 2024 decreased by 22%, compared to fiscal year 2023, primarily due to a decreased volume of shipments of Hurco and Takumi machines in all regions where our customers are located, except India and France, partially offset by increased sales of Milltronics vertical machines in North America.

Sales of computer control systems and software for fiscal year 2024 decreased by 13%, compared to fiscal year 2023, due to decreased sales of software for Hurco machines in North America and Germany.

Sales of service parts for fiscal year 2024 decreased by 3%, compared to fiscal year 2023, due mainly to a decreased volume of aftermarket sales of Hurco and LCM parts in Europe and North America.

Service fees increased by 9% for fiscal year 2024, compared to fiscal year 2023, primarily due to increased service of Hurco machines in the United Kingdom, France and North America.

During fiscal year 2024, sales for all product categories included a favorable currency impact of less than 1%, when translating foreign sales to U.S.

Sales of computerized machine tools for fiscal year 2025 decreased by 4%, compared to fiscal year 2024, primarily due to a lower sales volume of higher-performance 5-axis machines in the Americas, France, India and Germany, and of electro-mechanical components and accessories manufactured by LCM, partially offset by an increased volume of shipments of Hurco machines in the United Kingdom and increased sales of Takumi machines in Asia Pacific .

Sales of computer control systems and software for fiscal year 2025 decreased by 1%, compared to fiscal year 2024.

Sales of service parts for fiscal year 2025 decreased by 9%, compared to fiscal year 2024, due mainly to a decreased volume of aftermarket sales of Hurco and Takumi parts in Europe and North America.

Service fees decreased by 2% for fiscal year 2025, compared to fiscal year 2024, primarily due to decreased service of Hurco machines in the United Kingdom, France and North America, partially offset by increased service of Hurco and Takumi machines in Germany.

During fiscal year 2025, sales for all product categories included a favorable currency impact of 1%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

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Orders in the Americas for fiscal year 2025 decreased by 10%, compared to fiscal year 2024.

The decrease in orders was primarily due to decreased customer demand for Hurco 3-axis vertical machines, partially offset by increased demand for Hurco higher-performing 5-axis machines.

The decrease in orders was primarily due to a shift in customer demand from Hurco 5-axis vertical machines, Milltronics toolroom and 3-axis vertical machines, and non-Hurco branded machine tools sold by one of our wholly owned distributors to a higher volume of Hurco lathes and entry-level and higher-performance Hurco 3-axis vertical machines.

European orders for fiscal year 2025 decreased by 18%, compared to fiscal year 2024, and included a favorable currency impact of 2%, when translating foreign orders to U.S.

The decrease in orders was driven primarily by decreased customer demand for Hurco and Takumi machines in Germany, France, and Italy, as well as decreased demand for electro-mechanical components and accessories manufactured by LCM, partially offset by increased demand for Hurco higher-performance VMX machines in the United Kingdom and for ProCobots automation solutions sold across the European region.

Asian Pacific orders for fiscal year 2024 increased by 54%, compared to fiscal year 2023, and included an unfavorable currency impact of 2%, when translating foreign orders to U.S.

The increase in Asian Pacific orders was driven primarily by increased customer demand for Hurco and Takumi machines in China, India, and Southeast Asia.

The increased customer demand for Hurco machines in China and India for the fiscal year included two customers with multiple machine orders.

Backlog as of October 31, 2024 increased to $40.8 million from $28.3 million as of October 31, 2023, primarily due to increased customer demand during the last six months of fiscal year 2024, compared to the same period in prior year.

The increase in backlog was driven primarily by increased demand for higher-performance VMX and 5-axis Hurco machines in the U.S.

and Europe, Milltronics toolroom and 3-axis vertical machines in the U.S., and Hurco 3-axis vertical machines and Takumi bridge mills in Asia Pacific.

The year-over-year decrease in orders was driven primarily by decreased customer demand for Hurco and Takumi machines in the United Kingdom, Germany, and France, as well as decreased demand for electro-mechanical components and accessories manufactured by LCM.

Asian Pacific orders for fiscal year 2025 decreased by 6%, compared to fiscal year 2024, and included an unfavorable currency impact of less than 1% when translating foreign orders to U.S.

The decrease in Asian Pacific orders was driven primarily by decreased customer demand for Hurco machines in China and India.

Backlog as of October 31, 2025 decreased to $34.3 million from $40.8 million as of October 31, 2024, primarily due to decreased customer demand for Hurco machines in the United Kingdom, as well as decreased demand for electro-mechanical components and accessories manufactured by LCM.

We do not believe backlog is a useful measure of past performance or indicative of future performance.

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Gross profit for fiscal year 2025 was $33.0 million, or 18% of sales, compared to $37.7 million, or 20% of sales, for fiscal year 2024.

The year-over-year decrease in gross profit was primarily due to the lower volume of vertical milling machine sales in the Americas and Europe.

Additionally, there were decreases in average net selling prices for certain machines during fiscal year 2024 that were designed to penetrate key markets and reduce inventories.

The decreases in both sales volume and pricing negatively impacted gross profit in dollars and as a percentage of sales, reducing our leverage of fixed costs, in comparison to fiscal year 2023.

Further, certain cost reductions were implemented in the third quarter of fiscal year 2024 to help offset the impact of lower sales volumes and pricing.

The year-over-year decreases in both gross profit dollars and as a percentage of sales were primarily due to the lower overall sales volume of vertical milling machines and the change in mix and volume from higher-performance 5-axis machines to 3-axis machines in the Americas and Europe.

Additionally, gross profit was negatively impacted by an increase in cost of goods sold as a result of tariffs on goods imported into the U.S.

implemented in the second half of fiscal year 2025.

The decrease in overall sales dollars and the increase in tariffs negatively impacted gross profit in dollars and percentage of sales, reducing the leverage of fixed costs, in comparison to fiscal year 2024.

Operating Expenses.

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dollars for financial reporting purposes.

The year-over-year reduction in selling, general, and administrative expenses was primarily due to cost reductions implemented in the third quarter of fiscal year 2024 to help offset the impact of lower sales volume, partially offset by increased tradeshow costs (for IMTS) in the fourth quarter of fiscal year 2024.

Despite the reduction from an absolute dollar perspective, selling, general, and administrative expenses increased as a percentage of sales in fiscal year 2024, compared to fiscal year 2023, due to the lower volume of sales year-over-year.

The year-over-year reduction in selling, general, and administrative expenses was primarily due to decreased tradeshow costs due to IMTS being in the fourth quarter of fiscal year 2024 and additional global cost reductions that we have implemented over the last twelve months during the continued recessed period of sales.

Operating (Loss) Income.

Operating loss for fiscal year 2024 was $8.3 million, or 4% of sales, compared to operating income of $6.6 million, or 3% of sales, for fiscal year 2023.

The year-over-year decrease in operating income was primarily due to lower volume of vertical milling machine sales in the Americas and Europe.

Operating loss for fiscal year 2025 was $10.3 million, or 6% of sales, compared to operating loss of $8.3 million, or 4% of sales, for fiscal year 2024.

The year-over-year increase in operating loss was primarily due to lower overall sales volume of vertical milling machines and the change in mix and volume from higher-performance 5-axis machines to 3-axis machines in the Americas and Europe.

Additionally, operating loss was negatively impacted by increased costs related to tariffs implemented in the second half of fiscal year 2025.

Other Expense, Net.

Other expense, net for fiscal year 2025 increased by $0.5 million from fiscal year 2024, due mainly to an increase in foreign currency exchange losses.

Provision for Income Taxes .

Income tax expense for fiscal year 2024 was $6.8 million, compared to $2.4 million for fiscal year 2023.

The year-over-year increase in income tax expense was primarily due to an $8.4 million non-cash valuation allowance recorded on U.S.

and China deferred tax assets, as well as changes in geographic mix of income and loss that includes jurisdictions with differing tax rates, and discrete items related to unvested stock compensation.

Because we have an $8.3 million valuation allowance recorded against our U.S.

deferred tax assets, we did not record a tax benefit for our U.S.

net losses for fiscal year 2024.

The valuation allowance recorded during fiscal year 2024 reflected a full valuation allowance of the U.S.

deferred tax assets and was recorded after evaluating changes to tax laws, statutory tax rates, and our cumulative three-year income (loss) levels for the U.S.

for fiscal year 2024.

Income Taxes .

Income taxes expense for fiscal year 2025 was $2.9 million, compared to $6.8 million for fiscal year 2024.

The year-over-year decrease in annual income tax expense was primarily due to an $8.4 million non-cash change in valuation allowance recorded in fiscal year 2024 on U.S.

and China deferred tax assets, compared to a $4.8 million non-cash change in valuation allowance recorded in fiscal year 2025 on U.S., China, and certain Italian deferred tax assets.

Additionally, income taxes were also impacted by a change in geographic mix of income and loss that includes jurisdictions with differing tax rates and discrete items related to unvested stock compensation.

We have a $13.2 million full valuation allowance recorded against our U.S., Chinese and certain Italian deferred tax assets and we did not record a tax benefit for our net losses in these countries.

Net (Loss) Income.

Net loss for fiscal year 2024 was $16.6 million, or $(2.56) per diluted share, compared to net income of $4.4 million, or $0.66 per diluted share, for fiscal year 2023.

The year-over-year decrease in net income was primarily due to decreased volume of machine shipments, as well as the valuation allowance recorded against our U.S.

and China deferred tax assets.

Net loss for fiscal year 2025 was $15.1 million, or $2.34 per diluted share, compared to a net loss of $16.6 million, or $2.56 per diluted share, for fiscal year 2024.

The year-over-year decrease in net loss was primarily due to a lower valuation allowance recorded against our U.S.

deferred tax assets.

Liquidity and Capital Resources

As of October 31, 2025, we had cash and cash equivalents of $48.7 million, compared to $33.3 million as of October 31, 2024.

The decrease in cash and cash equivalents was primarily a result of net cash used for payments of outstanding accounts payable, stock repurchases and dividend payments .

The increase in cash and cash equivalents was primarily a result of net cash provided by the reductions in inventories and accounts receivable .

Approximately 21% of our $48.7 million of cash and cash equivalents is held in the U.S.

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Working capital as of October 31, 2025, was $173.1 million, compared to $180.8 million as of October 31, 2024.

The decrease in working capital was primarily driven by decreases in cash and cash equivalents, inventories, accounts receivable, net, and prepaid and other assets, as well as increases in customer deposits, partially offset by decreases in accounts payable and accrued payroll and employee benefits.

The decrease in working capital was primarily driven by decreases in inventories and accounts receivable, net, as well as increases in accounts payable and derivative liabilities, partially offset by an increase in cash and cash equivalents.

Inventories were $142.9 million as of October 31, 2025, compared to $153.0 million as of October 31, 2024, and included a favorable currency impact of $4.2 million, or 3%, when translating foreign inventories to U.S.

dollars for financial reporting purposes.

Inventory turns as of October 31, 2024 were 1.0 compared to 1.1 as of October 31, 2023.

Inventory turns as of October 31, 2025, remained the same at October 31, 2024 at 1.0.

Capital expenditures were $3.0 million in fiscal year 2025, compared to $2.9 million in fiscal year 2024.

Capital expenditures for fiscal year 2024 were primarily for software development costs, purchases of factory equipment for production facilities, and purchases of general software and equipment for sales and service divisions.

Capital expenditures for fiscal year 2025 were primarily for software development costs, purchases of factory equipment for production facilities, building and leasehold improvements, and purchases of general software and equipment for sales and service divisions.

We funded these expenditures with cash flows from operations.

On January 6, 2023, we announced a share repurchase program in an aggregate amount of up to $25.0 million.

On January 6, 2023, we announced approval of a share repurchase program in an aggregate amount of up to $25.0 million and later extended this program through November 10, 2026.

Repurchases under the program may be made in the open market or through privately negotiated transactions from time to time, subject to applicable laws, regulations and contractual provisions.

On September 25, 2024, we announced an extension of the term of this $25.0 million repurchase program from November 10, 2024 to November 10, 2026.

The program may be amended, suspended, or discontinued at any time and does not commit us to repurchase any shares of our common stock.

During fiscal year 2024, we repurchased $1.5 million, or 87,635 shares, under the program, and $21.7 million remained available under the program as of October 31, 2024.

During fiscal year 2024, we paid cash dividends to our shareholders of $2.1 million.

On June 14, 2024, we announced a temporary suspension of our regular quarterly cash dividend as we seek to enhance our financial flexibility and improve our ability to manage market volatility while focusing on strengthening our balance sheet, reinvesting in our core business and research and development related to emerging technologies, and returning value to shareholders via the appropriate channels in both the near- and long-term.

During fiscal 2025, we repurchased $2.0 million, or 104,472 common shares, under this program.

As of October 31, 2025, we had repurchased $5.3 million, or 259,620 common shares, under this program since inception, leaving $19.7 million available for future repurchases thereunder.

On June 14, 2024, we announced a suspension of our regular quarterly cash dividend as we seek to enhance our financial flexibility and improve our ability to manage market volatility while focusing on strengthening our balance sheet, reinvesting in our core business and research and development related to emerging technologies, and returning value to shareholders via the appropriate channels in both the near and long-term.

Future dividends are subject to approval of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy, and other factors deemed relevant by our Board of Directors from time to time.

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entered into a credit agreement with Bank of America, N.A., as the lender, which was subsequently amended on each of March 13, 2020, December 23, 2020, December 17, 2021, January 4, 2023, and December 19, 2023 (as amended, the “2018 Credit Agreement”).

The 2018 Credit Agreement provides for an unsecured revolving credit and letter of credit facility in a maximum aggregate amount of $40.0 million.

The 2018 Credit Agreement provides that the maximum amount of outstanding letters of credit at any one time may not exceed $10.0 million, the maximum amount of outstanding loans made to our subsidiary Hurco B.V.

at any one time may not exceed $20.0 million, and the maximum amount of all outstanding loans denominated in alternative currencies at any one time may not exceed $20.0 million.

Under the 2018 Credit Agreement, we and Hurco B.V.

are borrowers, and certain of our other subsidiaries are guarantors.

The 2018 Credit Agreement provided for an unsecured revolving credit and letter of credit facility in a maximum aggregate amount of $40.0 million.

The 2018 Credit Agreement provided that the maximum amount of outstanding letters of credit at any one time could not exceed $10.0 million, the maximum amount of outstanding loans made to our subsidiary Hurco B.V.

at any one time could not exceed $20.0 million, and the maximum amount of all outstanding loans denominated in alternative currencies at any one time could not exceed $20.0 million.

The scheduled maturity date of the 2018 Credit Agreement was December 31, 2025, and on that date, the 2018 Credit Agreement terminated in accordance with its terms.

In March 2019, our wholly-owned subsidiaries in Taiwan, HML, and China, NHML, closed on uncommitted revolving credit facilities with maximum aggregate amounts of 150 million New Taiwan Dollars and 32.5 million Chinese Yuan, respectively.

As uncommitted facilities, both the Taiwan and China credit facilities were subject to review and termination by the respective underlying lending institution from time to time.

In February and December 2023, NHML and HML, respectively, renewed the above-referenced credit facilities on substantially similar terms and identical maximum aggregate limits.

As of October 31, 2025, our credit facilities consisted of a €1.5 million revolving credit facility in Germany, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement.

On December 31, 2025, the 150 million New Taiwan Dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement terminated in accordance with their terms.

We had no debt or borrowings outstanding under any of our credit facilities as of October 31, 2025, or December 31, 2025.

As of October 31, 2025, we had an aggregate of approximately $51.2 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

On January 5, 2026, we entered into a credit agreement with Bank of America, N.A., as the lender (the “2026 Credit Agreement”).

The 2026 Credit Agreement provides for a secured revolving credit and letter of credit facility in a maximum aggregate amount of $20.0 million.

The 2026 Credit Agreement provides that the maximum amount of outstanding letters of credit at any one time may not exceed $10.0 million and the maximum amount of all outstanding loans denominated in alternative currencies at any one time may not exceed $20.0 million.

Under the 2026 Credit Agreement, we are the borrower, and certain of our subsidiaries are guarantors.

Our obligations under the 2026 Credit Agreement are secured by a security interest in substantially all of our personal property and substantially all of the personal property of each subsidiary guarantor.

The scheduled maturity date of the 2026 Credit Agreement is December 31, 2026.

Borrowings under the 2018 Credit Agreement bear interest at floating rates based on, at our option, either (i) a rate based upon the secured overnight financing rate (“SOFR”), the Sterling Overnight Index Average Reference Rate, the Euro Interbank Offering Rate, or another alternative currency-based rate approved by the lender, depending on the term of the loan and the currency in which such loan is denominated, plus 1.00% per annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) the one month SOFR-based rate plus 1.00%), plus 0.00% per annum.

Borrowings under the 2026 Credit Agreement bear interest at floating rates based on, at our option, either (i) a rate based upon the SOFR, the Sterling Overnight Index Average Reference Rate, the Euro Interbank Offering Rate, or another alternative currency-based rate approved by the lender, depending on the term of the loan and the currency in which such loan is denominated, plus 2.50% per annum, or (ii) a base rate (which is the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate or (c) the one month SOFR-based rate plus 1.00%), plus 1.50% per annum.

Outstanding letters of credit will carry an annual rate of 2.50%.

The 2026 Credit Agreement contains customary affirmative and negative covenants and events of default, including covenants (1) restricting us from making certain investments, loans, advances and acquisitions (but permitting us to make investments in subsidiaries of up to $10.0 million);

(2) restricting us from making certain payments, including (a) cash dividends, except that we may pay cash dividends as long as immediately before and after giving effect to such payment, the sum of the unused amount of the commitments under the 2018 Credit Agreement plus our cash on hand is not less than $10.0 million, and as long as we are not in default before and after giving effect to such dividend payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares of our common stock as long as we are not in default before and after giving effect to such repurchases and the aggregate amount of payments made by us for all such repurchases during any fiscal year does not exceed $25.0 million;

(3) requiring that we maintain a minimum working capital of $125.0 million;

and (4) requiring that we maintain a minimum tangible net worth of $176.5 million.

(2) restricting us from making certain payments, including (a) cash dividends, except that we may pay cash dividends as long as immediately before and after giving effect to such payment, the sum of the unused amount of the commitments under the 2026 Credit Agreement plus our cash on hand is not less than $10.0 million, we are in pro forma compliance with the maximum consolidated leverage ratio covenant as described below, and we are not in default before and after giving effect to such dividend payments and (b) payments made to repurchase shares of our common stock, except that we may repurchase shares of our common stock as long as we are not in default before and after giving effect to such repurchases and the aggregate amount of payments made by us for all such repurchases during any fiscal year does not exceed $10.0 million;

and (3) requiring that we maintain a maximum consolidated leverage ratio of total debt to EBITDA no greater than 2.00 to 1.00, with EBITDA defined as the greater of (i) consolidated EBITDA for the most recently completed measurement period and (ii) $1.00.

We may use the proceeds from advances under the 2026 Credit Agreement for general corporate purposes.

In March 2019, our wholly-owned subsidiaries in Taiwan, HML, and China, NHML, closed on uncommitted revolving credit facilities with maximum aggregate amounts of 150 million New Taiwan dollars and 32.5 million Chinese Yuan, respectively.

As uncommitted facilities, both the Taiwan and China credit facilities are subject to review and termination by the respective underlying lending institution from time to time.

In February and December 2023, NHML and HML, respectively, renewed the above-referenced credit facilities on substantially similar terms and identical maximum aggregate limits.

As of October 31, 2024, our existing credit facilities consisted of a €1.5 million revolving credit facility in Germany, the 150 million New Taiwan dollars Taiwan credit facility, the 32.5 million Chinese Yuan China credit facility and the $40.0 million revolving credit facility under the 2018 Credit Agreement.

We had no debt or borrowings under any of our credit facilities as of October 31, 2024.

As of October 31, 2024, we had an aggregate of approximately $50.9 million available for borrowing under our credit facilities and were in compliance with all covenants relating thereto.

We have an international cash pooling strategy that generally provides access to available cash deposits and credit facilities when needed in the U.S., Europe or Asia Pacific.

We believe our access to cash pooling and our borrowing capacity under our credit facilities provide adequate liquidity to fund our global operations over the next twelve months and beyond, and allow us to remain committed to our strategic plan of product innovation, acquisitions, targeted penetration of developing markets, and a balanced capital allocation program.

The maximum consolidated leverage ratio covenant effectively prohibits us from borrowing any amounts under the 2026 Credit Agreement when our consolidated EBITDA for the most recently completed measurement period is negative.

As of the date we entered into the 2026 Credit Agreement, and as of the date of the filing of this report, the most recently completed measurement period was our fiscal year ended October 31, 2025, during which our consolidated EBITDA was negative.

In order to borrow in compliance with the maximum consolidated leverage ratio covenant set forth above, we are effectively prohibited from borrowing under the 2026 Credit Agreement until we have positive consolidated EBITDA for our most recently completed four fiscal quarters.

We also have an international cash pooling strategy that generally provides access to available cash deposits and credit facilities when needed in the U.S., Europe, or Asia Pacific.

We have borrowed only $1.6 million during the fiscal years ended 2015-2018 to fund start-up costs related to expansion in China and have not had any borrowings under any of our previous debt facilities at any other time over the previous ten fiscal years, even during prolonged recessionary industry cycles.

While we are currently in the process of evaluating a longer-term global credit solution that aligns with our best interest, we believe our current cash on hand, expected cash flow from operations, access to cash pooling and our current credit facilities provide adequate liquidity to fund our global operations over the next twelve months and beyond, and allow us to remain committed to our strategic plan of product innovation, acquisitions, targeted penetration of developing markets, and a balanced capital allocation program.

We continue to receive and review information on businesses and assets for potential acquisition, including intellectual property assets that are available for purchase.

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Operating leases

Accrued and deferred taxes and credits

Accrued compensation benefits and other

In addition to the contractual obligations and commitments disclosed above, we also have a variety of other obligations for the procurement of materials and services, none of which subject us to any material non-cancelable commitments.

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Unrecognized tax benefits, excluding any interest and penalties, were immaterial for fiscal year 2025 and have been excluded from the table above because we are unable to determine a reasonably reliable estimate of the timing of future payment.

We expect capital spending in fiscal year 2025 to be approximately $4.1 million, which includes investments for software development, leasehold improvement, factory equipment, and production facilities, as well as general software and equipment for selling facilities.

We expect capital spending in fiscal year 2026 to be approximately $4.5 million, which includes investments for software development, leasehold improvement, factory equipment, and general software and equipment for our manufacturing and sales facilities.

We expect to fund these commitments with cash on hand and cash generated from operations.

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We follow Financial Accounting Standards Board (“FASB”) guidance for accounting for guarantees (codified in Accounting Standards Codification (“ASC”) 460).

As of October 31, 2024, we had nine outstanding third party payment guarantees totaling approximately $0.9 million.

As of October 31, 2025, we had four outstanding third party payment guarantees totaling approximately $0.4 million.

The terms of these guarantees are consistent with the underlying customer financing terms.

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These changes, if any, may require material adjustments to these deferred tax assets and an accompanying reduction or increase in net income.

During fiscal year 2024, we recorded an $8.6 million non-cash valuation allowance on U.S.

and China deferred tax assets, of which $8.3 million reflected a full valuation allowance of the U.S.

deferred tax assets, and was recorded after evaluating changes to tax laws, statutory tax rates, and our cumulative three-year income (loss) levels for the U.S.

for fiscal year 2024.

Because we have a valuation allowance recorded against our U.S.

deferred tax assets, we did not record a tax benefit for our U.S.

net losses for fiscal year 2024.

During fiscal years 2025 and 2024, we recorded non-cash valuation allowances of $4.8 million and $8.6 million, respectively, on our U.S.

and China deferred tax assets and on our U.S., China and certain Italian deferred tax assets, respectively.

Because we have a $13.2 million full valuation allowance recorded against our U.S., China and certain Italian deferred tax assets, we did not record a tax benefit for our net losses in these countries in either fiscal year 2025 or 2024.

Capitalized Software Development Costs – Costs incurred to develop computer software products and significant enhancements to software features of existing products are capitalized as required by FASB guidance relating to accounting for the costs of computer software to be sold, leased, or otherwise marketed, and such capitalized costs are amortized over the estimated product life of the related software.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis