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Item 2. Management’s Discussion and Analysis

2026-03-06 compared with 2025-09-05 · 78 added, 135 removed, 122 unchanged (64% of the section changed)

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The following overview is intended to provide a brief explanation of the principal factors that have contributed to our recent financial performance.

This overview is intended to be read in conjunction with the more detailed information included in our financial statements that appear elsewhere in this report.

This overview is intended to be read in conjunction with the more detailed information included in our financial statements and notes thereto, that appear elsewhere in this report.

The market for machine tools is international in scope.

We have both significant foreign sales and significant foreign manufacturing operations.

During the nine months of fiscal 2025, approximately 51% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series machines.

During the first three months of fiscal 2026, approximately 48% of our revenues were attributable to customers in Europe, where we typically sell more of our higher-performance, higher-priced VMX series machines.

Additionally, approximately 13% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater pricing pressures.

We operate in a cyclical industry where sales and order trends often change periodically and can vary from region to region.

Changes in trade policies, tariffs, and other import/export regulations of the U.S.

and other nations did not have a material impact on our financial results for the three and nine months ended July 31, 2025.

However, we do have sales in, and purchases from, foreign countries that could be negatively impacted by recent or future tariff actions.

Sales and service fees in the nine months of fiscal 2025 increased slightly compared to the same period in fiscal 2024.

The increase in sales was due primarily to increased sales of Hurco and Milltronics machines in the Americas, Takumi machines in Asia Pacific, and Hurco machines in the United Kingdom and Italy, partially offset by a decrease in Hurco and Takumi machine sales in France and Germany, as well as a decreased volume of shipments of electro-mechanical components and accessories manufactured by our wholly-owned subsidiary in Italy, LCM Precision Technology S.r.l.

Orders in the nine months of fiscal 2025 decreased by 15% from the same period in fiscal 2024, reflecting a decrease in orders in the Americas and European regions, partially offset by an increase in orders in the Asian Pacific region.

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

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.

The cyclicality of our business requires that we exercise discipline in managing through unexpected changes in the markets and industries in which we operate.

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.

Sales and service fees in the first three months of fiscal 2026 decreased by 8%, compared to the same period in fiscal 2025.

The decrease in sales was due primarily to decreased shipments of Milltronics vertical milling and toolroom machines in the Americas and Hurco machines in the United Kingdom, Germany, China and India, as well as a decreased volume of shipments of electro-mechanical components and accessories manufactured by LCM.

Orders in the first three months of fiscal 2026 increased by 5%, compared to the same period in fiscal 2025, reflecting an increase in customer demand for Hurco and Takumi machines in the Americas and India, partially offset by decreased customer demand for Hurco and Takumi machines in Europe and Hurco machines in China.

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 swill 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 lathes.

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

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Although some distributors carry competitive products, we are the primary line for the majority of our distributors globally.

We also have our own direct sales and service organizations in China, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain parts of the United States, which are among the world’s principal machine tool consuming markets.

We also have our own direct sales and service organizations in China, the Czech Republic, France, Germany, India, Italy, the Netherlands, Poland, Singapore, Taiwan, the United Kingdom, and certain parts of the United States, which are among the world’s principal machine tool consuming markets.

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

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RESULTS OF OPERATIONS

Three Months Ended July 31, 2025 Compared to Three Months Ended July 31, 2024

Three Months Ended January 31, 2026 Compared to Three Months Ended January 31, 2025

Sales and Service Fees.

Sales and service fees for the third quarter of fiscal year 2025 were $45.8 million, an increase of $3.2 million, or 7%, compared to the corresponding prior year period, and included a favorable currency impact of $1.4 million, or 3%, when translating foreign sales to U.S.

Sales and service fees for the first quarter of fiscal year 2026 were $42.9 million, a decrease of $3.5 million, or 8%, compared to the corresponding prior year period, and included a favorable currency impact of $1.8 million, or 4%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Sales and Service Fees by Geographic Region

The following table sets forth sales and service fees by geographic region for the third fiscal quarter ended July 31, 2025 and 2024 (dollars in thousands):

The following table sets forth net sales and service fees by geographic region for the first fiscal quarter ended January 31, 2026 and 2025 (dollars in thousands):

Three Months Ended

Sales in the Americas for the third quarter of fiscal year 2025 increased by 10%, compared to the corresponding period in fiscal year 2024, primarily due to increased shipments of Hurco and Milltronics machines.

The increase in Hurco and Milltronics machine sales was primarily attributable to increased shipments of lathes, tool room machines and vertical machining centers.

European sales for the third quarter of fiscal year 2025 increased by less than 1%, compared to the corresponding period in fiscal year 2024, and included a favorable currency impact of 5%, when translating foreign sales to U.S.

Sales in the Americas for the first quarter of fiscal year 2026 decreased by 8%, compared to the corresponding period in fiscal year 2025, primarily due to a decreased volume of shipments of Milltronics vertical milling and toolroom machines.

European sales for the first quarter of fiscal year 2026 decreased by 5%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of 8%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The year-over-year increase in European sales was primarily attributable to increased sales of Hurco machines in the United Kingdom and Italy, as well as the favorable impact of currency translation of foreign sales to U.S.

dollars for financial reporting purposes, offset by decreased volume of shipments of Hurco and Takumi machines in France and Germany, as well as a decreased volume of shipments of electro-mechanical components and accessories manufactured by LCM

Asian Pacific sales for the third quarter of fiscal year 2025 increased by 48%, compared to the corresponding prior year period, and included a favorable currency impact of 4%, when translating foreign sales to U.S.

The decrease in European sales for the first quarter of fiscal year 2026 was primarily attributable to a decreased volume of shipments of Hurco VM machines and lathes in the UK and Germany.

In addition to the decreased machine sales for the quarter, European sales also reflected a decline in shipment of accessories manufactured by LCM.

Asian Pacific sales for the first quarter of fiscal year 2026 decreased by 15%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of 2%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

The year-over-year increase in Asian Pacific sales was primarily due to increased sales of Takumi vertical, bridge mill, horizontal, and 5-axis machines in the Asian Pacific region.

The decrease in Asian Pacific sales primarily resulted from a lower volume of shipments of Hurco machines in China and India.

Sales and Service Fees by Product Category

The following table sets forth sales and service fees by product group and services for the third fiscal quarter ended July 31, 2025 and 2024 (dollars in thousands):

The following table sets forth sales and service fees by product group and services for the first fiscal quarter ended January 31, 2026 and 2025 (dollars in thousands):

Three Months Ended

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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 the third quarter of fiscal year 2025 increased by 11%, compared to the corresponding prior year period, primarily due to increased sales of Hurco machines in the Americas, Takumi machines in Asia Pacific, and Hurco machines in the United Kingdom and Italy, partially offset by a decrease in Hurco and Takumi machine sales in Germany and France.

Sales of computer control systems and software for the third quarter of fiscal year 2025 decreased by 24%, compared to the corresponding prior year period, due mainly to decreased software sales in the Americas and European regions.

Sales of service parts for the third quarter of fiscal year 2025 decreased by 3%, compared to the corresponding prior year period, primarily due to decreases in aftermarket service parts sales of Hurco products in the Americas and France, partially offset by increases in aftermarket service parts sales of Milltronics products in the Americas and Hurco and Takumi products in Asia Pacific.

Service fees for the third quarter of fiscal year 2025 decreased by 7%, compared to the corresponding prior year period, primarily due to decreased aftermarket service fees in the Americas and European regions.

Sales of computerized machine tools for the first quarter of fiscal year 2026 decreased by 11%, compared to the corresponding prior year period, primarily due to a decreased volume of shipments of Milltronics machines in the Americas and of Hurco machines in the United Kingdom, Germany, China and India.

Sales of computer control systems and software for the first quarter of fiscal year 2026 decreased by 31%, compared to the corresponding prior year period, due mainly to decreased software sales in the Americas and European regions.

Sales of service parts for the first quarter of fiscal year 2026 increased by 17%, compared to the corresponding prior year period, primarily due to increases in aftermarket parts sales of Takumi and Hurco products in the European and Asian Pacific regions.

Service fees for the first quarter of fiscal year 2026 decreased by 4%, compared to the corresponding prior year period, primarily due to decreased aftermarket service fees in the Americas, partially offset by increased aftermarket service fees in the United Kingdom and France.

Sales for all product lines included a favorable currency impact of 4% when translating foreign sales to U.S.

dollars for financial reporting purposes.

Orders for the third quarter of fiscal year 2025 were $41.0 million, a decrease of $11.8 million, or 22%, compared to the corresponding period in fiscal year 2024, and included a favorable currency impact of $1.2 million, or 2%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the third fiscal quarter ended July 31, 2025 and 2024 (dollars in thousands):

Orders for the first quarter of fiscal year 2026 were $42.0 million, an increase of $1.9 million, or 5%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of $1.5 million, or 4%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the first fiscal quarter ended January 31, 2026 and 2025 (dollars in thousands):

Three Months Ended

Orders in the Americas for the third quarter of fiscal year 2025 decreased by 12%, compared to the corresponding period in fiscal year 2024, primarily due to reduced demand for Hurco and Milltronics machines.

European orders for the third quarter of fiscal year 2025 decreased by 28%, compared to the corresponding prior year period, and included a favorable currency impact of 4%, when translating foreign orders to U.S.

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

Asian Pacific orders for the third quarter of fiscal year 2025 decreased by 24%, compared to the corresponding prior year period, and included a favorable currency impact of 1%, when translating foreign orders to U.S.

The decrease in orders was primarily due to a reduced volume of Hurco machine orders in China.

Gross Profit.

Gross profit for the third quarter of fiscal year 2025 was $9.1 million, or 20% of sales, compared to $7.8 million, or 18% of sales, for the corresponding prior year period.

The quarter-over-quarter increase in gross profit as a percentage of sales was primarily due to a higher concentration of machine sales in Europe and lower fixed costs allocated to overhead related to cost savings implemented in the last twelve months.

Operating Expenses.

Selling, general, and administrative expenses for the third quarter of fiscal year 2025 were $10.8 million, or 23% of sales, compared to $10.4 million, or 24% of sales, in the corresponding fiscal year 2024 period, and included an unfavorable currency impact of $0.3 million, or 3%, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

The year-over-year increase in selling, general, and administrative expenses was due mainly to the unfavorable impact of currency when translating foreign expenses to U.S.

dollars for financial reporting purposes.

Operating Income/Loss.

Operating loss for the third quarter of fiscal year 2025 was $1.7 million, compared to $2.5 million for the corresponding period in fiscal year 2024.

The year-over-year reduction in operating loss was primarily due to a higher concentration of machine sales in Europe and lower fixed costs allocated to overhead related to cost savings implemented in the last twelve months.

Other (Expense) Income, Net.

Other expense, net for the third quarter of fiscal year 2025 was $1.5 million compared to $0.1 million for the corresponding period in fiscal year 2024.

The year-over-year increase in other expense, net was due mainly to an increase in foreign currency exchange loss and a decrease in income from our equity investment.

Income Taxes.

Income tax expense for the third quarter of fiscal year 2025 was $0.6 million, compared to $7.0 million for the corresponding prior year period.

The year-over-year reduction in income tax expense was due mainly to a lower valuation allowance recorded against our U.S.

deferred tax assets, as well as changes in geographic mix of income and loss that include jurisdictions with differing tax rates.

We recorded a valuation allowance of $1.6 million for the third quarter of fiscal year 2025, compared to $8.2 million for the corresponding prior year period.

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

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

and Chinese net losses for the third quarter of fiscal 2025.

The valuation allowance recorded in the third quarter of fiscal year 2025 reflected a full valuation allowance of our U.S.

and Chinese 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.

and China for the nine months of fiscal year 2025.

Nine Months Ended July 31, 2025, Compared to Nine Months Ended July 31, 2024

Sales and Service Fees.

Sales and service fees for the nine months of fiscal year 2025 were $133.1 million, an increase of $0.2 million, or less than 1%, compared to the corresponding prior year period, and included a favorable currency impact of $1.2 million, or less than 1%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Sales and Service Fees by Geographic Region

The following table sets forth sales and service fees by geographic region for the nine months ended July 31, 2025 and 2024 (dollars in thousands):

Nine Months Ended

Sales in the Americas for the nine months of fiscal year 2025 increased by 3%, compared to the corresponding period in fiscal year 2024, primarily due to increased shipments of Hurco and Milltronics machines.

The increase in Hurco and Milltronics machine sales was primarily attributable to increased shipments of lathes, tool room machines and vertical machining centers.

European sales for the nine months of fiscal year 2025 decreased by 3%, compared to the corresponding period in 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 in the nine month period was primarily attributable to a decreased volume of shipments of Hurco and Takumi machines in France and Germany, as well as a decreased volume of shipments of electro-mechanical components and accessories manufactured by LCM, partially offset by increased sales of Hurco machines in the United Kingdom and Italy as well as the favorable impact of currency translation of foreign sales to U.S.

dollars for financial reporting purposes.

Asian Pacific sales for the nine months of fiscal year 2025 increased by 7%, compared to the corresponding prior year period, 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 was primarily due to increased sales of Takumi vertical, bridge mill, horizontal, and 5-axis machines in the Asian Pacific region.

Sales and Service Fees by Product Category

The following table sets forth sales and service fees by product group and services for the nine months ended July 31, 2025 and 2024 (dollars in thousands):

Nine Months Ended

Computerized Machine Tools

Computer Control Systems and Software †

Service Parts

† 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 the nine months of fiscal year 2025 increased by 2%, compared to the corresponding prior year period, primarily due to increased sales of Hurco and Milltronics machines in the Americas, Takumi machines in Asia Pacific, and Hurco machines in the United Kingdom and Italy, partially offset by a decrease in Hurco and Takumi machine sales in Germany and France.

Sales of computer control systems and software for the nine months of fiscal year 2025 decreased by 1%, compared to the corresponding prior year period, due mainly to decreased software sales in Germany and the United Kingdom, partially offset by increased software sales in the Americas.

Sales of service parts for the nine months of fiscal year 2025 decreased by 10%, compared to the corresponding prior year period, primarily due to decreases in aftermarket service parts sales in the Americas and Europe.

Service fees for the nine months of fiscal year 2025 increased by 1%, compared to the corresponding prior year period, primarily due to increased aftermarket service fees in the Americas and Asia Pacific, partially offset by decreased aftermarket service fees in Europe.

Sales for all product lines included a favorable currency impact of less than 1% when translating foreign sales to U.S.

dollars for financial reporting purposes.

Orders for the nine months of fiscal year 2025 were $124.8 million, a decrease of $22.4 million, or 15%, compared to the corresponding period in fiscal year 2024, and included a favorable currency impact of $0.9 million, or less than 1%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the nine months ended July 31, 2025, and 2024 (dollars in thousands):

Nine Months Ended

Orders in the Americas for the nine months of fiscal year 2025 decreased by 15%, compared to the corresponding period in fiscal year 2024, primarily due to decreased customer demand for Hurco and Takumi machines, as well as reduced demand for OEM machines sold by our wholly-owned domestic distributors.

European orders for the nine months of fiscal year 2025 decreased by 20%, compared to the corresponding prior year period, and included a favorable currency impact of 1%, when translating foreign orders to U.S.

Asian Pacific orders for the nine months of fiscal year 2025 increased by 6%, compared to the corresponding prior year period, and included an unfavorable currency impact of less than 1%, when translating foreign orders to U.S.

The increase in orders was due mainly to an increased volume of Takumi machine orders throughout the Asian Pacific region where our customers are located, partially offset by decreased Hurco machine orders in China.

Orders in the Americas for the first quarter of fiscal year 2026 increased by 18%, compared to the corresponding period in fiscal year 2025, primarily due to increased customer demand for Hurco and Takumi machines.

European orders for the first quarter of fiscal year 2026 decreased by 2%, compared to the corresponding prior year period, and included a favorable currency impact of 8%, 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, Italy and the UK, partially offset by increased customer demand for electro-mechanical components and accessories manufactured by LCM.

Asian Pacific orders for the first quarter of fiscal year 2026 decreased by 6%, compared to the corresponding prior year period, 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 a decrease in customer demand for Hurco machines in China, partially offset by increased customer demand for Hurco and Takumi machines in India.

Gross Profit.

Gross profit for the nine months of fiscal year 2025 was $25.2 million, or 19% of sales, compared to $25.6 million, or 19% of sales, for the corresponding prior year period.

Gross profit for the first quarter of fiscal year 2026 was $7.9 million, or 19% of sales, compared to $8.3 million, or 18% of sales, for the corresponding prior year period.

The year-over-year increase in gross profit as a percentage of sales was primarily due to a greater sales mix of Hurco and Takumi higher-performance machines and improved leverage of fixed costs allocated to sales and production volumes.

Operating Expenses.

Selling, general, and administrative expenses for the nine months of fiscal year 2025 were $32.0 million, or 24% of sales, compared to $33.4 million, or 25% of sales, in the corresponding fiscal year 2024 period, and included an unfavorable currency impact of $0.2 million, or less than 1%, when translating foreign expenses to U.S.

Selling, general, and administrative expenses for the first quarter of fiscal year 2026 were $11.1 million, or 26% of sales, compared to $10.4 million, or 22% of sales, in the corresponding fiscal year 2025 period, and included an unfavorable currency impact of $0.4 million, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

The year-over-year reduction in selling, general, and administrative expenses, reflected lower levels of discretionary spending and reduced employee health insurance costs.

The year-over-year increase in selling, general, and administrative expenses for the quarter reflected the unfavorable currency impact and increased employee benefits costs.

Operating Income (Loss).

Operating loss for the nine months of fiscal year 2025 was $6.8 million, compared to $7.8 million for the corresponding period in fiscal year 2024.

The year-over-year reduction in operating loss was primarily due to lower fixed costs allocated to overhead related to cost savings implemented in the last twelve months, lower levels of discretionary spending, and reduced employee health insurance costs.

Other (Expense) Income, Net.

Other expense, net for the nine months of fiscal year 2025 was $2.5 million compared to $1.1 million for the corresponding period in fiscal year 2024.

The year-over-year increase in other expense, net was due mainly to an increase in foreign currency exchange loss and a decrease in income from our equity investment.

Operating loss for the first quarter of fiscal year 2026 was $3.2 million, compared to $2.1 million for the corresponding period in fiscal year 2025.

The year-over-year increase in operating loss was primarily due to a decreased volume of shipments of Hurco and Milltronics machines.

Other Income (Expense), Net.

Other income, net for the first quarter of fiscal year 2026 was less than $0.1 million compared to other expense, net of $0.4 million for the corresponding period in fiscal year 2025.

The year-over-year change was due mainly to gains from sale of an business and a decrease in foreign currency exchange loss.

Income Taxes.

Income tax expense for the nine months of fiscal year 2025 was $3.1 million, compared to $6.4 million for the corresponding prior year period.

The year-over-year reduction in income tax expense was due mainly to a lower valuation allowance recorded against our U.S.

deferred tax assets, as well as changes in geographic mix of income and loss that include jurisdictions with differing tax rates, partially offset by an increase in valuation allowance recorded against our Italian deferred tax assets.

We recorded a valuation allowance of $5.3 million for the nine months of fiscal year 2025, compared to $8.2 million recorded for the corresponding prior year period.

Because we have a valuation allowance recorded against our U.S., Chinese and Italian deferred tax assets, we did not record a tax benefit for our U.S., Chinese and Italian net losses for the nine months of fiscal 2025.

The valuation allowance recorded in the nine months of fiscal year 2025 reflected a full valuation allowance of our U.S., Chinese and Italian 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., China and Italy for the nine months of fiscal year 2025.

Income tax expense for the first quarter of fiscal year 2026 was $0.5 million, compared to $2.0 million for the corresponding prior year period.

The year-over-year change was primarily due to a $1.2 million valuation allowance recorded during the first quarter of 2025 on our Italian deferred tax assets and changes in geographic mix of income and loss that includes jurisdictions with differing tax rates.

A full valuation allowance has been recorded against our Italian, U.S., and Chinese deferred tax assets as of January 31, 2026 based on our conclusion that the deferred tax assets were not more likely than not to be recognized.

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2025, we had cash and cash equivalents of $44.5 million, compared to $33.3 million at October 31, 2024.

At January 31, 2026, we had cash and cash equivalents of $48.0 million, compared to $48.7 million at October 31, 2025.

Approximately 19% of the $48.0 million of cash and cash equivalents was denominated in U.S.

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We do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic working capital needs.

Working capital was $176.8 million at July 31, 2025, compared to $180.8 million at October 31, 2024.

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

Capital expenditures of $2.3 million during the nine months of fiscal year 2025 were primarily for software development costs and capital improvements in existing facilities.

Working capital was $169.5 million at January 31, 2026, compared to $173.1 million at October 31, 2025.

The decrease in working capital was primarily driven by an increase in accounts payable and a decrease in inventories.

Capital expenditures of $0.6 million during the first three months of fiscal year 2026 were primarily for software development costs and capital improvements in existing facilities.

We funded these expenditures with cash on hand.

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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.

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

As of July 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 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.

We did not repurchase any shares of our common stock during the first quarter of fiscal 2026.

As of January 31, 2026, 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.

On December 31, 2018, we and our subsidiary Hurco B.V.

entered into the 2018 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.

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.

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 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.

On December 31, 2025, the 150 million New Taiwan Dollars Taiwan credit facility and the 32.5 million Chinese Yuan China credit facility terminated in accordance with their terms.

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.

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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.

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 July 31, 2025, 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 at July 31, 2025.

At July 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.

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 of this report, the most recently completed measurement period was our first quarter ended January 31, 2026, 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.

As of January 31, 2026, our credit facilities consisted of a €1.5 million revolving credit facility in Germany and the $20.0 million secured revolving credit and letter of credit facility.

We had no debt or borrowings outstanding under any of our credit facilities as of January 31, 2026.

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.

6 unchanged sentences

Our critical accounting estimates, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025, are frequently evaluated as our judgment and estimates are based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

During the nine months of fiscal year 2025, there were no material changes to our critical accounting estimates as described in the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2024.

During the first three months of fiscal year 2026, there were no material changes to our critical accounting estimates as described in the MD&A included in our Annual Report on Form 10-K for the year ended October 31, 2025.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

3 unchanged sentences

We follow FASB guidance for accounting for guarantees (codified in ASC 460).

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

As of January 31, 2026, 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.

34 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-Q

Item 2. Management’s Discussion and Analysis