What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-09-04 compared with 2026-06-05 · 84 added, 89 removed, 163 unchanged (51% of the section changed)

13 unchanged sentences

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

During the first six months of fiscal 2026, approximately 45% 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 nine months of fiscal 2026, approximately 45% 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 14% of our revenues were attributable to customers in the Asia Pacific region, where we encounter greater pricing pressures.

2 unchanged sentences

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.

In recent periods, we have used our operating cashflow to manage our capital allocation strategies to continue investing in new technologies, product development, and necessary capital expenditures 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 six months of fiscal 2026 increased by 4%, compared to the same period in fiscal 2025.

The increase in sales was due primarily to increased shipments of Hurco and Takumi 5-axis and vertical milling machines in the Americas and Asia Pacific and Takumi 5-axis and vertical milling machines in Europe, partially offset by a decreased volume of shipments of Hurco machines in Europe and electro-mechanical components and accessories manufactured by our wholly-owned subsidiary in Italy, LCM Precision Technology S.r.l.

Orders in the first six months of fiscal 2026 increased by 24%, compared to the same period in fiscal 2025, reflecting an increase in customer demand for Hurco and Takumi 5-axis and vertical milling machines in all three regions, as well as increased customer demand for electro-mechanical components and accessories manufactured by LCM.

In recent periods, we have used our operating cashflow to manage our capital allocation strategies to continue investing in new technologies, product development, and necessary capital expenditures without incurring 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 changes in the markets and industries in which we operate.

We believe that our historical 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 nine months of fiscal 2026 increased by 4%, compared to the same period in fiscal 2025.

The increase in sales was due primarily to increased shipments of Hurco 5-axis and higher-performance vertical milling machines in the Americas and Asia Pacific, as well as increased shipments of Milltronics and Takumi machines in the Americas and Takumi vertical milling machines and private labeled machine frames produced for third parties in Asia Pacific.

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

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RESULTS OF OPERATIONS

Three Months Ended April 30, 2026 Compared to Three Months Ended April 30, 2025

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

Sales and Service Fees.

Sales and service fees for the second quarter of fiscal year 2026 were $47.6 million, an increase of $6.8 million, or 17%, 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 third quarter of fiscal year 2026 were $47.3 million, an increase of $1.5 million, or 3%, compared to the corresponding prior year period, and included an unfavorable currency impact of less than $0.1 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 net sales and service fees by geographic region for the second fiscal quarter ended April 30, 2026 and 2025 (dollars in thousands):

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

Three Months Ended

Sales in the Americas for the second quarter of fiscal year 2026 increased by 35%, compared to the corresponding period in fiscal year 2025, primarily due to increased shipments of Hurco, Takumi and Milltronics machines.

The increase in machine shipments was mostly attributable to increased shipments of Hurco 5-axis and larger, higher-performance vertical milling machines, Milltronics toolroom machines, and Takumi vertical milling machines.

European sales for the second quarter of fiscal year 2026 decreased by 8%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of 6%, when translating foreign sales to U.S.

Sales in the Americas for the third quarter of fiscal year 2026 increased by 11%, compared to the corresponding period in fiscal year 2025, primarily due to increased shipments of Hurco 5-axis and larger, higher-performance vertical milling machines and increased shipments of Milltronics and Takumi toolroom lathes.

European sales for the third quarter of fiscal year 2026 decreased by 12%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of less than 1%, 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 machines and electro-mechanical components and accessories manufactured by LCM, partially offset by an increased volume of shipments of Takumi 5-axis and vertical milling machines.

Asian Pacific sales for the second quarter of fiscal year 2026 increased by 81%, compared to the corresponding prior year period, and included a favorable currency impact of 2%, when translating foreign sales to U.S.

The decrease in European sales was primarily attributable to a decreased volume of shipments of Hurco machines and electro-mechanical components and accessories manufactured by LCM, partially offset by an increased volume of shipments of Takumi vertical milling machines and increased sales of ProCobots automation solutions.

Asian Pacific sales for the third quarter of fiscal year 2026 increased by 51%, compared to the corresponding prior year period, and included an unfavorable currency impact of 3%, 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 shipments in China and India of Hurco 5-axis and larger, higher-performance vertical milling machines, as well as Takumi 5-axis and vertical milling machines.

The increase in Asian Pacific sales was primarily due to increased shipments of Hurco vertical milling machines in China and Southeast Asia, as well as increased shipments of Takumi vertical milling machines and private labeled machine frames produced for third parties.

Sales and Service Fees by Product Category

The following table sets forth sales and service fees by product group and services for the second fiscal quarter ended April 30, 2026 and 2025 (dollars in thousands):

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

Three Months Ended

3 unchanged sentences

† 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 second quarter of fiscal year 2026 increased by 22%, compared to the corresponding prior year period, primarily due to increased shipments of Hurco 5-axis and larger, higher-performance vertical milling machines and Takumi vertical milling machines in the Americas and Asia Pacific, partially offset by decreased shipments of Hurco machines in Europe and electro-mechanical components and accessories manufactured by LCM.

Sales of computer control systems and software for the second quarter of fiscal year 2026 decreased by 21%, compared to the corresponding prior year period, due mainly to decreased software sales in the Americas.

Service parts and service fees for the second quarter of fiscal year 2026 changed by immaterial amounts compared to the corresponding prior year period.

Sales for all product lines included a favorable currency impact of 3%, when translating foreign sales to U.S.

Sales of computerized machine tools for the third quarter of fiscal year 2026 increased by 3%, compared to the corresponding prior year period, primarily due to increased shipments of Hurco and Takumi machines in the Americas and Asia Pacific, as well as increased shipments of private labeled machine frames produced for third parties in Asia Pacific.

Sales of service parts increased by 6% compared to the corresponding prior year period, primarily due to increases in sales of aftermarket service parts in Europe and Asia Pacific.

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

dollars for financial reporting purposes.

Orders for the second quarter of fiscal year 2026 were $61.6 million, an increase of $17.9 million, or 41%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of $1.8 million, or 4%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the second fiscal quarter ended April 30, 2026 and 2025 (dollars in thousands):

Orders for the third quarter of fiscal year 2026 were $51.4 million, an increase of $10.4 million, or 25%, compared to the corresponding period in fiscal year 2025, and included an unfavorable currency impact of $0.3 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 third fiscal quarter ended July 31, 2026 and 2025 (dollars in thousands):

Three Months Ended

Orders in the Americas for the second quarter of fiscal year 2026 increased by 63%, compared to the corresponding period in fiscal year 2025, primarily due to increased demand for Hurco 5-axis and larger, higher-performance vertical milling machines and for Takumi vertical milling machines.

European orders for the second quarter of fiscal year 2026 increased by 17%, compared to the corresponding prior year period, and included a favorable currency impact of 7%, when translating foreign orders to U.S.

The increase in orders was driven primarily by increased customer demand for Hurco higher-performance milling machines in the United Kingdom and Germany and for Takumi 5-axis machines in France.

Asian Pacific orders for the second quarter of fiscal year 2026 increased by 66%, compared to the corresponding prior year period, and included a favorable currency impact of 4%, when translating foreign orders to U.S.

The increase in orders was driven primarily by increased customer demand for Takumi machines across the Asian Pacific region where our customers are located, as well as for Hurco vertical milling machines in China.

Orders in the Americas for the third quarter of fiscal year 2026 increased by 37%, compared to the corresponding period in fiscal year 2025, primarily due to increased demand for Hurco 5-axis and larger, higher-performance vertical milling machines, Takumi lathes and vertical milling machines, as well as Milltronics toolroom lathes.

European orders for the third quarter of fiscal year 2026 increased by 6%, compared to the corresponding prior year period, and included a favorable currency impact of less than 1%, when translating foreign orders to U.S.

The increase in orders was driven primarily by increased customer demand for Hurco higher-performance vertical milling machines in the United Kingdom and electro-mechanical components and accessories manufactured by LCM, partially offset by decreased customer demand for Hurco machines in Germany and France.

Asian Pacific orders for the third quarter of fiscal year 2026 increased by 68%, compared to the corresponding prior year period, and included an unfavorable currency impact of 7%, when translating foreign orders to U.S.

The increase in orders was driven primarily by increased customer demand for Takumi machines and for private labeled machine frames produced for third parties, partially offset by decreased customer demand for Hurco machines in China.

Gross Profit.

Gross profit for the second quarter of fiscal year 2026 was $10.3 million, or 22% of sales, compared to $7.8 million, or 19% of sales, for the corresponding prior year period.

The year-over-year increase in gross profit was primarily due to an increased volume of machine sales and a greater mix of higher-performance machine sales.

Although not significant factors, gross profit for the second quarter of fiscal year 2026 also benefited from price increases implemented in 2026 and tariff refund claims filed with the United States Customs and Border Protection, both of which were partially offset by incremental tariffs compared to prior year.

Gross profit for the third quarter of fiscal year 2026 was $13.2 million, or 28% of sales, compared to $9.1 million, or 20% of sales, for the corresponding prior year period.

The increase in gross profit was attributable to an increased volume of machine sales and a greater mix of higher-performance machines sold, as well as price increases implemented in the first quarter of fiscal 2026 and tariff refund claims filed with the United States Customs and Border Protection.

Operating Expenses.

Selling, general, and administrative expenses for the second quarter of fiscal year 2026 were $11.1 million, or 23% of sales, compared to $10.9 million, or 27% of sales, in the corresponding fiscal year 2025 period, and included an unfavorable currency impact of $0.3 million, when translating foreign expenses to U.S.

Selling, general, and administrative expenses for the third quarter of fiscal year 2026 were $10.9 million, or 23% of sales, compared to $10.8 million, or 23% of sales, in the corresponding fiscal year 2025 period, and included an unfavorable currency impact of $0.1 million, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

The year-over-year increase in selling, general, and administrative expenses was primarily due to the unfavorable currency impact.

The increase in selling, general, and administrative expenses was primarily due to the unfavorable currency impact and increased global wages, sales commissions, and employee benefits.

Operating Income (Loss).

Operating loss for the second quarter of fiscal year 2026 was $0.8 million, compared to $3.1 million for the corresponding period in fiscal year 2025.

The year-over-year decrease in operating loss was primarily due to an increased volume of machine sales and a greater mix of higher-performance machine sales.

Other Expense, Net.

Other expense, net for the second quarter of fiscal year 2026 was $0.8 million compared to $0.6 million for the corresponding period in fiscal year 2025.

The year-over-year increase in other expense, net was due mainly to an increase in foreign currency exchange loss.

Operating income for the third quarter of fiscal year 2026 was $2.3 million, compared to an operating loss of $1.7 million, for the corresponding period in fiscal year 2025.

The improvement from operating loss to operating income was primarily attributable to an increased volume of machine sales and a greater mix of higher-performance machines sold, as well as price increases implemented in the first quarter of fiscal 2026 and tariff refund claims filed with the United States Customs and Border Protection.

Other Income (Expense), Net.

Other income, net for the third quarter of fiscal year 2026 was $0.3 million compared to other expense, net of $1.5 million, for the corresponding period in fiscal year 2025.

The change was due mainly to a decrease in foreign currency exchange loss.

Income Taxes.

Income tax expense for the second quarter of fiscal year 2026 was $0.8 million, compared to $0.5 million for the corresponding prior year period.

The year-over-year change was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates.

Six Months Ended April 30, 2026, Compared to Six Months Ended April 30, 2025

Income tax expense for the third quarter of fiscal year 2026 was $0.4 million, compared to $0.6 million, for the corresponding prior year period.

The reduction in income tax expense was primarily due to changes in geographic mix of income and loss that includes jurisdictions with differing tax rates.

Nine Months Ended July 31, 2026, Compared to Nine Months Ended July 31, 2025

Sales and Service Fees.

Sales and service fees for the first six months of fiscal year 2026 were $90.5 million, an increase of $3.2 million, or 4%, compared to the corresponding prior year period, and included a favorable currency impact of $3.2 million, or 4%, when translating foreign sales to U.S.

Sales and service fees for the first nine months of fiscal year 2026 were $137.8 million, an increase of $4.7 million, or 4%, compared to the corresponding prior year period, and included a favorable currency impact of $3.1 million, or 2%, 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 six months ended April 30, 2026 and 2025 (dollars in thousands):

Six Months Ended

Sales in the Americas for the first six months of fiscal year 2026 increased by 12%, compared to the corresponding period in fiscal year 2025, primarily due to increased shipments of Hurco 5-axis as well as larger, higher-performance vertical milling machines and Takumi vertical milling machines.

European sales for the first six months of fiscal year 2026 decreased by 7%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of 7%, when translating foreign sales to U.S.

The following table sets forth sales and service fees by geographic region for the nine months ended July 31, 2026 and 2025 (dollars in thousands):

Nine Months Ended

Sales in the Americas for the first nine months of fiscal year 2026 increased by 12%, compared to the corresponding period in fiscal year 2025, primarily due to increased shipments of Hurco 5-axis machines and larger, higher-performance vertical milling machines, increased shipments of Takumi lathes and vertical milling machines, and increased shipments of Milltronics toolroom lathes.

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

dollars for financial reporting purposes.

Asian Pacific sales for the first six months of fiscal year 2026 increased by 20%, compared to the corresponding prior year period, and included a favorable currency impact of 2%, when translating foreign sales to U.S.

Asian Pacific sales for the first nine months of fiscal year 2026 increased by 30%, 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 increase in Asian Pacific sales was primarily due to increased shipments of Hurco vertical milling machines in China and Southeast Asia, as well as increased shipment of Takumi vertical milling machines and private labeled machine frames produced for third parties.

Sales and Service Fees by Product Category

The following table sets forth sales and service fees by product group and services for the six months ended April 30, 2026 and 2025 (dollars in thousands):

Six Months Ended

The following table sets forth sales and service fees by product group and services for the nine months ended July 31, 2026 and 2025 (dollars in thousands):

Nine Months Ended

Computerized Machine Tools

2 unchanged sentences

† 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 first six months of fiscal year 2026 increased by 4%, compared to the corresponding prior year period, primarily due to increased shipments of Hurco 5-axis and larger, higher-performance vertical milling machines and Takumi vertical milling machines in the Americas and Asia Pacific, partially offset by decreased shipments of Hurco machines in Europe and electro-mechanical components and accessories manufactured by LCM.

Sales of computer control systems and software for the first six months of fiscal year 2026 decreased by 26%, compared to the corresponding prior year period, due mainly to decreased software sales in the Americas and Europe.

Sales of service parts for the first six months of fiscal year 2026 increased by 8%, compared to the corresponding prior year period, primarily due to increases in aftermarket service parts sales in the United Kingdom and Germany.

Service fees for the first six months of fiscal year 2026 decreased by 2%, compared to the corresponding prior year period, primarily due to decreased aftermarket service fees in the Americas.

Sales of computerized machine tools for the first nine months of fiscal year 2026 increased by 4%, compared to the corresponding prior year period, primarily due to increased shipments of Hurco and Takumi machines in the Americas and Asia Pacific, as well as increased shipment of private labeled machine frames produced for third parties in Asia Pacific.

Sales of computer control systems and software for the first nine months of fiscal year 2026 decreased by 19%, compared to the corresponding prior year period, due mainly to decreased software sales in the Americas.

Sales of service parts for the first nine months of fiscal year 2026 increased by 8%, compared to the corresponding prior year period, primarily due to increases in sales of aftermarket service parts for Hurco and Takumi products in the United Kingdom, Germany, and Asia Pacific.

Service fees for the first nine months of fiscal year 2026 decreased by 2%, compared to the corresponding prior year period, primarily due to decreased aftermarket service fees in the Americas.

Sales for all product lines included a favorable currency impact of 2%, when translating foreign sales to U.S.

dollars for financial reporting purposes.

Orders for the first six months of fiscal year 2026 were $103.6 million, an increase of $19.8 million, or 24%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of $3.4 million, or 4%, when translating foreign orders to U.S.

The following table sets forth new orders booked by geographic region for the six months ended April 30, 2026, and 2025 (dollars in thousands):

Six Months Ended

Orders in the Americas for the first six months of fiscal year 2026 increased by 42%, compared to the corresponding period in fiscal year 2025, primarily due to increased demand for Hurco 5-axis and larger, higher-performance vertical milling machines and for Takumi vertical milling machines.

European orders for the first six months of fiscal year 2026 increased by 8%, compared to the corresponding prior year period, and included a favorable currency impact of 8%, when translating foreign orders to U.S.

The year-over-year increase was primarily due to increased customer demand for Hurco and Takumi 5-axis and higher-performance vertical milling machines in the United Kingdom, Germany and France, and increased customer demand for electro-mechanical components and accessories manufactured by LCM, partially offset by a decreased volume of machine demand in Italy and Germany.

Asian Pacific orders for the first six months of fiscal year 2026 increased by 29%, compared to the corresponding prior year period, and included a favorable currency impact of 2%, when translating foreign orders to U.S.

The year-over-year increase in Asian Pacific orders was driven primarily by increased customer demand for Takumi machines across the Asia Pacific region where our customers are located and for higher-performance Hurco vertical milling machines in India.

Orders for the first nine months of fiscal year 2026 were $155.0 million, an increase of $30.2 million, or 24%, compared to the corresponding period in fiscal year 2025, and included a favorable currency impact of $3.1 million, or 2%, 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, 2026, and 2025 (dollars in thousands):

Nine Months Ended

Orders in the Americas for the first nine months of fiscal year 2026 increased by 40%, compared to the corresponding period in fiscal year 2025, primarily due to increased demand for Hurco 5-axis and larger, higher-performance vertical milling machines, Takumi lathes and vertical milling machines, as well as Milltronics toolroom lathes.

European orders for the first nine months of fiscal year 2026 increased by 7%, compared to the corresponding prior year period, and included a favorable currency impact of 5%, when translating foreign orders to U.S.

Asian Pacific orders for the first nine months of fiscal year 2026 increased by 41%, compared to the corresponding prior year period, and included an unfavorable currency impact of 1%, when translating foreign orders to U.S.

The increase in Asian Pacific orders was driven primarily by increased customer demand for Takumi machines and for private labeled machine frames produced for third parties, partially offset by decreased customer demand for Hurco machines in China.

Gross Profit .

Gross profit for the first six months of fiscal year 2026 was $18.3 million, or 20% of sales, compared to $16.1 million, or 18% of sales, for the corresponding prior year period.

The year-over-year increase in gross profit was primarily due to an increased volume of machine sales and a greater mix of higher-performance machine sales.

Although not significant factors, gross profit for the first six months of fiscal 2026 also benefited from price increases implemented in 2026 and tariff refund claims filed with the United States Customs and Border Protection, both of which were partially offset by incremental tariffs compared to prior year.

Gross profit for the first nine months of fiscal year 2026 was $31.5 million, or 23% of sales, compared to $25.2 million, or 19% of sales, for the corresponding prior year period.

Most of the increase in gross profit was attributable to an increased volume of machine sales and a greater mix of higher-performance machines sold, as well as price increases implemented in the first quarter of fiscal 2026.

Additionally, a smaller portion of the gross profit improvement included tariff refund claims filed with the United States Customs and Border Protection.

Operating Expenses .

Selling, general, and administrative expenses for the first six months of fiscal year 2026 were $22.2 million, or 25% of sales, compared to $21.3 million, or 24% of sales, in the corresponding fiscal year 2025 period, and included an unfavorable currency impact of $0.7 million, when translating foreign expenses to U.S.

Selling, general, and administrative expenses for the first nine months of fiscal year 2026 were $33.1 million, or 24% of sales, compared to $32.0 million, or 24% of sales, in the corresponding fiscal year 2025 period, and included an unfavorable currency impact of $0.8 million, when translating foreign expenses to U.S.

dollars for financial reporting purposes.

The year-over-year increase in selling, general and administrative expenses was primarily due to the unfavorable currency impact.

The increase was primarily due to the unfavorable impact of currency translation and increased global wages, sales commissions, and employee benefits.

Operating Income (Loss) .

Operating loss for the first six months of fiscal year 2026 was $4.0 million, compared to $5.2 million for the corresponding period in fiscal year 2025.

The year-over-year decrease in operating loss was primarily due to an increased volume of machine sales and a greater mix of higher-performance machine sales.

Other Expense, Net .

Other expense, net for the first six months of fiscal year 2026 was $0.8 million compared to $1.0 million for the corresponding period in fiscal year 2025.

The year-over-year decrease in other expense, net was due mainly to gains from sale of a business.

Operating loss for the first nine months of fiscal year 2026 was $1.7 million, compared to $6.8 million for the corresponding period in fiscal year 2025.

The year-over-year decrease in operating loss was primarily due to an increased volume of machine sales and a greater mix of higher-performance machine sales, as well as price increases implemented in the first quarter of fiscal 2026 and tariff refund claims filed with the United States Customs and Border Protection.

Other Income (Expense), Net .

Other expense, net for the first nine months of fiscal year 2026 decreased to $0.5 million from $2.5 million for the corresponding period in fiscal year 2025, due mainly to a decrease in foreign currency exchange loss.

Income Taxes .

Income tax expense for the first six months of fiscal year 2026 was $1.2 million, compared to $2.6 million for the corresponding prior year period.

Income tax expense for the first nine months of fiscal year 2026 was $1.7 million, compared to $3.1 million for the corresponding prior year period.

The year-over-year decrease in income tax expense 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 include jurisdictions with differing tax rates.

A full valuation allowance has been recorded against our Italian, U.S., and Chinese deferred tax assets as of April 30, 2026, based on our conclusion that the deferred tax assets were not more likely than not to be realized.

A full valuation allowance has been recorded against our Italian, U.S., and Chinese deferred tax assets as of July 31, 2026, based on our conclusion that the deferred tax assets were not more likely than not to be realized under generally accepted accounting principles.

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 2026, we had cash and cash equivalents of $50.1 million, compared to $48.7 million at October 31, 2025.

At July 31, 2026, we had cash and cash equivalents of $52.1 million, compared to $48.7 million at October 31, 2025.

Approximately 18% of the $52.1 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 $166.9 million at April 30, 2026, compared to $173.1 million at October 31, 2025.

The decrease in working capital was primarily driven by a decrease in inventories and an increase in customer deposits, partially offset by increases in cash and cash equivalents and prepaid and other assets.

Capital expenditures of $1.3 million during the first six months of fiscal year 2026 were primarily for software development costs and capital improvements in existing facilities.

Working capital was $166.7 million at July 31, 2026, compared to $173.1 million at October 31, 2025.

The decrease in working capital was primarily driven by a decrease in inventories and an increase in accounts payable and customer deposits, partially offset by increases in cash and cash equivalents and prepaid and other assets.

Capital expenditures of $2.4 million during the first nine 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.

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

As of April 30, 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.

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

As of July 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.

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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%.

Any outstanding letters of credit 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);

3 unchanged sentences

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 second quarter ended April 30, 2026, during which our consolidated EBITDA was negative.

As of the date of this report, the most recently completed measurement period was our twelve months ended July 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 April 30, 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 April 30, 2026.

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

While we are currently in the process of evaluating a longer-term global credit solution, we believe our current cash on hand, expected cash flow from operations, and access to cash pooling 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 first six 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.

During the first nine 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 April 30, 2026, we had four outstanding third party payment guarantees totaling approximately $0.3 million.

As of July 31, 2026, we had four outstanding third party payment guarantees totaling approximately $0.3 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