VIRCO MFG CORPORATION 10-Q

Item 1. Financial Statements Virco Mfg. Corporation Unaudited Condensed Consolidated Balance Sheets 7/31/2026 1/31/2026 7/31/2025 (In thousands) Assets Current assets Cash $ 9,212 $ 14,437 $ 2,610 Trade accounts receivable, net 45,560 13,590 46,817 Income tax receivable 4,237 3,863 — Inventories 53,032 56,735 59,866 Prepaid expenses and other current assets 10,568 10,104 2,592 Total current assets 122,609 98,729 111,885 Non-current assets Property, plant and equipment, net 33,396 34,578 36,120 Operating lease right-of-use assets 27,396 30,415 33,019 Deferred income tax assets, net 3,594 5,437 5,847 Other assets, net 5,171 5,020 11,770 Total assets $ 192,166 $ 174,179 $ 198,641 Liabilities Current liabilities Accounts payable $ 20,034 $ 7,393 $ 17,069 Accrued compensation and employee benefits 12,850 11,434 6,856 Income tax payable — — 14 Current portion of long-term debt 274 269 263 Current portion of operating lease liability 6,623 6,490 4,790 Other accrued liabilities 8,714 6,396 8,747 Total current liabilities 48,495 31,982 37,739 Non-current liabilities Long-term debt, less current portion 3,471 3,609 3,745 Operating lease liability, less current portion 26,672 30,006 33,096 Other long-term liabilities 3,054 2,651 8,685 Total non-current liabilities 33,197 36,266 45,526 Commitments and contingencies (Note 13) Stockholders’ equity Preferred stock: Authorized 3,000,000 shares, $ 0.01 par value; none issued or outstanding — — — Common stock: Authorized 25,000,000 shares, $ 0.01 par value; issued and outstanding 15,763,815 shares at 7/31/2026, 15,761,141 shares at 1/31/2026, and 15,761,141 shares at 7/31/2025 157 157 157 Additional paid-in capital 113,669 113,761 113,667 (Accumulated deficit) retained earnings ( 2,827 ) ( 7,875 ) 1,264 Accumulated other comprehensive (loss) income ( 525 ) ( 112 ) 288 Total stockholders’ equity 110,474 105,931 115,376 Total liabilities and stockholders’ equity $ 192,166 $ 174,179 $ 198,641 See accompanying notes to unaudited condensed consolidated financial statements. 3 Virco Mfg. Corporation Unaudited Condensed Consolidated Statements of Income Three Months Ended Six Months Ended 7/31/2026 7/31/2025 7/31/2026 7/31/2025 (In thousands, except per share data) Net sales $ 87,466 $ 92,086 $ 118,158 $ 125,840 Cost of goods sold 52,453 51,212 70,450 68,946 Gross profit 35,013 40,874 47,708 56,894 Selling, general and administrative expenses 24,466 25,503 40,821 41,617 Operating income 10,547 15,371 6,887 15,277 Unrealized (gain) loss on investment in trust account ( 656 ) 968 ( 529 ) ( 207 ) Pension (benefit) expense ( 203 ) 27 ( 392 ) 54 Interest expense, net 170 205 276 265 Income before income taxes 11,236 14,171 7,532 15,165 Income tax expense 2,623 3,985 1,696 4,247 Net income $ 8,613 $ 10,186 $ 5,836 $ 10,918 Cash dividends declared per common share: $ 0.025 $ 0.025 $ 0.050 $ 0.050 Net income per common share: Basic $ 0.55 $ 0.65 $ 0.37 $ 0.69 Diluted $ 0.55 $ 0.65 $ 0.37 $ 0.69 Weighted average shares of common stock outstanding: Basic 15,734 15,741 15,733 15,749 Diluted 15,737 15,743 15,735 15,750 See accompanying notes to unaudited condensed consolidated financial statements. 4 Virco Mfg. Corporation Unaudited Condensed Consolidated Statements of Comprehensive Income Three Months Ended Six Months Ended 7/31/2026 7/31/2025 7/31/2026 7/31/2025 (In thousands) Net income $ 8,613 $ 10,186 $ 5,836 $ 10,918 Other comprehensive loss: Pension adjustments (net of tax adjustment of $( 70 ) and $( 23 ) for the three months, and $( 139 ) and $( 46 ) for the six months ended July 31, 2026 and 2025, respectively) ( 206 ) ( 67 ) ( 413 ) ( 134 ) Net comprehensive income $ 8,407 $ 10,119 $ 5,423 $ 10,784 See accompanying notes to unaudited condensed consolidated financial statements. 5 Virco Mfg. Corporation Unaudited Condensed Consolidated Statements of Cash Flows Six Months Ended 7/31/2026 7/31/2025 (In thousands) Operating activities Net income $ 5,836 $ 10,918 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 2,913 3,086 Non-cash lease (benefit) expense ( 182 ) 2,780 Provision for credit losses 30 30 Amortization of debt issuance costs 76 68 Deferred income taxes 1,981 20 Stock-based compensation 98 114 Amortization of net actuarial gain for pension plans ( 552 ) ( 180 ) Non-cash unrealized gain on investment ( 529 ) ( 207 ) Surrender of life insurance policies — ( 300 ) Changes in operating assets and liabilities: Trade accounts receivable ( 32,000 ) ( 33,843 ) Inventories 3,702 ( 4,219 ) Income taxes ( 362 ) 4,130 Prepaid expenses and other assets ( 161 ) 3 Accounts payable and accrued liabilities 16,337 1,774 Net cash used in operating activities ( 2,813 ) ( 15,826 ) Investing activities Purchases of property, plant and equipment ( 1,301 ) ( 3,816 ) Proceeds from surrendering life insurance policies — 300 Net cash used in investing activities ( 1,301 ) ( 3,516 ) Financing activities Repayment of long-term debt ( 133 ) ( 128 ) Common stock repurchased ( 190 ) ( 4,000 ) Cash dividends paid ( 788 ) ( 787 ) Net cash used in financing activities ( 1,111 ) ( 4,915 ) Net decrease in cash ( 5,225 ) ( 24,257 ) Cash at beginning of period $ 14,437 $ 26,867 Cash at end of period $ 9,212 $ 2,610 Supplemental disclosures of cash flow information: Property, plant and equipment acquired and not yet paid at end of period $ 627 $ 716 Cash paid during the period for interest, net of interest income $ 205 $ 265 Cash paid during the period for income taxes, net of refunds $ 58 $ 104 See accompanying notes to unaudited condensed consolidated financial statements. 6 Virco Mfg. Corporation Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity Three-Month Period Ended July 31, 2026 Common Stock In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity Balance at April 30, 2026 15,729,543 $ 157 $ 113,618 $ ( 11,046 ) $ ( 319 ) $ 102,410 Net income — — — 8,613 — 8,613 Cash dividends — — — ( 394 ) — ( 394 ) Pension adjustments — — — — ( 206 ) ( 206 ) Shares vested and others 34,272 — — — — — Stock compensation expense — — 51 — — 51 Stock repurchased — — — — — — Balance at July 31, 2026 15,763,815 $ 157 $ 113,669 $ ( 2,827 ) $ ( 525 ) $ 110,474 Three-Month Period Ended July 31, 2025 Common Stock In thousands, except share data Shares Amount Additional Paid-in Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Income Total Stockholders' Equity Balance at April 30, 2025 15,738,138 $ 157 $ 113,616 $ ( 8,528 ) $ 355 $ 105,600 Net income — — — 10,186 — 10,186 Cash dividends — — — ( 394 ) — ( 394 ) Pension adjustments — — — — ( 67 ) ( 67 ) Shares vested and others 23,003 — — — — — Stock compensation expense — — 51 — — 51 Stock repurchased — — — — — — Balance at July 31, 2025 15,761,141 $ 157 $ 113,667 $ 1,264 $ 288 $ 115,376 Six-Month Period Ended July 31, 2026 Common Stock In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity Balance at January 31, 2026 15,761,141 $ 157 $ 113,761 $ ( 7,875 ) $ ( 112 ) $ 105,931 Net income — — — 5,836 — 5,836 Cash dividends — — — ( 788 ) — ( 788 ) Pension adjustments — — — — ( 413 ) ( 413 ) Shares vested and others 34,272 — — — — — Stock compensation expense — — 98 — — 98 Stock repurchased ( 31,598 ) — ( 190 ) — — ( 190 ) Balance at July 31, 2026 15,763,815 $ 157 $ 113,669 $ ( 2,827 ) $ ( 525 ) $ 110,474 See accompanying notes to unaudited condensed consolidated financial statements. 7 Virco Mfg. Corporation Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity Six-Month Period Ended July 31, 2025 Common Stock In thousands, except share data Shares Amount Additional Paid-in Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Income Total Stockholder's Equity Balance at January 31, 2025 16,087,082 $ 161 $ 117,549 $ ( 8,867 ) $ 422 $ 109,265 Net income — — — 10,918 — 10,918 Cash dividends — — — ( 787 ) — ( 787 ) Pension adjustments — — — — ( 134 ) ( 134 ) Shares vested and others 23,003 — — — — — Stock compensation expense — — 114 — — 114 Stock repurchased ( 348,944 ) ( 4 ) ( 3,996 ) — — ( 4,000 ) Balance at July 31, 2025 15,761,141 $ 157 $ 113,667 $ 1,264 $ 288 $ 115,376 See accompanying notes to unaudited condensed consolidated financial statements. 8 VIRCO MFG. CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements July 31, 2026 Note 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2026 (“Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended July 31, 2026 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2027. The balance sheet at January 31, 2026 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by U.S. GAAP for complete financial statements. All references to the “Company”, “we” and “our” refer to Virco Mfg. Corporation and its subsidiaries. Note 2. Seasonality and Management Use of Estimates The market for educational furniture is marked by extreme seasonality, with approximately 50 % of the Company’s total sales typically occurring from June to August each year, the Company’s peak season. Hence, the Company typically builds and carries significant amounts of inventory during and in anticipation of this peak summer season to facilitate the rapid delivery requirements of customers in the educational market. This requires a large up-front investment in inventory, labor, storage and related costs as inventory is built in anticipation of peak sales during the summer months. If the capital required for this build-up exceeds cash available from operations, the Company has generally relied on third-party bank financing to meet cash flow requirements during the build-up period immediately preceding the peak season. In addition, the Company typically is faced with an overall higher accounts receivable balance during the peak season. This occurs for two primary reasons. First, accounts receivable balances typically increase during the peak season as shipments of products increase. Second, many customers during this period are educational institutions and government entities, which tend to pay accounts receivable slower than commercial customers. The Company’s working capital requirements during and in anticipation of the peak summer season require management to make estimates and judgments that affect assets, liabilities, revenues and expenses, and related contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to market demand, labor costs and stocking inventory. Significant estimates made by management include, but are not limited to, valuation of inventory; deferred tax assets and liabilities; useful lives of property, plant and equipment; liabilities under pension, warranty and self-insurance; and the accounts receivable allowance for credit losses. Note 3. Recently Issued Accounting Standards New Accounting Pronouncements Recently Adopted Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Tax Disclosures. In December 2023, the Financial Accounting Standards Board ("FASB") issued this ASU amending existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. We adopted this ASU for the year ended January 31, 2026 and applied the amendments prospectively. Adoption of the new standard did not impact our consolidated income statements, balance sheets, or statements of cash flows. ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. In July 2025, the FASB issued this ASU which provides a practical expedient to assume that the conditions as of the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers. The Company adopted this ASU for the year ending January 31, 2027. Adoption did not impact our consolidated income statements, balance sheets, or statements of cash flows. Recently Issued Accounting Pronouncements ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. In November 2024, the FASB issued this ASU which requires a public entity to 9 disclose additional information about specific expense categories in the notes to financial statements on an annual and interim basis. The amendments are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. A public entity should apply the amendments either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the impact that this guidance will have on our consolidated financial statements and disclosures. ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. In September 2025, the FASB issued this ASU which eliminates the requirement to evaluate software development stages in determining when capitalization of internal-use software costs should begin. Under the updated guidance, capitalization is required when management authorizes and commits to funding a software project and it is probable that the project will be completed and placed into service for its intended use. The ASU is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years. The guidance may be applied either prospectively or retrospectively, and early adoption is permitted. We do not expect that this guidance will have a material impact on our consolidated financial statements and disclosures. ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. In December 2025, the FASB issued this ASU which clarifies the guidance in Topic 270 and provides a comprehensive list of required interim disclosures. The amendments also establish a disclosure principle requiring entities to disclose events and changes occurring after the end of the most recent annual reporting period that have a material impact on the entity. The amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. We do not expect that this guidance will have a material impact on our consolidated financial statements and disclosures. The Company evaluates all ASUs issued by the FASB for consideration of their applicability to our condensed consolidated financial statements. We have assessed all ASUs issued but not yet adopted and concluded that those not disclosed are not relevant to the Company or are not expected to have a material impact. Note 4. Revenue Recognition The Company manufactures, markets and distributes a wide variety of school and office furniture to wholesalers, distributors, educational institutions and governmental entities. Revenue is recorded for promised goods or services when control is transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company's sales generally involve a single performance obligation to deliver goods pursuant to customer purchase orders. Prices for our products are based on published price lists and customer agreements. The Company has determined that the performance obligations are satisfied at a point in time when the Company completes delivery per the customer contract. The majority of sales are free on board ("FOB") destination where the destination is specified per the customer contract and may include delivering the furniture into the classroom, school site or warehouse. Sales of furniture that are sold FOB factory are typically made to resellers of our product who in turn provide logistics to the ultimate customer. Once a product has been delivered per the shipping terms, the customer is able to direct the use of and obtain substantially all of the remaining benefits from the asset. The Company considers control to have transferred upon shipment or delivery in accordance with shipping terms because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset. Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. The Company offers sales incentives and discounts through various regional and national programs to our customers. These programs include product rebates, product returns allowances and trade promotions. Variable consideration for these programs is estimated in the transaction price at contract inception based on current sales levels and historical experience using the expected value method, subject to constraint. The Company generates revenue primarily by manufacturing and distributing products through resellers and selling directly to customers. Control transfers to both resellers and direct customers at a point in time when the delivery process is complete as determined by the corresponding shipping terms. Therefore, we do not consider them to be meaningfully different revenue streams given similarities in the nature of the products, performance obligation and distribution processes. Sales are predominately in the United States and to a similar class of customer. We do not manage or evaluate the business based on product line or any other discernable category. 10 Note 5. Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined using standard costs, which approximate a first-in, first-out ("FIFO") basis, and includes material, labor, and factory overhead. The Company reviews standard costs of raw materials, work-in-process and finished goods on a periodic basis to ensure that its inventories approximate current actual costs. The Company records valuation adjustments for the excess cost of the inventory over its estimated net realizable value. Valuation adjustments for slow-moving and obsolete inventory involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company's financial condition or results of operations. Valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated percentage applied to inventories based on a physical inspection of the product in connection with a physical inventory, a review of slow-moving products and component stage, inventory category, historical and forecasted consumption of sales, and consideration of active marketing programs. The market for educational furniture is traditionally driven by value, and the Company has not typically incurred material obsolescence expenses. If market conditions are less favorable than those anticipated by management, additional valuation adjustments may be required. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation. The following table presents a breakdown of the Company’s inventories: 7/31/2026 1/31/2026 7/31/2025 (In thousands) Finished goods $ 22,017 $ 21,923 $ 23,317 Work in process 17,154 20,084 23,133 Raw materials 13,861 14,728 13,416 Total inventories $ 53,032 $ 56,735 $ 59,866 Note 6. Leases As more fully described in the Form 10-K, the Company has operating leases on real property, equipment and automobiles, expiring at various dates through fiscal year 2031. The Company has an operating lease for its corporate office and manufacturing and distribution facility located in Torrance, California, currently with a remaining lease term through September 2030. The quantitative information regarding our leases is as follows: Three Months Ended Six Months Ended 7/31/2026 7/31/2025 7/31/2026 7/31/2025 (In thousands, except lease term and discount rate) Operating lease cost $ 2,301 $ 2,359 $ 4,613 $ 4,717 Short-term lease cost 118 112 236 230 Sublease income ( 10 ) ( 10 ) ( 20 ) ( 20 ) Variable lease cost 404 109 801 382 Total lease cost $ 2,813 $ 2,570 $ 5,630 $ 5,309 Other operating lease information: Cash paid for amounts included in the measurement of lease liabilities $ 4,795 $ 1,936 Right-of-use assets obtained in exchange for new lease liabilities $ — $ 331 Weighted-average remaining lease term (years) 4.1 5.0 Weighted-average discount rate 9.85 % 9.83 % 11 Minimum future lease payments for operating leases in effect as of July 31, 2026 are as follows: Operating Leases For the year ending January 31, (In thousands) Remainder of 2027 $ 4,846 2028 9,513 2029 9,656 2030 9,979 2031 6,863 Thereafter — Remaining balance of lease payments 40,857 Short-term lease liabilities 6,623 Long-term lease liabilities 26,672 Total lease liabilities 33,295 Difference between undiscounted cash flows and discounted cash flows $ 7,562 On July 23, 2024, the Company entered into a new lease agreement (the “Lease”) with Starboard Distribution Center, LLC which extended the Company’s tenancy at its 560,000 sq. ft. office, manufacturing and warehouse facility in Torrance, California. The Lease extended the tenancy for 65 months, covering the period from May 1, 2025 through September 30, 2030. Under the Lease, the monthly base rent was abated for the initial 5-month period from May 1, 2025 to September 30, 2025, then was set at $ 726,700 for October 1, 2025 through April 30, 2026, with subsequent increases of 3.5 % every 12 months thereafter. The Lease also provides for a tenant improvement allowance of up to $ 1.7 million to be used by December 31, 2026. As of July 31, 2026, the Company has received approximately $ 134,000 in reimbursements under the tenant improvement allowance. The Landlord has the right to terminate the Lease upon customary events of default. Note 7. Debt Outstanding balances for the Company’s long-term debt are as follows: 7/31/2026 1/31/2026 7/31/2025 (In thousands) Revolving credit line $ — $ — $ — Other 3,745 3,878 4,008 Total debt 3,745 3,878 4,008 Less current portion 274 269 263 Non-current portion $ 3,471 $ 3,609 $ 3,745 The Company and Virco Inc., its wholly-owned subsidiary (collectively, the “Borrowers”), have a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”). The Credit Agreement was amended numerous times since its origination in December 2011. The Credit Agreement permits the Company to issue cash dividends or make payments with respect to the Company’s capital stock in an aggregate amount up to $ 8.0 million during any fiscal year, provided that no default shall have occurred or is continuing or would result from any such payment, and the Company must demonstrate pro forma compliance with a 12-month trailing Fixed Charge Coverage Ratio ("FCCR") of not less than 1.20 :1.00 as of the fiscal quarter immediately preceding the date of any such dividend or payment. The Credit Agreement also requires the Company to maintain a minimum FCCR, and contains numerous other covenants that limit under certain circumstances the ability of the Borrowers and their subsidiaries to, among other things, merge with or acquire other entities, incur new liens, incur additional indebtedness, sell assets outside of the ordinary course of business, enter into transactions with affiliates, or substantially change the general nature of the business of the Borrowers. In addition to the financial covenants, the Credit Agreement provides for customary events of default, subject to certain cure periods and other limitations. Substantially all of the Borrowers' accounts receivable are automatically and promptly swept to 12 repay amounts outstanding under the Credit Agreement upon receipt by the Borrowers. Due to this automatic liquidating nature of the Credit Agreement, if the Borrowers breach any covenant, violate any representation or warranty, or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion. The other material terms of the Credit Agreement in effect during the fiscal quarter (but prior to Amendment No. 8 discussed below) include the following: (i) a revolving line of credit with a stated Maximum Revolving Advance Amount that is subject to a borrowing base limitation and generally provides for advances of up to 85 % of eligible accounts receivable, plus a percentage equal to the lesser of 60 % of the value of eligible inventory or 85 % of the liquidation value of eligible inventory, plus $ 10.0 million from January through June of each year, minus undrawn amounts of letters of credit and reserves; (ii) inventory sublimit of $ 35.0 million and assemble-to-ship ("ATS") inventory sublimit of $ 15.0 million during the months of May through August; and (iii) an equipment loan of $ 2.0 million. The Credit Agreement is secured by substantially all of the Borrowers’ personal property and certain of the Borrowers’ real property. The Credit Agreement is subject to certain prepayment penalties upon early termination. Prior to the maturity date, principal amounts outstanding under the Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions, including reduced borrowings under the revolving line to less than or equal to $ 10.0 million for a period of 30 consecutive days during the fourth quarter of each fiscal year. The Credit Agreement also contains certain financial covenants, including covenants requiring a minimum FCCR and limits on capital expenditures. The Company was in compliance with its debt covenants as of July 31, 2026. The Company's revolving line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer season. Approximately $ 57.0 million was available for borrowing as of July 31, 2026. The interest rate is determined as a sum of the applicable margin rate, which is 3.00 % from January through July and 2.50 % from August through December, plus the Secured Overnight Financing Rate ("SOFR"). The interest rate at July 31, 2026 was 8.25 %. The Company incurred a fee on the unused portion of the revolving line of credit at a rate of 0.25 %. The Company did not have an outstanding balance under the Credit Agreement as of July 31, 2026. Subsequent to the quarter ended July 31, 2026, the Company entered into Amendment No. 8 to the Credit Agreement with PNC, which amended the Credit Agreement to reflect the following material changes effective as of September 3, 2026: • The maximum revolving advance amount under the Credit Agreement was changed to $ 40.0 million, replacing a schedule of maximum amounts that varied by calendar month. The Company may also request increases to the maximum revolving advance amount up to a cap of $ 60.0 million in minimum increments of $ 5.0 million, subject to lender consent and customary conditions. • The term of the Credit Agreement was extended from April 15, 2027 to September 3, 2031. • The receivables advance rate was increased from 85 % to 90 % of "Eligible Receivables" (as defined in the Credit Agreement). • A new equipment loan sublimit of up to $ 3.0 million was added for equipment purchases, advanced at 85 % of net invoice cost for new equipment or 80 % for used equipment. • The required minimum FCCR was reduced from 1.10 to 1.00 , and the requirement was changed to a springing covenant tested only if excess availability falls below 17.5 % of the maximum revolving advance amount or during an event of default. • The financial test for restricted payments (dividends/share repurchases) was modified to require both 30-day and pro forma excess availability to exceed 25 %, or such targets are reduced to 17.5 % if the Company maintains a pro forma FCCR of 1.05 to 1.00. The aggregate limit on restricted payments remains unchanged at $ 8.0 million during any fiscal year. In connection with this amendment, the Company incurred fees totaling $ 60,000 which will be capitalized as deferred financing costs included in other assets on the next quarter's unaudited condensed consolidated balance sheets. The Company also carries a mortgage on a manufacturing building in Conway, Arkansas. The original note was dated August 2017 with a principal balance of $ 5.8 million, at a fixed rate of 4.0 % per year and 20 -year term. The outstanding amount under this note was approximately $ 3.7 million as of July 31, 2026. Management believes that the carrying value of debt approximated its fair value at July 31, 2026. Note 8. Income Taxes In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. As a part of this evaluation, the Company assesses all available positive and negative evidence, 13 including future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax carrybacks, tax-planning strategies, and results of recent operations, to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets. Valuation allowances of $ 254,000 , $ 231,000 and $ 216,000 as of July 31, 2026, January 31, 2026 and July 31, 2025, respectively, are needed for certain state net operating loss carryforwards to reduce the carrying amount of deferred tax assets to an amount that is more likely than not to be realized. The net change in the valuation allowance for the three months ended July 31, 2026 was an increase of $ 24,000 , compared to no change for July 31, 2025. The net change in the valuation allowance for the six months ended July 31, 2026 and 2025 was an increase of $ 23,000 and a decrease of $ 20,000 , respectively. For the three months ended July 31, 2026 and 2025, the effective income tax rates were 23.3 % and 28.1 %, respectively. For the six months ended July 31, 2026 and 2025, the effective income tax rates were 22.5 % and 28.0 %, respectively. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes. As of July 31, 2026 income taxes payable of $ 239,000 were included in other long-term liabilities on the accompanying unaudited condensed consolidated balance sheets. As of July 31, 2025, income taxes payable of $ 257,000 and $ 14,000 were included in other long-term liabilities and income tax payable, respectively, on the accompanying unaudited condensed consolidated balance sheets. The January 31, 2023 and subsequent fiscal years remain open for examination by the IRS and some state jurisdictions. The January 31, 2022 and subsequent fiscal years remain open for the remaining state jurisdictions. The Company is not currently under federal or state examination. Note 9. Net Income per Share The following table sets forth the computation of basic and diluted net income per share: Three Months Ended Six Months Ended 7/31/2026 7/31/2025 7/31/2026 7/31/2025 (In thousands, except per share data) Net income $ 8,613 $ 10,186 $ 5,836 $ 10,918 Weighted average shares of common stock outstanding - basic 15,734 15,741 15,733 15,749 Dilutive effect of common stock equivalents from equity incentive plans 3 2 2 1 Weighted average shares of common stock outstanding - diluted 15,737 15,743 15,735 15,750 Net income per share - basic $ 0.55 $ 0.65 $ 0.37 $ 0.69 Net income per share - diluted $ 0.55 $ 0.65 $ 0.37 $ 0.69 Note 10. Stock-Based Compensation Stock Incentive Plan Under the Company's 2019 Omnibus Equity Incentive Plan (the “2019 Plan”), the Company may grant an aggregate of up to 1,000,000 shares to its employees and non-employee directors in the form of restricted stock awards. Restricted stock awards granted under the 2019 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted stock awards and related compensation expense as the difference between the market value of the awards on the date of grant less the exercise price of the awards granted. During the three and six months ended July 31, 2026, the Company granted 34,272 awards, vested 23,003 shares according to their terms and forfeited zero shares under the 2019 Plan. As of July 31, 2026, there were approximately 464,584 shares available for future issuance under the 2019 Plan. 14 The following table summarizes the stock-based compensation expense related to restricted stock units and awards recognized in the Company's statements of income: Three Months Ended Six Months Ended 7/31/2026 7/31/2025 7/31/2026 7/31/2025 (In thousands) Cost of goods sold $ — $ — $ — $ — Selling, general and administrative expenses 51 51 98 114 Total stock-based compensation expense $ 51 $ 51 $ 98 $ 114 As of July 31, 2026, there was $ 177,000 of unrecognized compensation expense related to unvested restricted stock awards, which is expected to be recognized over ten months. Note 11. Retirement Plans The Company and its subsidiaries cover certain employees under a noncontributory defined benefit retirement plan, entitled the Virco Employees’ Retirement Plan (“Employee Plan”). As more fully described in the Form 10-K, benefit accruals under the Employee Plan were frozen effective December 31, 2003. There is no service cost incurred under the Employee Plan. The Company also provides a supplementary retirement plan for certain key employees, the Virco Important Performers Retirement Plan (“VIP Plan”). As more fully described in the Form 10-K, benefit accruals under the VIP Plan were frozen effective December 31, 2003. There is no service cost incurred under the VIP Plan. In September 2025, the Company’s Board of Directors approved the termination of the VIP Plan. The termination became effective on November 1, 2025. The VIP Plan’s benefit obligation is expected to be settled by offering lump sum distributions to participants funded by the liquidation of assets held in a rabbi trust during the fourth quarter of the fiscal year ending January 31, 2027. Pension settlement charges related to the VIP Plan termination, which include the recognition of VIP Plan gains or losses recorded within accumulated other comprehensive (loss) income on the Company’s unaudited condensed consolidated balance sheets, are currently expected to be recognized during the fourth quarter of the fiscal year ending January 31, 2027. As of July 31, 2026, rabbi trust assets of $ 7.1 million are included in prepaid expenses and other current assets on the accompanying unaudited condensed consolidated balance sheets and are expected to be liquidated to fund the settlement of the VIP Plan pension obligation during the fourth quarter of the fiscal year ending January 31, 2027. Management intends to hold the remaining rabbi trust assets as long-term investments and as such they are included in other non-current assets on the accompanying unaudited condensed consolidated balance sheets. As of July 31, 2025, assets held in the rabbi trust were included in other non-current assets on the accompanying unaudited condensed consolidated balance sheets. As of July 31, 2026, accrued pension liabilities related to the Employee Plan and the VIP Plan totaled $ 7.2 million, of which $ 6.3 million was included in accrued compensation and employee benefits and $ 0.9 million was included in other long-term liabilities on the accompanying unaudited condensed consolidated balance sheets. As of July 31, 2025, accrued pension liabilities related to these plans totaled $ 6.7 million, of which $ 0.4 million was included in accrued compensation and employee benefits and $ 6.3 million was included in other long-term liabilities on the accompanying unaudited condensed consolidated balance sheets. The following table summarizes the net periodic pension cost for the Employee Plan and the VIP Plan: Three Months Ended Six Months Ended 7/31/2026 7/31/2025 7/31/2026 7/31/2025 (In thousands) Service cost $ — $ — $ — $ — Interest cost 272 325 544 650 Expected return on plan assets ( 243 ) ( 208 ) ( 472 ) ( 416 ) Plan settlement — — — — Amortization of prior service cost 44 — 88 — Recognized net actuarial gain ( 276 ) ( 90 ) ( 552 ) ( 180 ) Pension (benefit) expense $ ( 203 ) $ 27 $ ( 392 ) $ 54 15 401(k) Retirement Plan The Company’s 401(k) retirement plan, which covers all U.S. employees, allows participants to defer from 1 % to 75 % of their eligible compensation through a 401(k) retirement program. The plan includes Virco stock as one of the investment options. At July 31, 2026 and 2025, the plan held 1,153,940 shares and 1,097,691 shares of Virco stock, respectively. For the three months ended July 31, 2026 and 2025, the compensation costs incurred for employer match, which are paid in the form of Company stock, were $ 456,000 and $ 469,000 , respectively. For the six months ended July 31, 2026 and 2025, the compensation costs incurred for employer match, which are paid in the form of Company stock, were $ 911,000 and $ 1,014,000 , respectively. Note 12. Warranty Effective February 1, 2014, the Company modified its warranty to a limited lifetime warranty. The modification is not anticipated to have a significant effect on warranty expense. Effective January 1, 2017, the Company modified the standard warranty offered on products sold after January 1, 2017 to provide specific warranty periods by product component, with no warranty period longer than ten years . The Company’s warranty is not a guarantee of service life, which depends upon events outside the Company’s control and may be different from the warranty period. The Company accrues an estimate of its exposure to warranty claims based upon both product sales data and an analysis of actual warranty claims incurred. As of July 31, 2026, the related accrual totaled $ 400,000 , of which $ 150,000 was included in other accrued liabilities and $ 250,000 was included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets. As of July 31, 2025, the related accrual totaled $ 500,000 , of which $ 150,000 was included in other accrued liabilities and $ 350,000 was included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets. The following is a summary of the Company’s warranty claim activity: Three Months Ended Six Months Ended 7/31/2026 7/31/2025 7/31/2026 7/31/2025 (In thousands) Beginning balance $ 500 $ 500 $ 500 $ 500 Provision adjustments ( 76 ) 33 ( 42 ) 76 Costs incurred ( 24 ) ( 33 ) ( 58 ) ( 76 ) Ending balance $ 400 $ 500 $ 400 $ 500 Note 13. Commitments and Contingencies The Company has a self-insured retention for product liability losses up to $ 150,000 per occurrence, workers’ compensation liability losses up to $ 250,000 per occurrence, general liability losses up to $ 150,000 per occurrence and automobile liability losses up to $ 50,000 per occurrence. The Company has purchased insurance to cover losses in excess of the self-insurance retention or deductible up to a limit of $ 30.0 million. The Company has obtained an actuarial estimate of its total expected future losses for liability claims and recorded a liability equal to the net present value. As of July 31, 2026, the related accrual totaled $ 1.3 million, of which $ 120,000 was included in other accrued liabilities and $ 1.2 million was included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets. As of July 31, 2025, the accrual totaled $ 1.4 million, of which $ 120,000 was included in other accrued liabilities and $ 1.3 million was included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets. The Company and its subsidiaries are defendants in various legal proceedings resulting from operations in the normal course of business. It is the opinion of management, in consultation with legal counsel, that the ultimate outcome of all such matters will not materially affect the Company’s financial position, results of operations or cash flows. In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") exceeded the President's authority. Subsequently, in March 2026, the U.S. Court of International Trade ("CIT") issued orders directing U.S. Customs and Border Protection ("CBP") to process related refunds. In response to these rulings, CBP launched a refund claims process for qualifying importers. Since the IEEPA tariffs were first imposed in February 2025, the Company has paid approximately $ 1.0 million in IEEPA tariffs, and it has begun the process of requesting refunds of eligible amounts paid. As of July 31, 2026, the Company has not recognized any tariff refunds in its unaudited condensed consolidated financial statements because the Company was unable to assert that the realization of such recovery is probable as of such date, due to uncertainties surrounding the refund process and collectability of claims. As of the date of this Quarterly Report on Form 10-Q, the Company has not received any portion of the requested refunds. 16 Note 14. Delivery Costs For the three months ended July 31, 2026 and 2025, shipping and classroom delivery costs of approximately $ 9.7 million and $ 10.0 million, respectively, were included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of income. For the six months ended July 31, 2026 and 2025, shipping and classroom delivery costs of approximately $ 13.2 million and $ 13.4 million, respectively, were included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of income. Note 15. Property, Plant and Equipment, Net Property, plant and equipment, net consists of the following: 7/31/2026 1/31/2026 7/31/2025 (In thousands) Land $ 3,731 $ 3,731 $ 3,731 Land improvements 706 706 706 Buildings and building improvements 52,059 52,059 52,050 Machinery and equipment 124,903 123,179 122,538 Leasehold improvements 649 649 657 Property, plant and equipment, gross 182,048 180,324 179,682 Less accumulated depreciation and amortization ( 148,652 ) ( 145,746 ) ( 143,562 ) Property, plant and equipment, net $ 33,396 $ 34,578 $ 36,120 Depreciation and amortization expenses related to property, plant and equipment recorded within cost of goods sold were $ 1.1 million for the three months ended July 31, 2026 and 2025. Depreciation and amortization expenses related to property, plant and equipment recorded within selling, general and administrative expenses were $ 0.3 million and $ 0.5 million for the three months ended July 31, 2026 and 2025, respectively. Depreciation and amortization expenses related to property, plant and equipment recorded within cost of goods sold were $ 2.3 million for the six months ended July 31, 2026 and 2025. Depreciation and amortization expenses related to property, plant and equipment recorded within selling, general and administrative expenses were $ 0.6 million and $ 0.8 million for the six months ended July 31, 2026 and 2025, respectively. Note 16. Segment Information The Company operates in one segment and has one reportable segment. The Company determines operating segments based on how its Chief Operating Decision Maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. The Company’s CODM is its Senior Executives, who regularly review the Company’s operating results on a consolidated basis. The Company’s CODM regularly reviews financial information presented on a consolidated basis. The CODM uses consolidated revenue, gross profit and net income to allocate operating and capital resources and assess performance by comparing actual results to historical results and previously forecasted financial information. The Company’s measure of segment assets is reported on the consolidated balance sheets as total assets. Note 17. Subsequent Events On September 3, 2026, the Company’s Board of Directors declared a cash dividend for the Company’s third fiscal quarter of $ 0.025 on each outstanding share of common stock. The dividend is payable on October 9, 2026 to stockholders of record of the common stock as of the close of business on September 18, 2026. While the Company currently intends to pay future dividends on a quarterly basis, following review and approval by the Board of Directors, the declaration and payment of future dividends, as well as the amounts thereof, are subject to the discretion of the Board as well as restrictive covenants in the Company’s lending agreements. There can be no assurance that the Company will declare and pay dividends in future periods. On September 3, 2026, the Company entered into Amendment No. 8 to its existing Credit Agreement with PNC. See " Note 7. Debt " above. 17