GENCOR INDUSTRIES INC

Notes to Condensed Consolidated Financial Statements

Note 1 - Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form

10-Q

and Article 10 of Regulation

S-X.

Accordingly, they do not include all of the information and notes required by Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. In the opinion of management, all material adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter and six months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2026.

The accompanying condensed consolidated balance sheet at September 30, 2025 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form

10-K

for the fiscal year ended September 30, 2025 filed with the Securities and Exchange Commission on December 9, 2025.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. (“ASU”)

2023-09,

Income Taxes (Topic 740): Improvements to Income Tax Disclosures

(“ASU

2023-09”),

to enhance transparency into income tax disclosures. The amendments require annual disclosure of certain information relating to the rate reconciliation, income taxes paid by jurisdiction, income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign jurisdictions. The amendments also eliminate certain requirements relating to unrecognized tax benefits and certain deferred tax disclosure relating to subsidiaries and corporate joint ventures. ASU

2023-09

is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the impact of ASU

2023-09

on its condensed consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU

2024-03,

Income Statement - Reporting Comprehensive Income - Expense Disaggregation

Disclosures

(“ASU 2024-03”),

which requires entities to (i) disclose amounts of (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and, (e) depreciation, depletion, and amortization recognized as part of

oil-and

gas-producing

activities, (ii) include certain amounts that are already required to be disclosed under current GAAP in the same disclosures as other disaggregation requirements, (iii) disclose a qualitative description of the amounts remaining in relevant expense captions that are not necessarily disaggregated quantitatively, and (iv) disclose the total amount of selling expenses, in annual reporting periods, and an entity’s definition of selling expense. ASU

2024-03 is

effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of ASU

2024-03 on

its condensed consolidated financial statements and related disclosures.

No other accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s condensed consolidated financial statements.

Global, market and economic conditions may

negatively

impact our business, financial condition and share price

Concerns over inflation, geopolitical issues and global financial markets have led to increased economic instability and expectations of slower economic growth. Our business may be adversely affected by any such economic instability or unpredictability. Sanctions and disruptions to the global economy may lead to additional inflation and may disrupt the global supply chain and could have a material adverse effect on our ability to secure supplies. Prolonged periods of inflation would likely increase our costs in the form of higher wages, and increased cost of supplies and equipment necessary to operate our business. Additionally, conflicts and/or tensions involving Russia, Ukraine, Israel, Iran, the U.S., and various other countries, may cause increased inflation in energy and logistics costs and could further cause general economic conditions in the U.S. or abroad to deteriorate. There is a risk that one or more of our suppliers could be negatively affected by global economic instability, which could adversely affect our ability to operate efficiently and timely complete our operational goals. As of the date of this Quarterly Report, the Company’s operations have not been significantly impacted.

Note 2 - Marketable Securities and Fair Value Measurements

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated income statements. Net changes in unrealized gains and losses are reported in the condensed consolidated income statements in the periods presented.

Fair Value Measurements

The fair value of financial instruments is presented based upon a hierarchy of levels that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The fair value of marketable equity securities (stocks), mutual funds, exchange-traded funds, government securities, and cash and money funds are substantially based on quoted market prices (Level 1). Corporate bonds are valued using market standard valuation methodologies, including: discounted cash flow methodologies, and matrix pricing or other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments are provided by the Company’s professional investment management firms. From time to time the Company may transfer cash between its marketable securities portfolio and operating cash and cash equivalents.

The following table sets forth, by level, within the fair value hierarchy, the Company’s marketable securities measured at fair value as of March 31, 2026:

Net unrealized gains (losses) included in the condensed consolidated income statements for the quarter and six months ended March 31, 2026 were

$(510,000) and $(340,000), respectively.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2025:

Net unrealized gains (losses) included in the condensed consolidated income statements for the quarter and six months ended March 31, 2025 were

$342,000 and $(225,000), respectively.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, customer deposits and accrued expenses approximate fair value because of the short-term nature of these items.

Note 3 – Inventories

Inventories are valued at the lower of cost or net realizable value with cost being determined under the first in, first out method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery. Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw materials, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on

trade-in

from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories

three

tofour years old by 50%, the cost basis of inventories

four

tofive years old by 75%, and the cost basis of inventories greater than five years old tozero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

Net inventories at March 31, 2026 and September 30, 2025 consist of the following:

Slow-moving and obsolete inventory allowances were $16,225,000 and $15,569,000 at March 31, 2026 and September 30, 2025, respectively. The increase in the slow-moving and obsolete inventory allowances of $656,000 from September 30, 2025, reflects primarily additional amounts charged to cost of sales to reduce the cost basis of inventories consistent with the Company’s policy on allowances for slow-moving and obsolete inventory. During the six months ended March 31, 2025, the slow-moving and obsolete inventory allowances increased $919,000.

Note 4 – Contract Assets and Liabilities

Contract assets reflect costs and estimated earnings in excess of billings on uncompleted contracts as of March 31, 2026 and September 30, 2025, and consist of the following:

Contract liabilities reflect billings in excess of costs and estimated earnings on uncompleted contracts as of March 31, 2026, and consist of the following:

There were no contract liabilities as of September 30, 2025.

Note 5 – Net Income per Common Share Data

The condensed consolidated financial statements include basic and diluted net income per common share information. The following table sets forth the computation of basic and diluted net income per common share for the quarters and six months ended March 31, 2026 and 2025:

Basic net income per common share is based on the weighted-average number of shares outstanding. Diluted net income per common share is based on the sum of the weighted-average number of shares outstanding plus common stock equivalents. The weighted-average number of shares outstanding includes both common stock and Class B common stock. There were no equity compensation plans and arrangements previously approved by security holders as of March 31, 2026 and 2025 and thus no common stock equivalents as of March 31, 2026 and 2025.

Note 6 – Customers with 10% (or greater) of Net Revenues

During the quarter ended March 31, 2026, one customer accounted for 13.3% of net revenues. During the six months ended March 31, 2026, no customer accounted for 10.0% or more of net revenues.

During the quarter ended March 31, 2025, one customer accounted for 10.2% of net revenues and a second customer accounted for 12.0% of net revenues. During the six months ended March 31, 2025, the first customer noted above accounted for 10.5% of net revenues and a third customer accounted for 13.7% of net revenues.

Note 7 – Income Taxes

Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and primarily consist of taxes currently due, plus deferred taxes.

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns using current tax rates. The Company and its domestic subsidiaries file a consolidated federal income tax return.

Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of the change in tax rates is recognized in income in the period that includes the enactment date. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, the Company is more likely than not to realize the benefit of a deferred tax asset and whether a valuation allowance is needed for some portion or all of a deferred tax asset. No such valuation allowances were recorded as of March 31, 2026 and September 30, 2025.

Significant

judgment is required in evaluating the Company’s uncertain tax position

s

and determining the Company’s provision for taxes. Although the Company believes the reserves for unrecognized tax benefits (“UTBs”) are reasonable, no assurance can be given that the final outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provision and accruals. The Company adjusts these reserves in light of changing facts and circumstances. As of March 31, 2026 and September 30, 2025, the Company had UTBs of $2,365,000 and $1,983,000, respectively.

The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided by

pre-tax

book income) from period to period. The Company’s effective tax rates for the quarters and six months ended March 31, 2026 and March 31, 2025 reflect income tax rates under the Tax Cuts and Jobs Act of 2017 which was signed into law on December 22, 2017.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitation. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented after. The legislation did not have a material impact on our fiscal 2025 effective tax rate or consolidated financial statements and is not expected to have a material impact in fiscal 2026. We continue to review the OBBBA tax provisions to assess impacts to the condensed consolidated financial statements.

Note 8 – Revenue Recognition and Related Costs

The Company recognizes revenue under ASU

2014-09,

Revenue from Contracts with Customers

(Topic 606). The following table disaggregates the Company’s net revenue by major source for the quarters and six months ended March 31, 2026 and 2025:

Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time, as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred, as the amortization period is less thanone year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.

Contract assets (e

xclu

ding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were $7,552,000 and $12,208,000 at March 31, 2026 and September 30, 2025, respectively, and are included in current assets on the Company’s condensed consolidated balance sheets. Contract liabilities (excluding customer deposits) under contracts with customers represent amounts billed in excess of revenue recognized on equipment sales recognized over time. These contract liabilities were $1,233,000 and zero at March 31, 2026 and September 30, 2025, respectively, and are included in current liabilities on the Company’s condensed consolidated balance sheets. The Company anticipates that all of the contract assets at March 31, 2026, will be billed and collected withinone year.

Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.

Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as services are completed. Accounts receivable related to contracts with customers for equipment sales were $126,000 and $80,000 at March 31, 2026 and September 30, 2025, respectively.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.

Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no such contract liabilities at March 31, 2026 and September 30, 2025. Customer deposits related to contracts with customers were $7,105,000 and $3,889,000 at March 31, 2026 and September 30, 2025, respectively, and are included in current liabilities on the Company’s condensed consolidated balance sheets.

The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as cost of goods sold concurrently with the revenue recognition.

All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The allowance for credit losses is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the

less-than-90-day

past due aging category. The measurement and recognition of credit losses involves judgment and represents the Company’s estimate of expected credit losses based on consideration of historical credit loss experience, the aging of account balances, customer credit worthiness, and current and expected economic, market and industry factors impacting the Company’s customers, including their financial condition. Account balances are charged off against the allowance for credit losses when they are determined to be uncollectible. Any recoveries of account balances previously considered in the allowance for credit losses reduce future additions to the allowance for credit losses. The allowance for credit losses also includes an estimate for returns and allowances. Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.

Changes in the allowance for credit losses for the six months ended March 31, 2026 and March 31, 2025 consisted of the following:

Note 9 – Leases

The Company leases certain equipment under

non-cancelable

operating leases. Future minimum rental payments under these leases at March 31, 2026 were immaterial.

On August 28, 2020, the Company entered into athree-year operating lease for property related to manufacturing and warehousing. The lease term was for the period beginning on September 1, 2020 through August 31, 2023. In accordance with ASU

Leases (Topic 842),

(“ASU

2016-02”)

the Company recorded a

right-of-use

(“ROU”) asset totaling $970,000 and related lease liabilities at inception. In March 2023, the Company extended the lease term through August 31, 2024. In accordance with ASU

the Company recorded a ROU asset totaling $352,000 and related lease liabilities upon extension. In March 2024, the Company extended the lease term through August 31, 2025. In accordance with ASU

the Company recorded a ROU asset totaling $361,000 and related lease liabilities upon extension. In March 2025, the Company extended the lease term through August 31, 2026. In accordance with ASU

the Company recorded a ROU asset totaling $370,000 and related lease liabilities upon extension.

For the quarter and six months ended March 31, 2026, operating lease costs and cash payments related to these operating leases were $115,000 and $229,000, respectively. For the quarter and six months ended March 31, 2025, operating lease costs related to these operating leases were $112,000 and $224,000, respectively, and cash payments related to these operating leases were $112,000 and $193,000, respectively.

Other

information

concerning the Company’s operating leases accounted for under Accounting Standards Codification (“ASC”) 842 guidelines as of March 31, 2026 and September 30, 2025, is as follows:

Future annual minimum lease payments as of March 31, 2026 are as follows:

Note 10 – Segment Information

The Company hasone

reporting segment, equipment for the highway construction industry. Based on evaluation of the criteria of ASC Topic 280,

Segment Reporting

, including the nature of products and services, the nature of the production processes, the type of customers and the methods used to distribute products and services, the Company determined that its operating segments meet the requirements for aggregation. The chief operating decision maker (“CODM”), who is the Company’s President and Chairman of the Board, measures financial performance as a single enterprise and allocates resources across the Company to maximize profitability, and not on a geographic, legal entity, or end market basis. The Company designs, manufactures and sells asphalt plants and pavers, combustion systems and fluid heat transfer systems, for the highway construction industry and environmental and petrochemical markets. The Company’s products are manufactured at three facilities in the United States. The Company also services and sells spare parts for its equipment.

The key measure of segment profitability that the CODM uses to allocate resources and assess performance is consolidated net income, as reported on the condensed consolidated income statements. The CODM utilizes consolidated net income, as well as net revenues and gross profit, and compares actual results to forecasted amounts. These segment (and consolidated) measures of profitability are shown in the condensed consolidated income statements.

Asset information provided to the CODM is consistent with that reported on the condensed consolidated balance sheets with particular emphasis on the Company’s available liquidity, including its cash and cash equivalents, marketable securities and inventory, reduced by current liabilities. Net revenue is attributed to geographic areas based on the final destination of products shipped.

As of March 31, 2026 and September 30, 2025, total long-term assets of $16,206,000 and $16,055,000, respectively, were attributed to the United States. Net revenue by geographic location for the quarters and six months ended March 31, 2026 and March 31, 2025 is as follows:

Note 11 – Subsequent Events

The Company has evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed consolidated financial statements were issued for potential recognition and disclosure. The Company did not identify any subsequent events that would have required adjustment to or disclosure in the condensed consolidated financial statements other than the event listed below.

Change in Control

Effective May 1, 2026 (the “Change in Control Date”), a change in control occurred. On such date, pursuant to multiple assignments, Marc G. Elliott, the Company’s President and Chairman of the Board, acquired a majority of the membership interests in E.J. Elliott, LLC, a Nevada limited liability company (the “LLC”), the sole general partner of E.J. Elliott Family Limited Partnership, a Nevada limited partnership (the “LP”), as reported in the Company’s 8-K filing on May 7, 2026

Departure of Certain Officers; Appointment of Certain Officers:

As previously disclosed on May 14, 2026, Eric Mellen, who served as Chief Financial Officer and Treasurer of the Company, provided notice of his decision to retire effective June 10, 2026. The Company has begun a search to consider candidates for the Chief Financial Officer role. In the interim, the Company has appointed Raymond Cole as the Company’s Interim Chief Financial Officer, effective June 1, 2026.