OPTICAL CABLE CORP

Previous wording

Item 2.** ** Management**’s Discussion and Analysis of Financial Condition and Results of Operations

Current wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Previous wording

This Form 10-Q may contain certain forward-looking information within the meaning of the federal securities laws. The forward-looking information may include, among other information, (i) statements concerning our outlook for the future, (ii) statements of belief, anticipation or expectation, (iii) future plans, strategies or anticipated events, and (iv) similar information and statements concerning matters that are not historical facts. Such forward-looking information is subject to known and unknown variables, uncertainties, contingencies and risks that may cause actual events or results to differ materially from our expectations. Such known and unknown variables, uncertainties, contingencies and risks (collectively, “factors”) may also adversely affect Optical Cable Corporation and its subsidiaries (collectively, the “Company” or “OCC®”), the Company’s future results of operations and future financial condition, and/or the future equity value of the Company. Factors that could cause or contribute to such differences from our expectations or that could adversely affect the Company include, but are not limited to: the level of sales to key customers, including distributors; timing of certain projects and purchases by key customers; economic conditions that affect the telecommunications sector, the data communications sector, certain technology sectors and/or certain industry market sectors (for example, including, but not limited to: commercial/enterprise, military, industrial, broadcast, mining, petrochemical, renewable energy, data centers and wireless carrier industry market sectors); corporate and/or government spending on information technology; actions by competitors; fluctuations in the price and/or availability of raw materials (including optical fiber, copper, gold and other precious metals, plastics and other materials); fluctuations in transportation costs; our dependence on customized equipment for the manufacture of certain of our products in certain production facilities; our ability to protect our proprietary manufacturing technology; market conditions influencing prices or pricing in one or more of the markets in which we participate, including the impact of increased competition; our dependence on a limited number of suppliers for certain product components; the loss of or conflict with one or more key suppliers or customers; an adverse outcome in any litigation, claims, and other actions or disputes, and potential litigation, claims, and other actions or disputes against us or with us; an adverse outcome in any regulatory reviews and audits and potential regulatory reviews and audits; adverse changes in state tax laws and/or positions taken by state taxing authorities affecting us; technological changes and introductions of new competing products; changes in end-user preferences for competing technologies relative to our product offering; economic conditions that affect U.S.-based manufacturers; economic conditions or changes i…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Form 10-Q may contain certain forward-looking information within the meaning of the federal securities laws. The forward-looking information may include, among other information, (i) statements concerning our outlook for the future, (ii) statements of belief, anticipation or expectation, (iii) future plans, strategies or anticipated events, and (iv) similar information and statements concerning matters that are not historical facts. Such forward-looking information is subject to known and unknown variables, uncertainties, contingencies and risks that may cause actual events or results to differ materially from our expectations. Such known and unknown variables, uncertainties, contingencies and risks (collectively, “factors”) may also adversely affect Optical Cable Corporation and its subsidiaries (collectively, the “Company” or “OCC®”), the Company’s future results of operations and future financial condition, and/or the future equity value of the Company. Factors that could cause or contribute to such differences from our expectations or that could adversely affect the Company include, but are not limited to: the level of sales to key customers, including distributors; timing of certain projects and purchases by key customers; economic conditions that affect the telecommunications sector, the data communications sector, certain technology sectors and/or certain industry market sectors (for example, including, but not limited to: enterprise/commercial, data center, and various specialty markets, including military, industrial, broadcast, mining, petrochemical, renewable energy and wireless carrier industry market sectors); corporate and/or government spending on information technology; actions by competitors; fluctuations in the price and/or availability of raw materials or products (including, but not limited to, optical fiber, copper, gold and other precious metals, plastics, other materials and products); fluctuations in transportation costs; our dependence on customized equipment for the manufacture of certain of our products in certain production facilities; our ability to protect our proprietary manufacturing technology; market conditions influencing prices or pricing in one or more of the markets in which we participate, including the impact of increased competition; our dependence on a limited number of suppliers for certain product components; the loss of or conflict with one or more key suppliers or customers; an adverse outcome in any litigation, claims, and other actions or disputes, and potential litigation, claims, and other actions or disputes against us or with us; an adverse outcome in any regulatory reviews and audits and potential regulatory reviews and audits; adverse changes in state tax laws and/or positions taken by state taxing authorities affecting us; technological changes and introductions of new competing products; changes in end-user preferences for competing technologies relative to our product offering; economi…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Dollar amounts presented in the following discussion have been rounded to the nearest hundred thousand, except in the case of amounts less than one million and except in the case of the table set forth in the “Results of Operations” section, the amounts in which both cases have been rounded to the nearest thousand.

Current wording

Dollar amounts presented in the following discussion have been rounded to the nearest hundred thousand, except in the case of amounts less than one million and except in the case of the table set forth in the “Results of Operations” section, the amounts which in both cases have been rounded to the nearest thousand.

Previous wording

Optical Cable Corporation (or OCC®) is a leading manufacturer of a broad range of fiber optic and copper data communication cabling and connectivity solutions primarily for the enterprise market and data center markets and various harsh environment and specialty markets (collectively, the non-carrier markets), and also the wireless carrier market, offering integrated suites of high quality products which operate as a system solution or seamlessly integrate with other components. Our product offerings include designs for uses ranging from enterprise networks, data centers, residential, campus and Passive Optical LAN (POL) installations to customized products for specialty applications and harsh environments, including military, industrial, mining, petrochemical, renewable energy and broadcast applications. Our products include fiber optic and copper cabling, hybrid cabling (which includes fiber optic and copper elements in a single cable), fiber optic and copper connectors, specialty fiber optic, copper and hybrid connectors, fiber optic and copper patch cords, pre-terminated fiber optic and copper cable trunks and assemblies, racks, cabinets, data center and datacom enclosures, patch panels, face plates, multimedia boxes, fiber optic reels and accessories and other cable and connectivity management accessories, and are designed to meet the most demanding needs of end-users, delivering a high degree of reliability and outstanding performance characteristics.

Current wording

Optical Cable Corporation (or OCC®) is a leading manufacturer of a broad range of fiber optic and copper data communication cabling and connectivity solutions primarily for the enterprise, data center, and various harsh environment and specialty markets, offering integrated suites of high quality products which operate as a system solution or seamlessly integrate with other components. Our product offerings include designs for uses ranging from enterprise networks, data centers, residential, campus and Passive Optical LAN (POL) installations to customized products for specialty applications and harsh environments, including military, industrial, mining, petrochemical, renewable energy and broadcast applications. Our products include fiber optic and copper cabling, hybrid cabling (which includes fiber optic and copper elements in a single cable), fiber optic and copper connectors, specialty fiber optic, copper and hybrid connectors, fiber optic and copper patch cords, pre-terminated fiber optic and copper cable trunks and assemblies, racks, cabinets, data center and datacom enclosures, patch panels, face plates, multimedia boxes, fiber optic reels and accessories and other cable and connectivity management accessories, and are designed to meet the most demanding needs of end-users, delivering a high degree of reliability and outstanding performance characteristics.

Previous wording

Founded in 1983, Optical Cable Corporation is headquartered in Roanoke, Virginia with offices, manufacturing and warehouse facilities located in Roanoke, Virginia, near Asheville, North Carolina, and near Dallas, Texas. We primarily manufacture our fiber optic cables at our Roanoke facility which is ISO 9001:2015 registered, primarily manufacture our enterprise connectivity products at our Asheville facility which is ISO 9001:2015 registered, and manufacture enterprise connectivity products and primarily manufacture our harsh environment and specialty connectivity products at our Dallas facility which is ISO 9001:2015 registered and MIL-STD-790G certified.

Current wording

Founded in 1983, Optical Cable Corporation is headquartered in Roanoke, Virginia with offices, manufacturing and warehouse facilities located in Roanoke, Virginia, near Asheville, North Carolina, and near Dallas, Texas. We manufacture fiber optic cables at our Roanoke facility which is ISO 9001:2015 registered, manufacture enterprise connectivity products at our Asheville facility which is ISO 9001:2015 registered, and manufacture enterprise connectivity products and harsh environment and specialty connectivity products at our Dallas facility which is ISO 9001:2015 registered and MIL-STD-790G certified.

Previous wording

OCC designs, develops and manufactures, and markets and sells, fiber optic and hybrid cables for a broad range of enterprise, data center, harsh environment, wireless carrier and other specialty markets and applications. We refer to these products as our fiber optic cable offering. OCC designs, develops and manufactures, and markets and sells, fiber and copper connectivity products for a broad range of enterprise, data center, and residential applications. We refer to these products as our enterprise connectivity product offering. OCC designs, develops and manufactures, and markets and sells, a broad range of specialty fiber optic connectors and connectivity solutions principally for use in military, harsh environment and other specialty applications. We refer to these products as our harsh environment and specialty connectivity product offering.

Current wording

OCC designs, develops and manufactures, and markets and sells, fiber optic and hybrid cables for a broad range of enterprise, data center, harsh environment, wireless carrier and other specialty markets and applications. We refer to these products as our fiber optic cable offering. OCC designs, develops and manufactures, and markets and sells, fiber and copper connectivity products for a broad range of enterprise, commercial, data center, and residential applications. We refer to these products as our enterprise connectivity product offering. OCC designs, develops and manufactures, and markets and sells, a broad range of specialty fiber optic connectors and connectivity solutions principally for use in military, harsh environment and other specialty applications. We refer to these products as our harsh environment and specialty connectivity product offering.

Previous wording

Summary of Company Performance for Second Quarter of Fiscal Year 2026

Current wording

Summary of Company Performance for Third Quarter of Fiscal Year 2026

Previous wording

We sell our products internationally and domestically to our customers which include major distributors, various regional and smaller distributors, original equipment manufacturers and value-added resellers. All of our sales to customers outside of the United States are denominated in U.S. dollars. We can experience fluctuations in the percentage of net sales to customers outside of the United States and in the United States from period to period based on the timing of large orders, coupled with the impact of increases and decreases in sales to customers in various regions of the world. Sales outside of the U.S. can also be impacted by fluctuations in the exchange rate of the U.S. dollar compared to other currencies, as well as import and/or export tariffs imposed by the U.S. and other countries.

Current wording

We sell our products internationally and domestically to our customers which include major distributors, various regional and smaller distributors, original equipment manufacturers, value-added resellers, and others. All of our sales to customers outside of the United States are denominated in U.S. dollars. We can experience fluctuations in the percentage of net sales to customers outside of the United States and in the United States from period to period based on the timing of large orders, coupled with the impact of increases and decreases in sales to customers in various regions of the world. Sales outside of the U.S. can also be impacted by fluctuations in the exchange rate of the U.S. dollar compared to other currencies, as well as import and/or export tariffs imposed by the U.S. and other countries.

Previous wording

Cost of goods soldconsists of the cost of materials, product warranty costs and compensation costs, and overhead and other costs related to our manufacturing operations. The largest percentage of costs included in cost of goods sold is attributable to costs of materials.

Current wording

Cost of goods soldconsists of the cost of materials and products, product warranty costs, compensation costs, and overhead and other costs related to our manufacturing operations. The largest percentage of costs included in cost of goods sold is attributable to costs of materials and products.

Previous wording

Selling, general and administrative expenses (“SG&A expenses”) consist of the compensation costs for sales and marketing personnel, shipping costs, trade show expenses, customer support expenses, travel expenses, advertising, bad debt expense, the compensation costs for administration and management personnel, legal, accounting, advisory and professional fees, costs incurred to settle litigation or claims and other actions against us, and other costs associated with our operations.

Current wording

Selling, general and administrative expenses (“SG&A expenses”) consist of the compensation costs for sales and marketing personnel, shipping costs, trade show expenses, customer support expenses, travel expenses, advertising, bad debt expense, compensation costs for administration and management personnel, legal, accounting, advisory and professional fees, costs incurred to settle litigation or claims and other actions against us, and other costs associated with our operations.

Previous wording

Consolidated net sales for the second quarter of fiscal year 2026 increased 26.6% to $22.2 million, compared to net sales of $17.5 million for the same period last year, and increased 35.2% compared to net sales of $16.4 million during the first quarter of fiscal year 2026. We experienced an increase in net sales in both our enterprise and specialty markets during the second quarter of fiscal year 2026, compared to the same period last year.

Current wording

Consolidated net sales for the third quarter of fiscal year 2026 increased 22.0% to $24.3 million, compared to net sales of $19.9 million for the same period last year, and increased 9.4% compared to net sales of $22.2 million during the second quarter of fiscal year 2026. We experienced an increase in net sales in our enterprise, data center, and specialty markets during the third quarter of fiscal year 2026, compared to the same period last year.

Previous wording

Net sales to customers outside of the United States increased 45.3% and net sales to customers in the United States increased 21.2% in the second quarter of fiscal year 2026, compared to the same period last year. We can experience fluctuations in sales from quarter to quarter in the various markets (both industries and geographies) in which we operate for various reasons.

Current wording

Net sales to customers outside of the United States increased 28.8% and net sales to customers in the United States increased 20.3% in the third quarter of fiscal year 2026, compared to the same period last year. We can experience fluctuations in sales from quarter to quarter in the various markets (both industries and geographies) in which we operate for various reasons.

Previous wording

We continue to see general market improvements in our industry, both domestically and internationally, with strength specifically in our enterprise, data center and severe duty markets.

Current wording

We continue to see general market growth opportunities in our industry, both domestically and internationally, with strength specifically in our enterprise, data center, and specialty markets.

Previous wording

At the end of the second quarter of fiscal year 2026, our sales order backlog/forward load was $13.3 million compared to $10.4 million as of January 31, 2026, and when compared to $7.3 million as of October 31, 2025.

Current wording

At the end of the third quarter of fiscal year 2026, our sales order backlog/forward load was $13.5 million compared to $13.3 million as of April 30, 2026, $10.4 million as of January 31, 2026, and when compared to $7.3 million as of October 31, 2025.

Previous wording

Our gross profit increased 42.4% to $7.6 million in the second quarter of fiscal year 2026, compared to gross profit of $5.3 million in the second quarter of fiscal year 2025, and increased 41.4% compared to $5.4 million for the first quarter of fiscal year 2026.

Current wording

Our gross profit increased 43.9% to $9.1 million in the third quarter of fiscal year 2026, compared to gross profit of $6.3 million in the third quarter of fiscal year 2025, and increased 19.8% compared to $7.6 million for the second quarter of fiscal year 2026.

Previous wording

Gross profit margin, or gross profit as a percentage of net sales, increased to 34.2% in the second quarter of fiscal year 2026, compared to 30.4% in the second quarter of fiscal year 2025, and compared to 32.7% for the first quarter of fiscal year 2026, as we benefited from our operating leverage.

Current wording

Gross profit margin, or gross profit as a percentage of net sales, increased to 37.4% in the third quarter of fiscal year 2026, compared to 31.7% in the third quarter of fiscal year 2025, and compared to 34.2% for the second quarter of fiscal year 2026, as we benefited from our operating leverage.

Previous wording

Gross profit margin for the second quarter of fiscal 2026, when compared to the same period last year, was positively impacted by higher volumes, as fixed charges were spread over higher sales—the impact of our strong manufacturing operating leverage. Additionally, our gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix.

Current wording

Gross profit margin for the third quarter of fiscal 2026, when compared to the same period last year, was positively impacted by higher volumes, as fixed charges were spread over higher sales—the impact of our strong manufacturing operating leverage. Additionally, our gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix.

Previous wording

SG&A expenses increased to $6.3 million, or 9.2%, during the second quarter of fiscal year 2026, when compared to $5.7 million during the second quarter of fiscal year 2025. SG&A expenses as a percentage of net sales were 28.2% in the second quarter of fiscal year 2026, compared to 32.7% in the second quarter of fiscal year 2025—the impact of our strong SG&A operating leverage. By comparison, SG&A expenses as a percentage of net sales were 33.8% during the first quarter of fiscal year 2026.

Current wording

SG&A expenses increased to $7.0 million, or 21.4%, during the third quarter of fiscal year 2026, when compared to $5.7 million during the third quarter of fiscal year 2025. SG&A expenses as a percentage of net sales were 28.7% in the third quarter of fiscal year 2026, compared to 28.8% in the third quarter of fiscal year 2025. By comparison, SG&A expenses as a percentage of net sales were 28.2% during the second quarter of fiscal year 2026.

Previous wording

The increase in SG&A expenses during the second quarter of fiscal year 2026, compared to the same period last year, was primarily the result of increases in employee and contracted sales personnel-related costs totaling $288,000 and shipping costs totaling $77,000. Included in employee and contracted sales personnel-related costs are compensation costs and sales incentives. Compensation costs increased due to new hires, net of terminations, and certain rate increases. Sales incentives and shipping costs increased primarily due to increases in net sales.

Current wording

The increase in SG&A expenses during the third quarter of fiscal year 2026, compared to the same period last year, was primarily the result of increases in employee costs and contracted sales personnel-related costs totaling $941,000 and shipping costs totaling $179,000. Included in employee costs and contracted sales personnel-related costs are compensation costs and sales incentives. Compensation costs increased due to new hires, net of terminations, and certain rate increases and performance incentives. Sales incentives and shipping costs increased primarily due to increases in net sales.

Previous wording

We recognized royalty expense, net of royalty income, totaling $7,000 during the second quarter of fiscal years 2026 and 2025. Royalty expense and/or income may fluctuate based on sales of related licensed products and estimates of amounts for non-licensed product sales, if any.

Current wording

We recognized royalty expense, net of royalty income, totaling $7,000 during the third quarter of fiscal years 2026 and 2025. Royalty expense and/or income may fluctuate based on sales of related licensed products and estimates of amounts for non-licensed product sales, if any.

Previous wording

We recognized $14,000 of amortization expense, associated with intangible assets, during the second quarter of fiscal years 2026 and 2025.

Current wording

We recognized $14,000 of amortization expense, associated with intangible assets, during the third quarter of fiscal years 2026 and 2025.

Previous wording

We reported income from operations of $1.3 million for the second quarter of fiscal year 2026, compared to a loss from operations of $429,000 for the second quarter of fiscal year 2025. The change was primarily due to the increase in gross profit of $2.3 million, partially offset by the increase in SG&A expenses of $527,000.

Current wording

We reported income from operations of $2.1 million for the third quarter of fiscal year 2026, compared to $562,000 for the third quarter of fiscal year 2025. The change was primarily due to the increase in gross profit of $2.8 million, partially offset by the increase in SG&A expenses of $1.2 million.

Previous wording

We recognized other expense, net in the second quarter of fiscal year 2026 of $245,000, compared to $254,000 in the second quarter of fiscal year 2025. Other expense, net for the second quarter of fiscal years 2026 and 2025 is comprised of interest expense and other miscellaneous items.

Current wording

We recognized other expense, net in the third quarter of fiscal year 2026 of $245,000, compared to $256,000 in the third quarter of fiscal year 2025. Other expense, net for the third quarter of fiscal years 2026 and 2025 is comprised of interest expense and other miscellaneous items.

Previous wording

We reported income before income taxes of $1.1 million for the second quarter of fiscal year 2026, compared to a loss before income taxes of $683,000 for the second quarter of fiscal year 2025. The change was primarily a result of the increase in income from operations of $1.7 million.

Current wording

We reported income before income taxes of $1.9 million for the third quarter of fiscal year 2026, compared to $306,000 for the third quarter of fiscal year 2025. The change was primarily a result of the increase in income from operations of $1.5 million.

Previous wording

Income tax expense totaled $4,000 in the second quarter of fiscal year 2026, compared to $15,000 in the second quarter of fiscal year 2025. Our effective tax rate was less than one percent for the second quarter of fiscal year 2026 and negative 2.2% for the second quarter of fiscal year 2025.

Current wording

Income tax expense totaled $9,000 in the third quarter of fiscal year 2026, compared to $4,000 in the third quarter of fiscal year 2025. Our effective tax rate was less than one percent for the third quarter of fiscal year 2026 and 1.5% for the third quarter of fiscal year 2025.

Previous wording

Net income for the second quarter of fiscal year 2026 was $1.1 million, or $0.12 per share, compared to a net loss of $698,000, or $0.09 per share, for the second quarter of fiscal year 2025. This change was primarily due to the increase in income before income taxes of $1.7 million.

Current wording

Net income for the third quarter of fiscal year 2026 was $1.9 million, or $0.21 per share, compared to $302,000, or $0.04 per share, for the third quarter of fiscal year 2025. This change was primarily due to the increase in income before income taxes of $1.6 million.

Previous wording

Consolidated net sales for the first half of fiscal year 2026 were $38.6 million, an increase of 16.1% compared to net sales of $33.3 million for the same period last year. We experienced an increase in net sales in both our enterprise and specialty markets in the first half of fiscal year 2026, compared to the same period last year.

Current wording

Consolidated net sales for the first nine months of fiscal year 2026 were $62.9 million, an increase of 18.3% compared to net sales of $53.2 million for the same period last year. We experienced an increase in net sales in our enterprise, data center, and specialty markets in the first nine months of fiscal year 2026, compared to the same period last year.

Previous wording

Net sales to customers outside of the United States increased 32.4% and net sales to customers in the United States increased 11.4% in the first half of fiscal year 2026, compared to the same period last year. We can experience fluctuations in sales from quarter to quarter in the various markets (both industries and geographies) in which we operate for various reasons.

Current wording

Net sales to customers outside of the United States increased 31.1% and net sales to customers in the United States increased 14.8% in the first nine months of fiscal year 2026, compared to the same period last year. We can experience fluctuations in sales from quarter to quarter in the various markets (both industries and geographies) in which we operate for various reasons.

Previous wording

We continue to see general market improvements in our industry, both domestically and internationally, with strength specifically in our enterprise, data center and severe duty markets.

Current wording

We continue to see general market growth opportunities in our industry, both domestically and internationally, with strength specifically in our enterprise, data center, and specialty markets.

Previous wording

At the end of the first half of fiscal year 2026, our sales order backlog/forward load increased to $13.3 million when compared to $10.4 million as of January 31, 2026, and when compared to $7.3 million as of October 31, 2025.

Current wording

At the end of the first nine months of fiscal year 2026, our sales order backlog/forward load increased to $13.5 million when compared to $13.3 million as of April 30, 2026, $10.4 million as of January 31, 2026, and when compared to $7.3 million as of October 31, 2025.

Previous wording

Our gross profit was $13.0 million in the first half of fiscal year 2026, an increase of 30.1% compared to gross profit of $10.0 million in the first half of fiscal year 2025. Gross profit margin increased to 33.5% in the first half of fiscal year 2026 compared to 29.9% in the first half of fiscal year 2025.

Current wording

Our gross profit was $22.1 million in the first nine months of fiscal year 2026, an increase of 35.5% compared to gross profit of $16.3 million in the first nine months of fiscal year 2025. Gross profit margin increased to 35.0% in the first nine months of fiscal year 2026 compared to 30.6% in the first nine months of fiscal year 2025.

Previous wording

Gross profit margin for the first half of fiscal 2026, when compared to the same period last year, was positively impacted by higher volumes, as fixed charges were spread over higher sales— the impact of our manufacturing operating leverage. Additionally, our gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix.

Current wording

Gross profit margin for the first nine months of fiscal 2026, when compared to the same period last year, was positively impacted by higher volumes, as fixed charges were spread over higher sales—the impact of our manufacturing operating leverage. Additionally, our gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix.

Previous wording

SG&A expenses increased 5.6% to $11.8 million during the first half of fiscal year 2026, compared to $11.2 million for the same period last year. SG&A expenses as a percentage of net sales were 30.6% in the first half of fiscal year 2026 compared to 33.6% for the first half of fiscal year 2025—the impact of our SG&A operating leverage.

Current wording

SG&A expenses increased 10.9% to $18.8 million during the first nine months of fiscal year 2026, compared to $16.9 million for the same period last year. SG&A expenses as a percentage of net sales were 29.9% in the first nine months of fiscal year 2026 compared to 31.8% for the first nine months of fiscal year 2025.

Previous wording

The increase in SG&A expenses during the first half of fiscal year 2026 compared to the same period last year was primarily the result of increases in employee and contracted sales personnel-related costs totaling $390,000 and shipping costs totaling $164,000. Included in employee and contracted sales personnel-related costs are compensation costs and sales incentives. Compensation costs increased due to new hires, net of terminations, and certain rate increases. Sales incentives and shipping costs increased primarily due to increases in net sales.

Current wording

The increase in SG&A expenses during the first nine months of fiscal year 2026 compared to the same period last year was primarily the result of increases in employee costs and contracted sales personnel-related costs totaling $1.3 million and shipping costs totaling $343,000. Included in employee costs and contracted sales personnel-related costs are compensation costs and sales incentives. Compensation costs increased due to new hires, net of terminations, and certain rate increases and performance incentives. Sales incentives and shipping costs increased primarily due to increases in net sales.

Previous wording

We recognized royalty expense, net of royalty income, totaling $13,000 during the first half of fiscal years 2026 and 2025. Royalty income and/or expense may fluctuate based on sales of related licensed products and estimates of amounts for non-licensed product sales, if any.

Current wording

We recognized royalty expense, net of royalty income, totaling $20,000 during the first nine months of fiscal years 2026 and 2025. Royalty income and/or expense may fluctuate based on sales of related licensed products and estimates of amounts for non-licensed product sales, if any.

Previous wording

We recognized $28,000 of amortization expense, associated with intangible assets, during the first half of fiscal years 2026, compared to $27,000 in the first half of fiscal year and 2025.

Current wording

We recognized $41,000 of amortization expense, associated with intangible assets, during the first nine months of fiscal years 2026 and 2025.

Previous wording

We reported income from operations of $1.1 million for the first half of fiscal year 2026, compared to a loss from operations of $1.3 million for the first half of fiscal year 2025. The change was primarily due to the increase in gross profit of $3.0 million, partially offset by the increase in SG&A expenses of $625,000.

Current wording

We reported income from operations of $3.2 million for the first nine months of fiscal year 2026, compared to a loss from operations of $719,000 for the first nine months of fiscal year 2025. The change was primarily due to the increase in gross profit of $5.8 million, partially offset by the increase in SG&A expenses of $1.9 million.

Previous wording

We recognized other expense, net in the first half of fiscal year 2026 of $455,000, compared to $497,000 in the first half of fiscal year 2025. Other expense, net for the first half of fiscal years 2026 and 2025 is comprised of interest expense and other miscellaneous items.

Current wording

We recognized other expense, net in the first nine months of fiscal year 2026 of $700,000, compared to $753,000 in the first nine months of fiscal year 2025. Other expense, net for the first nine months of fiscal years 2026 and 2025 is comprised of interest expense and other miscellaneous items.

Previous wording

We reported income before income taxes of $640,000 for the first half of fiscal year 2026, compared to a loss before income taxes of $1.8 million for the first half of fiscal year 2025. The change was primarily a result of the increase in income from operations of $2.4 million.

Current wording

We reported income before income taxes of $2.5 million for the first nine months of fiscal year 2026, compared to a loss before income taxes of $1.5 million for the first nine months of fiscal year 2025. The change was primarily a result of the increase in income from operations of $3.9 million.

Previous wording

Income tax benefit totaled $17,000 in the first half of fiscal year 2026, compared to income tax expense of $27,000 in the first half of fiscal year 2025. Our effective tax rate was negative 2.7% for the first half of fiscal year 2026 and negative 1.5% for the first half of fiscal year 2025.

Current wording

Income tax benefit totaled $9,000 in the first nine months of fiscal year 2026, compared to income tax expense of $31,000 in the first nine months of fiscal year 2025. Our effective tax rate was less than negative one percent for the first nine months of fiscal year 2026 and negative 2.1% for the first nine months of fiscal year 2025.