Inventory consists of raw materials, work-in-process, and finished goods, and is stated at the lower of cost or net realizable value. Costs included in inventory consist of materials, direct labor, and manufacturing overhead. The Company imports certain items that are subject to customs duties and tariffs. Import duties and tariffs that are directly attributable to the acquisition of inventory are capitalized as part of the cost of inventory and are subsequently recognized in cost of goods sold as the related inventory is sold. From time to time, the Company may become entitled to refunds of previously paid tariffs as a result of governmental actions, legal proceedings, administrative rulings, or approved refund claims. Consistent with ASC 450-30, Gain Contingencies, the Company does not recognize a tariff refund until the gain is realized or realizable — generally upon receipt of funds, or when a refund claim has been approved and quantified by the applicable governmental authority such that realization is assured. Amounts recognized are recorded as a reduction of the carrying value of inventory to the extent the related inventory remains on hand, or as a reduction of cost of goods sold to the extent the related inventory has already been sold.

During the six months ended May 31, 2026, the Company received refunds of previously paid tariffs of approximately $1.1 million in cash, which were recorded as a reduction of cost of goods sold in the period received, as the related inventory had already been sold. Subsequent to May 31, 2026, the Company received an additional tariff refund of approximately $2.3 million (see Note 25, Subsequent Events).

Potential tariff refunds that remain contingent upon future events, unresolved legal or administrative proceedings, or pending governmental approval are not recognized until the applicable recognition criteria have been met. The Company evaluates outstanding refund claims each reporting period and provides disclosure of significant contingencies and subsequent developments, as appropriate.

The Company periodically reviews its inventory for excess, slow-moving, and obsolete items and records a reserve when the carrying value of inventory exceeds its estimated net realizable value. During the three and six months ended May 31, 2026, the Company recorded inventory write-downs and reserves totaling $5.9 million, which are included in cost of goods sold in the condensed consolidated statements of operations and comprehensive (loss) income. Of this amount, $3.6 million related to the write-down of raw materials, work-in-process, and finished goods inventory associated with the cessation of ammunition production operations at the Company's Fort Wayne, Indiana facility (see Note 12, Property and Equipment), as such inventory was determined to have limited or no recoverable value following the decision to cease production.

The majority of the remaining $2.2 million related to launcher components that due to a strategic decision, will either not be reworked and therefore scrapped or for which expected future demand and marketability had declined, resulting in an incremental reserve to reduce the carrying value of such inventory to its estimated net realizable value. The remaining reserve balance was due to the Company's review of inventory aging, turnover rates, and updated demand forecasts, conducted in connection with an evaluation of product line strategy and sales priorities undertaken during the quarter.

The following table summarizes inventory (in thousands):