Note 10. Liquidity

During the six months ended June 30, 2026, the Company used cash for operations of $3,051,000. As of June 30, 2026, the Company had $324,000 cash and net current assets of $777,000, exclusive of disputed co-manufacturer accounts payable (Note 5) and accounts payable - construction in progress that the Company anticipates settling with a new mortgage note on unencumbered real estate that it owns.

The Company has a history of operating losses and negative cash flow, which are expected to improve with growth. As described more fully in Note 5, the dispute and subsequent contract termination with the Manufacturer has resulted in limitations in the Company’s ability to procure certain products necessary to achieve our growth projections and in elevated legal costs that were incurred before the Company obtained non-recourse litigation financing in 2025. The Acquisition is expected to alleviate the supply constraints. However, bring-up costs and lower than anticipated productivity at the Existing Facility have contributed to further losses in the first half of 2026.

The Company increased its receivables-based line of credit in September 2025 to $2,500,000. In October 2025, Arps Dairy secured a receivables-based line of credit of $1,250,000.

In February 2026, $420,000 of notes payable were converted to equity in accordance with the terms of the note agreements.

In March 2026, the Company raised $7,528,000 through the sale of convertible promissory notes with a two-year term. The proceeds were used to retire the Mortgage Note, and $532,000 in Construction Obligations incurred, as well fund working capital requirements. The Company plans to complete construction of the New Facility and pursue long-term real estate and equipment lease financing for the remaining Construction Obligations.

Although alleviated, the Company’s financial position at June 30, 2026 and historical results raise substantial doubt about its ability to continue as a going concern. As described, the Company has completed and anticipates steps to improve liquidity. If the anticipated financing is unavailable, the Company will be required to pursue other options, including reducing its operating expenses. The actions taken and anticipated alleviate the substantial doubt about the Company’s ability to continue as a going concern.