Note 2. GOING CONCERN AND MANAGEMENT’S PLAN

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve months following the date these consolidated financial statements are issued. At May 31, 2026, the Company has an accumulated deficit of approximately $(35,829,000) and cash and cash equivalents of approximately $500,000. During fiscal year 2026, the Company lost a major customer that historically represented approximately $30 million, or 55%, of annual sales. As a result of this customer loss, the Company expects a significant reduction in future revenues and cash flows, which has adversely affected its liquidity position, operating results, and ability to generate cash from operations. These conditions raise substantial doubt about the the Company’s ability to continue as a going concern.

In addition, the Company was not in compliance with certain financial covenants under its debt agreements as of May 31, 2026. On July 5, 2026, the Company entered into a Fifth Amendment to its Amended and Restated Loan Agreement with International Bank of Commerce (“IBC”), pursuant to which IBC waived certain existing covenant violations through the amendment date and suspended testing of specified financial covenants through November 30, 2026. The amendment also provides for interest-only payments on certain debt obligations for a period of seven months through calendar year 2026. As of the date these consolidated financial statements were issued, IBC had not exercised its rights to accelerate the indebtedness and the Company was in compliance with the amended agreement. However, management’s forecasts indicate that compliance with certain financial covenants when testing resumes may require additional amendments, waivers, or other accommodations from the lender. There can be no assurance that such accommodations, if necessary, will be obtained. Due to the covenant violations existing at May 31, 2026 and expected noncompliance within the next twelve months, all outstanding long-term debt has been classified as current in the accompanying consolidated balance sheet.

Management has developed plans intended to improve liquidity and operating performance, including expanding its customer base, increasing sales to existing customers, pursuing new customer opportunities, implementing enhanced inventory and production management practices, controlling operating expenditures, adjusting product pricing where appropriate, and continuing discussions with lenders regarding future financing arrangements and covenant requirements.

Management has evaluated these conditions and events and determined that, although its plans may improve liquidity and operating performance, the successful execution of those plans depends on replacing a substantial portion of the lost customer revenue and obtaining continued lender support. Because it is unclear whether the Company will be successful in accomplishing these objectives, management cannot conclude that it is probable that its plans will alleviate these conditions.

Accordingly, management has concluded that substantial doubt exists regarding the Company’s ability to continue as a going concern within one year after the date these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.