Richardson Electronics, LTD.: Form 10-Q for the period ended Nov 29, 2025

Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. The terms “may,” “should,” “could,” “anticipate," “believe,” “continue,” “estimate,” “expect,” “intend,” “objective,” “plan,” “potential," “project” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include; economic, labor and political conditions; global business disruption caused by armed conflicts in Europe and the Middle East; currency exchange fluctuations; and the ability of the Company to manage its growth and the risk factors set forth in our Annual Report on Form 10-K filed with the SEC on August 4, 2025. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise.

In addition, while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them or any outside third party, any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any securities analyst or outside third party, irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

INTRODUCTION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist the reader in better understanding our business, results of operations, financial condition, changes in financial condition and significant developments. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes appearing elsewhere in this filing. This section is organized as follows:

• Business Overview
• Results of Operations – an analysis and comparison of our consolidated results of operations for the three month and six month periods ended November 29, 2025 and November 30, 2024, as reflected in our Unaudited Consolidated Statements of Comprehensive (Loss) Income.
• Liquidity, Financial Position and Capital Resources – a discussion of our primary sources and uses of cash for six month periods ended November 29, 2025 and November 30, 2024, and a discussion of changes in our financial position.

Business Overview

Richardson Electronics, Ltd. (the "Company," "we," "our") is a leading global manufacturer of engineered solutions, green energy products, power grid and microwave tubes, and related consumables; power conversion and RF and microwave components including green energy solutions; tubes for diagnostic imaging equipment; and customized display solutions. More than 55% of our products are manufactured in LaFox, Illinois, Marlborough, Massachusetts, or Donaueschingen, Germany, or by one of our manufacturing partners throughout the world. All our partners manufacture to our strict specifications and per our supplier code of conduct. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair through its global infrastructure.

Some of the Company's products are manufactured in foreign countries and imported into the United States. Accordingly, the Company’s operations are subject to tariffs and other trade protection measures. The current U.S. administration has instituted certain changes, and may make additional changes, in trade policies that include the negotiation or termination of trade agreements, higher tariffs on imports into the U.S., and other measures affecting trade between the U.S. and other countries from which the Company imports. Due in part to these measures, some countries are changing their trade policies relating to goods imported from the U.S. These global trade disruptions and geopolitical tensions, together with any related downturns in the global economy, could dampen customer demand, increase market volatility, and impact currency exchange rates, all which could materially and adversely affect the Company’s financial performance.

The impact of these changes in trade policies will depend on various factors, including (i) when trade measures are implemented, (ii) the ultimate amount, scope, nature, and duration of tariffs and other trade measures, and (iii) the extent to which the Company can mitigate impacts and pass on any increased costs associated with these changes. In addition, the impact of trade disruptions on general economic conditions and demand for electronic components is difficult to predict.

The recent tariff modifications did not materially impact our results for the first six months of fiscal 2026. However, it is possible that further tariffs may be imposed on imports of our products, including by other countries, or that our business will be impacted by changing trade relations among countries. Management continues to work with its suppliers as well as its customers to mitigate the impact of the tariffs on our customers’ markets. However, if the Company is unable to successfully pass through the additional cost of these tariffs, or if the higher prices reduce demand for the Company's products, it will have a negative effect on the Company's sales and gross margins.

The Company reports its financial performance based on the operating and reportable segments defined as follows:

Power and Microwave Technologies ("PMT") combines our core engineered solutions capabilities, power grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment. After the sale of certain assets to DirectMed, the Company continues to manufacture and repair certain CT tubes and sells them exclusively to DirectMed pursuant to a supply agreement.

Green Energy Solutions ("GES") combines our key technology partners and engineered solutions capabilities to design and manufacture innovative products for the fast-growing energy storage market and power management applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide specialized technical expertise and engineered solutions using our core design engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global infrastructure. GES’s focus is on products for numerous green energy applications such as wind, solar, hydrogen and Electric Vehicles, and other power management applications that support green solutions such as synthetic diamond manufacturing.

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long-term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.

We currently operate within the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.

RESULTS OF OPERATIONS

Financial Summary – Three Months Ended November 29, 2025

• The second quarter of fiscal 2026 and fiscal 2025 both contained 13 weeks.
• Net sales during the second quarter of fiscal 2026 were $52.3 million, an increase of 5.7%, compared to net sales of $49.5 million during the second quarter of fiscal 2025.
• Gross margin decreased to 30.8% during the second quarter of fiscal 2026 compared to 31.0% during the second quarter of fiscal 2025.
• Selling, general and administrative expenses were $15.9 million or 30.5% of net sales during the second quarter of fiscal 2026 compared to $16.0 million or 32.3% of net sales during the second quarter of fiscal 2025.
• Operating income during the second quarter of fiscal 2026 was $0.1 million compared to an operating loss of $0.7 million during the second quarter of fiscal 2025.
• Net loss during the second quarter of fiscal 2026 was $0.1 million compared to a net loss of $0.8 million during the second quarter of fiscal 2025.

Financial Summary – Six Months Ended November 29, 2025

• The first six months of fiscal 2026 and fiscal 2025 both contained 26 weeks.
• Net sales during the first six months of fiscal 2026 were $106.9 million, an increase of 3.6%, compared to net sales of $103.2 million during the first six months of fiscal 2025.
• Gross margin increased to 30.9% during the first six months of fiscal 2026 compared to 30.8% during the first six months of fiscal 2025.
• Selling, general and administrative expenses were $31.9 million or 29.8% of net sales during the first six months of fiscal 2026 compared to $32.1 million or 31.1% of net sales during the first six months of fiscal 2025.
• Operating income during the first six months of fiscal 2026 was $1.1 million compared to an operating loss of $0.4 million during the first six months of fiscal 2025.
• Net income during the first six months of fiscal 2026 was $1.8 million compared to a net loss of $0.2 million during the first six months of fiscal 2025.

Net Sales and Gross Profit Analysis

Net sales by segment and percentage change during the second quarter and first six months of fiscal 2026 and fiscal 2025 were as follows (in thousands):

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During the second quarter of fiscal 2026, consolidated net sales increased 5.7% compared to the second quarter of fiscal 2025. Sales for PMT decreased 4.0%, sales for GES increased 39.0% and sales for Canvys increased 28.1%. The decrease in PMT was mainly due to a decline in Electron Device and Healthcare products partially offset by higher RF and Microwave products. The increase in GES was mainly due to sales of Power Management products. The increase in Canvys was attributable to higher sales in the North American markets.

During the first six months of fiscal 2026, consolidated net sales increased 3.6% compared to the first six months of fiscal 2025. Sales for PMT decreased 0.5%, sales for GES increased 10.7% and sales for Canvys increased 17.7%. The decrease in PMT was mainly due to a decline in Electron Device and Healthcare products partially offset by higher semiconductor and RF and Microwave products. The increase in GES was mainly due to sales of Power Management products. The increase in Canvys was attributable to higher sales in the North American and European markets.

Gross profit by segment and percentage of net sales for the second quarter and first six months of fiscal 2026 and fiscal 2025 were as follows (in thousands):

Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs and other provisions.

Consolidated gross profit increased to $16.1 million during the second quarter of fiscal 2026 compared to $15.3 million during the second quarter of fiscal 2025. Consolidated gross margin as a percentage of net sales during the second quarter of fiscal 2026 decreased to 30.8% when compared to 31.0% during the second quarter of fiscal 2025. This margin decrease was mainly due to product mix and lower manufacturing absorption in PMT, product mix in GES and favorable product mix in Canvys.

Consolidated gross profit increased to $33.0 million during the first six months of fiscal 2026 compared to $31.8 million during the first six months of fiscal 2025. Consolidated gross margin as a percentage of net sales during the first six months of fiscal 2026 increased to 30.9% when compared to 30.8% during the first six months of fiscal 2025. This margin increase was mainly due to favorable product mix in PMT, unfavorable product mix in GES and unfavorable product mix and higher freight costs in Canvys.

Power and Microwave Technologies

PMT net sales decreased 4.0% to $35.2 million during the second quarter of fiscal 2026 from $36.7 million during the second quarter of fiscal 2025. The decrease was due primarily to a decline in the Electron Device and Healthcare products partially offset by increased growth in our RF and Microwave component products. The decline in Healthcare sales, which only included CT tubes, was due to the sale of assets to DirectMed in the third quarter of fiscal 2025. Gross margin as a percentage of net sales decreased to 30.4% during the second quarter of fiscal 2026 as compared to 30.7% during the second quarter of fiscal 2025 due to product mix and lower manufacturing absorption.

PMT net sales decreased 0.5% to $74.3 million during the first six months of fiscal 2026 from $74.7 million during the first six months of fiscal 2025. The decrease was due primarily to a decline in the Electron Device and Healthcare products partially offset by increases in semiconductors and strong growth in our RF and Microwave products. The decline in Healthcare sales, which only included CT tubes, was due to the sale of assets to DirectMed in the third quarter of fiscal 2025. Gross margin as a percentage of net sales increased to 30.9% during the first six months of fiscal 2026 as compared to 30.4% during the first six months of fiscal 2025 due to product mix.

Green Energy Solutions

GES net sales increased 39.0% to $8.3 million during the second quarter of fiscal 2026 from $6.0 million during the second quarter of fiscal 2025. The increase reflected the strong adoption in the market of Power Management products. Gross margin as a percentage of net sales decreased to 30.3% during the second quarter of fiscal 2026 as compared to 32.0% during the second quarter of fiscal 2025 due to product mix.

GES net sales increased 10.7% to $15.6 million during the first six months of fiscal 2026 from $14.1 million during the first six months of fiscal 2025. The increase reflects the strong adoption in the market of Power Management products. Gross margin as a percentage of net sales decreased to 30.0% during the second quarter of fiscal 2026 as compared to 30.5% during the second quarter of fiscal 2025 due to product mix.

Canvys

Canvys net sales increased 28.1% to $8.8 million during the second quarter of fiscal 2026 from $6.9 million during the second quarter of fiscal 2025, primarily due to higher sales in the North American markets. Gross margin as a percentage of net sales increased to 32.6% during the second quarter of fiscal 2026 from 31.7% during the second quarter of fiscal 2025 primarily due to a favorable product mix.

Canvys net sales increased 17.7% to $17.0 million during the first six months of fiscal 2026 from $14.5 million during the first six months of fiscal 2025, due to higher sales in both North American and European markets. Gross margin as a percentage of net sales decreased to 31.8% during the first six months of fiscal 2026 from 33.1% during the first six months of fiscal 2025 primarily due to product mix and higher freight costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) decreased to $15.9 million for the second quarter of fiscal 2026 when compared to $16.0 million for the year ago quarter due to lower travel expenses. Expressed as a percentage of net sales, SG&A was 30.5% for the second quarter of fiscal 2026 compared to 32.3% in the second quarter of fiscal 2025.

SG&A decreased to $31.9 million for the first six months of fiscal 2026 when compared to $32.1 million for the first six months of fiscal 2025 primarily as a result of lower travel expenses. Expressed as a percentage of net sales, SG&A was 29.8% for the first six months of fiscal 2026 compared to 31.1% in the first six months of fiscal 2025.

Other Income/Expense

Other income and expense includes interest income, foreign exchange gains and foreign exchange losses. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency.

Other expense during the second quarter of fiscal 2026 totaled $0.3 million compared to other expense of $0.4 million for second quarter of fiscal 2025. The decrease from the year ago quarter was mainly due to higher interest income.

Other income during the first six months of fiscal 2026 totaled $1.0 million, compared to other expense of $0.1 million when compared to the first six months of fiscal 2025.The increase from fiscal 2025 was mainly due to a non-recurring gain of $0.9 million.

Income Tax Provision

We recorded an income tax benefit of $0.1 million and $0.3 million for the second quarter of fiscal 2026 and the second quarter of fiscal 2025, respectively. The effective income tax benefit rate during the second quarter of fiscal 2026 was 38.3% as compared to 28.8% during the second quarter of fiscal 2025. The difference in rate during the second quarter of fiscal 2026 as compared to the second quarter of fiscal 2025 reflects changes in our geographical distribution of income (loss). The 38.3% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss) and the utilization of the U.S. research and development credit.

We recorded an income tax provision of $0.3 million and an income benefit of $0.2 million for the first six months of fiscal 2026 and the first six months of fiscal 2025, respectively. The effective income tax rate during the first six months of fiscal 2026 was a tax provision of 16.2% as compared to a tax benefit of 60.4% during the first six months of fiscal 2025. The difference in rate during the first six months of fiscal 2026 as compared to the first six months of fiscal 2025 reflects changes in our geographical distribution of income (loss). The 16.2% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss) and the utilization of the U.S. research and development credit.

The Company's reserve for uncertain tax positions totaled $0.3 million as of November 29, 2025, and May 31, 2025. We record interest related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive (Loss) Income. Accrued interest was included within the related tax liability line in the Consolidated Balance Sheets. We have recorded a liability of less than $0.1 million for interest as of November 29, 2025 and May 31, 2025.

The Company maintains a valuation allowance representing the portion of the deferred tax asset that management does not believe is more likely than not to be realized. The valuation allowance was $2.9 million as of November 29, 2025, and $2.8 million as of May 31, 2025. The valuation allowance relates to state NOLs ($1.7 million) and deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.2 million). The amount of the deferred tax asset is not considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

We have considered the impact of the *One Big Beautiful Bill Act (“*OBBBA”) on the Company’s annual effective tax rate. The impact of OBBBA on the annual effective tax rate includes the reduction in the research and development credit from the Section 280c election. These changes did not have a significant impact to the annual effective tax rate. However, the enactment of the OBBBA introduced several significant tax law modifications that, while not affecting the annual effective tax rate, do have other implications for the Company. The OBBBA makes permanent key elements of the 2017 Tax Cuts and Jobs Act, including 100% bonus depreciation and domestic research cost expensing pursuant to IRC §174 for fiscal year beginning after December 31, 2024. The Company is currently evaluating the future impact of OBBBA on its financial position.

Net Income and Per Share Data

Net loss during the second quarter of fiscal 2026 was $0.1 million, or $.01 per diluted common share and $.01 per Class B diluted common share as compared to a net loss of $0.8 million during the second quarter of fiscal 2025 or $0.05 per diluted common share and $0.05 per Class B diluted common share.

Net income during the first six months of fiscal 2026 was $1.8 million, or $0.12 per diluted common share and $0.11 per Class B diluted common share as compared to a net loss of $0.2 million during the first six months of fiscal 2025 or $0.01 per diluted common share and $0.01 per Class B diluted common share.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

Our operations and cash needs have been primarily financed through operations and cash on hand.

Cash and cash equivalents were $33.1 million at November 29, 2025. Cash and cash equivalents by geographic area on November 29, 2025 consisted of $10.5 million in North America, $12.5 million in Europe, $0.8 million in Latin America and $9.3 million in Asia/Pacific. No cash was repatriated to the United States in the first six months of fiscal 2026. Although the Tax Cuts and Jobs Act generally eliminated federal income tax on future cash repatriation to the United States, cash repatriation may be subject to state and local taxes, withholding or similar taxes.

Cash and cash equivalents were $35.9 million at May 31, 2025. Cash and cash equivalents by geographic area at May 31, 2025 consisted of $19.5 million in North America, $7.7 million in Europe, $0.9 million in Latin America and $7.8 million in Asia/Pacific. No cash was repatriated to the United States in fiscal 2025.

Our short-term and long-term liquidity requirements primarily arise from: (i) working capital requirements, (ii) capital expenditure needs and (iii) cash dividend payments (if and when declared by our Board of Directors). Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control.

Based on past performance and current expectations, we believe that the existing sources of liquidity, including current cash, will provide sufficient resources to meet known capital requirements and working capital needs through the next twelve months. Additionally, while our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for growth in our markets, we believe our existing sources of liquidity as well as our ability to generate operating cash flows will satisfy our future obligations and cash requirements.

On October 7, 2025, the Company executed a three-year extension to the PNC Credit Agreement through the Second Amendment to the Credit Agreement with a maximum borrowing limit of $20 million. The terms of the new agreement are similar to the previous Credit Agreement. See Note 5, Revolving Credit Facility, included in Part I, Item 1 for further information. The Revolving Credit Facility is guaranteed by the Company's domestic subsidiaries. Proceeds of the borrowings under the Revolving Credit Facility, if any, are expected to be used for working capital and general corporate purposes of the Company and its subsidiaries. There were no drawings or repayments under the Revolving Credit Facility as of November 29, 2025 and through the report release date. No amounts were outstanding under the Revolving Credit Facility as of November 29, 2025, and through the report release date.

Cash Flows from Operating Activities

Cash flows from operating activities are primarily a result of our net income adjusted for non-cash items and changes in our operating assets and liabilities.

Operating activities generated $1.3 million of cash during the first six months of fiscal 2026. We had a net income of $1.8 million during the first six months of fiscal 2026, which included non-cash share-based compensation expense of $1.0 million associated with the issuance of stock option and restricted stock awards, inventory reserve provisions of $0.2 million, unrealized foreign exchange gain of $0.2 million, depreciation and amortization expense of $1.9 million associated with our property, plant and equipment and intangible assets. Changes in our operating assets and liabilities utilized $3.4 million in cash during the first six months of fiscal 2026, net of foreign currency exchange gains and losses, included an increase in accounts receivable of $3.2 million, an increase in inventories of $1.5 million, an increase in prepaid expenses and other assets of $2.9 million and an increase in accounts payable and accrued liabilities of $4.4 million. The increase in accounts receivable was primarily due to the higher level of sales. The changes in accounts payable and accrued liabilities were timing related.

Operating activities generated $5.9 million of cash during the first six months of fiscal 2025. We had a net loss of $0.2 million during the first six months of fiscal 2025, which included non-cash stock-based compensation expense of $0.9 million associated with the issuance of stock option and restricted stock awards, inventory reserve provisions of $0.2 million, unrealized foreign exchange gain of $0.2 million and depreciation and amortization expense of $2.1 million associated with our property, plant and equipment and intangible assets. Changes in our operating assets and liabilities generated $3.2 million in cash during the first six months of fiscal 2025, net of foreign currency exchange gains and losses, included an increase in accounts payable and accrued liabilities of $5.2 million, an increase in accounts receivable of $1.1 million and an increase in inventories of $1.7 million. The increase in accounts receivable was primarily due to the higher level of sales. The changes in accounts payable and accrued liabilities were timing related.

Cash Flows from Investing Activities

Cash used in investing activities of $2.6 million during the first six months of fiscal 2026 was due to capital expenditures. Capital expenditures were primarily related to our IT system and LaFox manufacturing and facilities. LaFox manufacturing primarily supports the PMT and GES segments.

Cash used in investing activities of $1.4 million during the first six months of fiscal 2025 was due to capital expenditures. Capital expenditures were primarily related to our IT system and LaFox manufacturing and facilities. LaFox manufacturing primarily supports the PMT and GES segments.

Cash Flows from Financing Activities

Cash flows used in financing activities consist primarily of cash dividends and cash flows provided by financing activities consist primarily of the proceeds from the issuance of stock. All future dividend payments are at the discretion of the Board of Directors. Dividend payments depend on earnings, capital requirements, operating conditions and such other factors that the Board may deem relevant.

Cash used in financing activities of $1.6 million during the first six months of fiscal 2026 primarily resulted from $1.7 million of dividend payments to stockholders partially offset by $0.2 million of proceeds from the issuance of stock.

Cash used in financing activities of $1.6 million during the first six months of fiscal 2025 primarily resulted from $1.7 million of dividend payments to stockholders partially offset by $0.3 million of proceeds from the issuance of stock.

Critical Accounting Estimates

The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles ("GAAP”) and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. Our assumptions, judgments and estimates are based on historical experience and various other factors deemed relevant. Actual results could be materially different from those estimates under different assumptions or conditions. We evaluate our assumptions, judgments and estimates on a regular basis. We also discuss our critical accounting estimates with the Audit Committee of the Board of Directors.

There have been no material changes in our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended May 31, 2025, filed with the SEC on August 4, 2025. We are not aware of any specific events or circumstances that would require us to update our estimates, assumptions and judgments.

Impact of New Accounting Standards

For information about recently issued accounting pronouncements, see Note 3, New Accounting Pronouncements - Not Yet Adopted, included in Part I, Item 1.

Risk Management and Market Sensitive Financial Instruments

We are exposed to many different market risks with the various industries we serve. The primary financial risk we are exposed to is foreign currency exchange, as certain of our operations, assets and liabilities are denominated in foreign currencies. We manage these risks through normal operating and financing activities.

The interpretation and analysis of these disclosures should not be considered in isolation since such variances in exchange rates would likely influence other economic factors. Such factors, which are not readily quantifiable, would likely also affect our operations. Additional disclosure regarding various market risks is set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 2025 filed with the SEC on August 4, 2025.

(a) Evaluation of Disclosure Controls and Procedures

Management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of November 29, 2025.

Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Changes in Internal Control over Financial Reporting

During the quarter ended November 29, 2025, we launched and adopted a new General Ledger ("GL") system, which replaced our existing GL system. The new GL system enhances efficiency and simplifies our accounting and reporting processes. In conjunction with the implementation of the GL system, our internal processes, procedures and controls have been updated accordingly.

Except as discussed in the preceding paragraph, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended November 29, 2025 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2025, filed with the SEC on August 4, 2025.