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utr:sqft

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number: 000-56380

ZRCN INC.

(Exact name of registrant as specified in its charter)

Delaware		83-2756695
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1580 Dell Avenue Campbell, CA		95008
(Address of principal executive offices)		(Zip Code)

(408) 963-4550

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer	☐	Accelerated filer	☐

Non-Accelerated filer	☒	Smaller Reporting Company	☒

		Emerging Growth Company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of June 23, 2026, 10,359,924 shares of common stock were issued and outstanding.

Securities registered pursuant to Section 12(b) of the Act: None

Forward-Looking Statements

This Current Report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. The forward-looking statements are contained in this Report in some cases you can identify forward-looking statements by terminology such as “may”, “is expected to”, “anticipates”, “estimates”, “intends”, “plans”, “projection”, “could”, “vision”, “goals”, “objective” and “outlook” and similar expressions. These statements are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements, many of which are difficult to predict and generally beyond our control.

You should refer to “Risk Factors” of this Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our,” and “Company,” refer to registrant, ZRCN Inc. (“ZRCN” - formerly known as Harmony Energy Technologies Corporation (“Harmony”)) and/or ZRCN’s wholly owned subsidiary, Zircon Corporation (“Zircon”).

Our forward-looking statements are subject to a number of known and unknown risks, uncertainties, assumptions, and other factors that may cause our actual future results, performance, or achievements to differ materially from any future results expressed or implied in this Report. Reported results should not be considered an indication of future performance.

Because some of these risks and uncertainties cannot be predicted or quantified and some are beyond our control, you should not rely on our forward-looking statements as predictions of future events. More information about potential risks and uncertainties that could affect our business and financial results is included in the section of this Quarterly Report titled “Risk Factors” and our other filings with the U.S. Securities and Exchange Commission (“SEC”), which are available on the SEC’s web site at www.sec.gov. Moreover, we operate in a very competitive and rapidly changing environment; new risks and uncertainties may emerge from time to time, and it is not possible for us to predict all risks nor identify all uncertainties. The events and circumstances reflected in our forward-looking statements might not be achieved and actual results could differ materially from those projected in the forward-looking statements. Except as otherwise noted, all forward-looking statements are made as of the date we file this Report and are based on information and estimates available to us at this time. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. Except as required by law, we assume no obligation to update any of the statements in this Report whether as a result of any new information, future events, changed circumstances, or otherwise. You should read this Report with the understanding that our actual future results, performance, events, and circumstances might be materially different from what we expect.

Table of Contents

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of June 30, 2025 (Unaudited) and March 31, 2025	3

	Consolidated Statements of Operations and Comprehensive Income (Loss) for the SIX MONTHS ENDED SEPTEMBER 30, 2025 and 2024 (Unaudited)	4

	Consolidated Statements of Changes in Shareholders’ Equity for the SIX MONTHS ENDED SEPTEMBER 30, 2025 and 2024 (Unaudited)	5

	Consolidated Statements of Cash Flows for the SIX MONTHS ENDED SEPTEMBER 30, 2025 and 2024 (Unaudited)	6

	Condensed Notes to the Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II	OTHER INFORMATION	29

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

SIGNATURES		31

ZRCN Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2025			March 31, 2025
	(Unaudited)			Audited
ASSETS
Current assets:
Cash	$	40		$	1,407
Accounts receivable, net of provision for credit losses of $63 and $53, respectively		11,050			6,102
Inventory, net		10,559			12,456
Prepaid expenses and other assets		460			294
Total current assets		22,109			20,259

Property and equipment, net		1,613			1,594

Operating lease right-of-use assets		454			558
Federal tax deposit		28			28
Intangible assets, net		641			684
Deposits		19			19
Deferred financing costs		181			236
Total assets	$	25,045		$	23,378

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit		8,921			8,413
Accounts payable		8,912			6,453
Accrued expenses		2,830			1,720
Operating lease liability, current		217			213
Total current liabilities		20,880			16,799

Operating lease liability, net of current portion		263			373
Notes payable to Stauss Family Administrative Trust, net of current portion		667			676
Total liabilities		21,810			17,848

Stockholders’ equity:
Common stock; at $0.0001 par value, 200,000,000 shares authorized, 10,384,923 and 10,306,426 shares issued and outstanding as of September 30, 2025 and March 31, 2025, respectively		1			1
Additional paid-in capital		8,675			8,532
Accumulated other comprehensive loss		(289	)		(347	)
Accumulated deficit		(6,978	)		(4,297	)
Total equity attributable to ZRCN Inc. stockholders		1,409			3,889
Non-controlling interests in variable interest entities		1,826			1,641
Total stockholders’ equity		3,235			5,530
Total liabilities and stockholders’ equity	$	25,045		$	23,378

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ZRCN Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share data)

(Unaudited)

	2025			2024			2025			2024
	For the Three Months Ended September 30,						For the Six Months Ended September 30,
	2025			2024			2025			2024
	(in thousands)						(in thousands)
Net sales	$	9,428		$	9,362		$	15,490		$	15,173
Cost of sales		6,617			5,356			11,301			8,816
Gross profit		2,811			4,006			4,189			6,357

Operating expenses:
General and administrative		1,737			2,025			3,184			3,486
Marketing and selling		1,156			1,105			2,316			2,008
Research and development		428			432			839			857
Total operating expenses		3,321			3,562			6,339			6,351
Income (loss) from operations		(510	)		444			(2,150	)		6

Other expenses:
Interest expense		201			203			405			426
Other expenses		7			9			15			16
Loss (gain) on foreign currency transactions		42			(62	)		106			(165	)
Total other expenses		250			150			526			277

Income (loss) before income taxes		(760	)		294			(2,676	)		(271	)
Income tax benefit (expense)		198			175			180			154
Net income (loss)	$	(562	)	$	469		$	(2,496	)	$	(117	)
Less: Net (income) loss attributable to non-controlling interests		67			(176	)		185			(98	)
Net income (loss) attributable to ZRCN Inc. common stockholders	$	(629	)	$	645		$	(2,681	)	$	(19	)

Net income (loss)	$	(562	)	$	469		$	(2,496	)	$	(117	)
Gain (loss) on change in foreign currency translation adjustment		(72	)		(125	)		58			(8	)
Comprehensive loss		(634	)		344			(2,438	)		(125	)
Less: Net loss (income) attributable to non-controlling interests		67			(176	)		185			(98	)
Other comprehensive income (loss) attributable to non-controlling interest		(72	)		(125	)		58			(8	)
Comprehensive loss attributable to ZRCN common stockholders	$	(629	)	$	645		$	(2,681	)	$	(19	)

Net loss per share attributable to ZRCN Inc.:
Basic	$	(0.06	)	$	0.06		$	(0.26	)	$	(0.00	)
Diluted		(0.06	)	$	0.06		$	(0.26	)	$	(0.00	)

Weighted average common shares outstanding:
Basic		10,355,549			10,048,726			10,341,078			10,040,036
Diluted		10,355,549			10,537,975			10,341,078			10,040,036

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ZRCN Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(Unaudited)

	Shares		Amount		Loss			Capital		Deficit			ZRCN			Interests		Equity
	Common Stock				Accumulated Other Comprehensive			Additional Paid-in		Accumulated			Total Equity Attributable to			Non-controlling		Total Stockholders’
	Shares		Amount		Loss			Capital		Deficit			ZRCN			Interests		Equity
Balance - March 31, 2025		10,306,426	$	1	$	(347	)	$	8,532	$	(4,297	)	$	3,889		$	1,641	$	5,530
Change in foreign currency translation adjustment		—		—		130			—		—			130			—		130
Common stock issued for advisory services		26,999		—		—			5		—			5			—		5
Share based compensation		—		—		—			67		—			67			—		67
Net loss (income)		—		—		—			—		(2,052	)		(2,052	)		118		(1,934	)
Balance - June 30, 2025		10,333,425	$	1	$	(217	)	$	8,604	$	(6,349	)	$	2,039		$	1,759	$	3,798
Change in foreign currency translation adjustment		—		—		(72	)		—					(72	)		—		(72	)
Common stock issued for advisory services		26,499		—		—			4		—			4			—		4
Share based compensation		—		—		—			67		—			67			—		67
Net loss		—		—		—			—		(629	)		(629	)		67		(562	)
Balance - September 30, 2025		10,359,924	$	1	$	(289	)	$	8,675	$	(6,978	)	$	1,409		$	1,826	$	3,235

	Common Stock				Accumulated Other Comprehensive			Additional Paid-in		Retained			Total Equity Attributable to			Non-controlling			Total Stockholders’
	Shares		Amount		Loss			Capital		Earnings			ZRCN			Interests			Equity
Balance - March 31, 2024 - as revised		10,016,936	$	1	$	(187	)		—	$	6,762		$	6,576		$	1,692		$	8,268
Change in foreign currency translation adjustment		—		—		117			—		—			117			—			117
Common stock issued for advisory services		25,000		—		—			40					40			—			40
Net loss (income)		—		—					—		(664	)		(664	)		78			(586	)
Balance - June 30, 2024		10,041,936	$	1	$	(70	)	$	40	$	6,098		$	6,069		$	1,770		$	7,839
Balance		10,041,936	$	1	$	(70	)	$	40	$	6,098		$	6,069		$	1,770		$	7,839
Change in foreign currency translation adjustment		—		—		(125	)		—		—			(125	)		—			(125	)
Common stock issued for advisory services		8,329		—		—			7		—			7			—			7
Share based compensation		—		—		—			10		—			10			—			10
Net income (loss)		—		—		—			—		645			645			(176	)		469
Balance - September 30, 2024		10,050,265	$	1	$	(195	)	$	57	$	6,743		$	6,606		$	1,594		$	8,200
Balance		10,050,265	$	1	$	(195	)	$	57	$	6,743		$	6,606		$	1,594		$	8,200

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ZRCN Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	2025			2024
	For the Six Months Ended September 30,
	2025			2024
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,496	)	$	(117	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense		334			467
Amortization of intangible assets		44			55
Amortization of right-of-use assets		104			53
Inventory obsolescence impairment		373			531
Provision for credit losses		10			118
Amortization of financing costs		55			36
Share based compensation expense		134			10
Common stock issued for advisory services		9			47
Deferred tax asset		—			(192	)
(Gain) loss on foreign currency transactions		106			(165	)
Changes in operating assets and liabilities:
Accounts receivable		(4,948	)		(711	)
Inventory		1,524			384
Prepaid expenses and other assets		(166	)		(170	)
Federal tax deposit		—			(66	)
Deferred expenses		—			(326	)
Accounts payable		2,459			(1,122	)
Accrued expenses		1,110			705
Operating lease liabilities		(106	)		(54	)
Net cash used in operating activities		(1,454	)		(517	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of intangible assets		(1	)		—
Purchase of property and equipment		(120	)		(686	)
Net cash used in investing activities		(121	)		(686	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt assumed in Harmony Merger		—			(75	)
Borrowing on line of credit		12,208			10,580
Repayment on line of credit		(11,700	)		(9,288	)
Stockholder distributions		—			(245	)
Net cash provided by financing activities		508			972

Effect of exchange rate fluctuations on cash		(300	)		151
Net decrease in cash		(1,367	)		(80	)
Cash at beginning of period		1,407			502
Cash at end of period	$	40		$	422

Supplemental disclosure of cash flow information:
Cash paid for interest		19			19
Cash paid for taxes		—			279
Noncash investing and financing activities:
Increase in debt due to accrued interest		386			407
Right-of-use assets obtained in exchange for operating lease liability		—			35

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

1. Organization

The Business

Zircon Corporation, (“Zircon”), a wholly-owned subsidiary of ZRCN Inc. (“ZRCN” or the “Company”), was incorporated in California in 1977. The Company, through Zircon, is principally engaged in the design and manufacture of electronic-based consumer hardware and sells its products primarily to retail outlets located throughout the United States, Canada, Japan and Europe. The Company and Zircon operate from their headquarters located in Campbell, California and an affiliate entity of Zircon, Zircon de Mexico S.A. de C.V., located in Ensenada, Mexico. The operations of the Company and Zircon are supported also by an affiliated entity of Zircon, Zircon Corporation Limited, located in the United Kingdom.

On April 14, 2023 (the “Closing Date”), Zircon Corporation effectuated a merger and reorganization with Harmony Energy Technologies Corporation (“Harmony”), a Delaware Corporation, ZRCN Inc., a California corporation and a wholly owned subsidiary of Harmony (the “Merger Sub”). The merger leverages Zircon’s sensor-based, ASIC (“Application-Specific Integrated Circuits”) processor technology and patent portfolio, to accelerate growth in its product lines and global markets as a publicly disclosed company, in accordance with the Securities Act of 1933 and the Exchange Act of 1934, both as amended. The combination of Harmony and Zircon was effectuated through a merger (the “Merger”) of Merger Sub into Zircon. The separate existence of Merger Sub ceased, and Merger Sub was merged with and into Zircon (Zircon, as the surviving corporation following the Merger). Upon completion of the Merger, Harmony changed its name to ZRCN Inc.

2. Liquidity and Going Concern

As of September 30, 2025, the Company had $0.04 million in cash and working capital of $1.23 million. To date, ZRCN has been financed primarily through secured loans and a revolving line of credit. The Company has incurred recurring losses and believes that its existing cash resources are not sufficient to meet its anticipated cash needs over the next 12 months. As of September 30, 2025, the Company was not in compliance with certain covenants under its revolving credit facility with FGI Worldwide, LLC (“FGI”) and entered into a series of forbearance agreements with FGI. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing options to improve liquidity, including negotiating waivers or amendments to existing debt covenants, reducing discretionary spending, and evaluating potential capital raises. While these plans are intended to mitigate the risk, there can be no assurance that they will be successful in eliminating the substantial doubt.

From July 2025 through March 2026, the Company and FGI entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. Management considered the refinancing and repayment of the FGI credit facility subsequent to the balance sheet date as part of its evaluation of the Company’s liquidity and ability to continue as a going concern.

On March 17, 2026, the Company entered into a Loan and Security Agreement with Altriarch Holdings SPV, LLC providing for a $12.5 million senior secured revolving credit facility. Proceeds under the facility were used, in part, to repay and terminate the Company’s prior $15.0 million credit agreement with FGI Worldwide, LLC, with no further obligations remaining.

The facility matures on March 17, 2029 (subject to potential extension) and bears interest at a variable rate based on the secured overnight financing rate (SOFR) plus an applicable margin. The agreement contains customary affirmative and negative covenants, financial covenants (currently waived through August 31, 2026), and events of default. The facility also permits, subject to lender approval, incremental borrowings of up to $5.0 million in the aggregate.

Additional terms of the Credit Facility are described in Note 9, Debt.

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company and its subsidiaries’ financial position and interim results as of and for the periods presented have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Results for interim periods are not necessarily indicative of those that may be expected for a full year.

The Company’s significant accounting policies and recent accounting standards are summarized in Note 3 of the Company’s consolidated financial statements for the year ended March 31, 2025. There were no significant changes to these accounting policies during the six months ended September 30, 2025.

During the preparation of the Company’s consolidated financial statements for the year ended March 31, 2025, the Company’s management identified an immaterial error related to previously issued consolidated financial statements in the prior year.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Management determined that the Shareholder distribution for approximately $0.7 million should have been reported in the year ended March 31, 2024 financial statements. The Company previously reported the Shareholder distribution in the first quarter of the 2025 fiscal year.

In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the correction and has determined that the related impact was not material to the previously issued financial statements that contained the error, based on overall considerations of both quantitative and qualitative factors. The Company has concluded that prior period financial statements as of and for the year ended March 31, 2024, were not materially misstated and can continue to be relied upon. Accordingly, the Company has corrected the previously reported immaterial error in the current period financial statements by adjusting the opening balances of the affected accounts.

In accordance with ASC 250, Accounting Changes and Error Corrections, the Company has recorded the impact of the prior period error through opening retained earnings in the current period financial statements. The affected prior period balances are displayed below and had no change on the Condensed Consolidated Statements of Operations and Comprehensive Loss, or Net Loss per Share.

Management and the Audit Committee have reviewed this adjustment and concluded that the financial statements, as corrected, present fairly, in all material respects, the balance sheet, results of operations and cash flows of the Company in accordance with U.S. GAAP.

As a result of the restatement, the Company prepared the following table to illustrate the effect on the financial statements for the year ended March 31, 2024.

	As Reported		As Revised
	March 31, 2024		March 31, 2024		Difference
Liabilities
Accrued expenses	$	2,130	$	2,789	$	(659	)

Total equity attributable to ZRCN Inc. stockholders
Retained earnings	$	7,421	$	6,762	$	659

As a result of the restatement, the Company prepared the following table to illustrate the effect on the financial statements for the three months ended June 30, 2024.

	As Reported		As Revised
	September 30, 2024		September 30, 2024		Difference
Liabilities
Accrued expenses	$	2,246	$	2,660	$	(414	)

Total equity attributable to ZRCN Inc. stockholders
Retained earnings	$	5,530	$	5,116	$	(414	)

The financial information included herein should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in our Annual Report for the year ended March 31, 2025, on Form 10-K.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of ZRCN as well as its variable interest entities. The Company consolidates all entities over which the Company has the power to govern the financial and operating policies and therefore exercises control, and upon which the Company has a controlling financial interest. The entities are consolidated from the date at which the Company obtains control and are de-consolidated from the date at which control ceases. All intercompany balances and transactions have been eliminated. Accounting policies of the entities have been revised where necessary to ensure consistency with the policies adopted by the Company.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Under Accounting Standards Codification (“ASC”) Topic 810-10-25, Consolidation, Zircon de Mexico S.A. de C.V. (“ZDM”) and Zircon Corporation Limited (“Zircon UK”) have been determined to be variable interest entities with Zircon as the primary beneficiary. Therefore, the financial statements of ZDM and Zircon UK are consolidated with Zircon and the Company, and all significant intercompany transactions and balances have been eliminated.

Non-controlling Interests

The Company follows ASC 810, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated entities and the loss of control of those entities. Non-controlling interest positions, which represent 100% of the activity in the Company’s consolidated entities before intercompany transactions have been eliminated, are reported as a separate component of consolidated stockholders’ equity from the equity attributable to ZRCN’s stockholders for all years presented. 100% of Zircon de Mexico (“ZDM”} and 85% of Zircon UK are held by common shareholders. As of September 30, 2025, these same shareholders held collectively approximately 73% of ZRCN Inc. The net (loss) income attributed to the NCI’s is separately designated in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

Variable Interest Entities

In accordance with ASC 810, the Company consolidates entities determined to be variable interest entities (“VIE’s”) for which it is the primary beneficiary. The Company has determined that ZDM and Zircon UK are VIE’s with the Company’s wholly owned subsidiary, Zircon, as the primary beneficiary. This determination reflects the entities’ design and purpose, contractual and common control arrangements granting the Company power and benefits, and the need for additional subordinated financial support by the Company.

Use of Estimates

The preparation of these unaudited, condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures. Significant estimates include provisions for credit losses, inventory valuation, intangible asset fair values, accrued rebates, useful lives of property and equipment, uncertain tax positions, and share-based compensation. Actual results may differ from these estimates.

Accounts Receivable, Net

Accounts receivable consisted of the following:

Schedule of Accounts Receivable

(In thousands)	September 30, 2025			March 31, 2025
Accounts receivable	$	11,113		$	6,155
Less provision for credit losses		(63	)		(53	)
Accounts receivable, net	$	11,050		$	6,102

Activity related to the Company’s provision for credit losses was as follows:

(In thousands)	September 30, 2025		March 31, 2025
Balance, beginning of period	$	53	$	14
Credit loss (recovery) provision		10		195
Write-offs		—		(156	)
Balance, end of period	$	63	$	53

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 when control of goods transfers to the customer, which is generally upon shipment. Transaction prices are allocated to performance obligations and adjusted for variable consideration such as rebates, returns, discounts, and allowances, which are estimated using historical experience and current conditions. Cooperative advertising is recorded as a reduction of revenue unless a distinct service is provided at fair value. Sales taxes are excluded from revenue and recorded as liabilities. Advertising expenses were less than $0.1 million for the three and six months ended September 30, 2025 and 2024.

There have been no changes in our revenue recognition policy since filing the Company’s audited, consolidated financial statements and related notes included in our Annual Report for the year ended March 31, 2025 on Form 10-K.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Segment Reporting

The Company determines its reporting units in accordance with FASB ASC 280, Segment Reporting (“ASC 280”). The Company evaluates a reporting segment by first identifying its operating segments under ASC 280. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) to allocate resources and assess performance. The Company defines its CODM to be its president and chief operating officer. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has one operating segment and therefore one reporting segment.

The CODM reviews the financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating the Company’s financial performance. The CODM utilizes financial metrics, such as consolidated revenue, gross profit, and income (loss) from operations, as the financial measures for making decisions. This enables the CODM to assess the overall level of available resources and determine how best to deploy these resources across research and development projects in line with the long-term company-wide strategic goals. Management reviews its business as a consolidated segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate. The measure of segment assets is reported in the accompanying unaudited condensed consolidated balance sheets as “Total assets.” There are no significant segment expenses as the expenses that are included in the unaudited condensed consolidated loss from operations are general and administrative and research and development. There is no change in the Company’s operating or reporting segments for the six months ended September 30, 2025.

Concentration of Business and Credit Risk

As of September 30, 2025, the Company maintained deposits in a single bank that exceeded the federal insured deposit limit of the Federal Deposit Insurance Corporation (FDIC).

During the three months ended September 30, 2025 and 2024, respectively, the Company generated approximately 74% and 78% of its total revenues from three customers. During the six months ended September 30, 2025 and 2024, respectively, the Company generated approximately 74% and 73% of its total revenue from three customers.

As of September 30, 2025 and March 31, 2025, respectively, 83% and 64% of its total accounts receivable were from three customers.

Income Taxes

Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. Management believes estimates related to income tax uncertainties are appropriate based on current facts and circumstances. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof, as well as, other factors. Any interest and penalties related to income tax matters are classified as a component of income tax expense.

On July 4, 2025 , during the six months ended September 30, 2025, the President signed into law the One Big Beautiful Bill Act (“the OBBBA”), which among other provisions made various changes to the US federal income tax treatment of research and experimentation expenses. On August 28, 2025, the Internal Revenue Service released Revenue Procedure 2025-28, detailing the methods by which a Company is allowed to adopt the research and experimentation-related provisions of the OBBBA.

Under the OBBBA and Rev. Proc. 2025-28, the Company is allowed to amend prior year US federal income tax returns to deduct the research and experimentation expenses in the year incurred. This is expected to result in a net refund to the Company of approximately $215,000 of federal taxes. This results in a current tax benefit. The Company’s deferred tax assets and related valuation allowance will also be reduced by approximately $397,000 to reflect the deduction of research and experimentation expenses in the year incurred; however, as the Company’s deferred tax assets are fully offset by a valuation allowance, this reduction of deferred tax assets will not result in any net tax expense. As the OBBBA and related guidance allowing this change were passed during the six months ended September 30, 2025, the tax benefit is recorded in this period.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Net Loss Per Share

Basic net loss per share of common stock is computed by dividing net income or loss attributable to ZRCN by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share excludes, when applicable, the potential impact of stock options, warrant shares, and other dilutive instruments because their effect would be anti-dilutive. Diluted net income per share, when applicable, includes the stock options and warrant shares because their effect would be dilutive. Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive. The potentially dilutive securities outstanding are as follows:

	For the Six Months Ended September 30,
	2025		2024
Stock options		3,216,500		298,000
Warrants		217,184		217,184

	For the Three Months Ended September 30,
	2025		2024
Stock options		3,216,500		198,000
Warrants		217,184		217,184

As of September 30, 2025 these securities are not dilutive.

Recently Issued Accounting Pronouncements

As an emerging growth company, the Company will have the option of adopting new accounting pronouncements on a delayed basis and has opted to take advantage of this option. As a result, the Company has been adopting new accounting standards based on the timeline for adoption afforded to privately held companies, unless it chooses to early adopt a new accounting standard.

Accounting Standards Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The new standard requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted. The Company did not early adopt the new standard. The new standard will be applied prospectively. The Company adopted ASU 2023-09 on April 1, 2024.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Recently Issued Accounting Standards Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), the intent of which is to improve financial reporting and respond to investor input by requiring public business entities to disclose additional information about certain expenses in the notes to financial statements in interim and annual reporting periods. Among other provisions, the new standard requires disclosure of disaggregated amounts for expenses such as employee compensation, depreciation, and intangible asset amortization included in each expense caption presented on the face of the income statement. Public business entities are required to include certain amounts that are already required to be disclosed under GAAP in the same disclosure as the other disaggregation requirements as well as a qualitative description of any amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The new standard also requires disclosure of the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. An entity is not precluded from providing additional voluntary disclosures that may provide investors with additional decision-useful information. In January 2025, the FASB issued ASU Update 2025-01, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40).” The Board issued this Update to clarify the effective date of Accounting Standards Update 2024-03 to be effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” The amendments in the new standard should be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. Management does not expect this guidance to have a material impact to its unaudited condensed consolidated financial statements or related disclosures.

In July 2025 , the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”). This standard introduces a practical expedient that companies can choose to apply when determining allowances for credit losses. Specifically, it permits companies to assume that the current conditions as of the balance sheet date remain unchanged throughout the remaining life of the assets. This standard is effective for the Company for annual reporting periods beginning after December 15, 2025, and requires prospective application. The Company is currently evaluating the impact of ASU 2025-05, however, does not expect it to have a material impact on its unaudited condensed consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06 - Intangibles - Goodwill and Other - Internal-Use Software (“ASU 2025-06”). This standard removes all references to project stages throughout ASC 350-40 and clarifies the threshold entities apply to begin capitalizing costs. This standard is effective for the Company for annual reporting periods beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted for all entities. The Company is currently evaluating the impact of ASU 2025-06, however, does not expect it to have a material impact on its unaudited condensed consolidated financial statements.

In September 2025 , the FASB issued ASU 2025-07 - Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606) (“ASU 2025-07”). This standard issues final guidance to exclude from the scope of derivative accounting certain contracts with underlyings that are based on the operations or activities of one of the parties to the contract. The guidance clarifies that an entity receiving share-based noncash consideration from a customer that is consideration for the transfer of goods or services in a revenue contract is required to apply the guidance on noncash consideration in ASC 606. An entity would not apply the guidance in other topics (e.g., ASC 815, ASC 321) to share-based noncash consideration from a customer for the transfer of goods or services unless and until the entity’s right to receive or retain the share-based noncash consideration is unconditional under ASC 606. This standard is effective for the Company for annual reporting periods beginning after December 15, 2026, and interim periods within those annual periods. Entities may apply the guidance either on a modified retrospective or prospective basis. Early adoption is permitted. The Company is currently evaluating the disclosure impact that ASU 2025-07 may have on its unaudited condensed consolidated financial statement presentation and disclosures.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

In November 2025 , the FASB issued ASU 2025-08 - Financial Instruments - Credit Losses (“ASU 2025-08”). This standard issues final guidance requiring entities to apply the gross-up approach in ASC 326 to all “purchased seasoned loans.” Purchased seasoned loans are loans (excluding purchased financial assets with credit deterioration, credit card receivables, debt securities and trade receivables) that are (1) acquired in a business combination or (2) obtained through a transfer that is not a business combination or initially recognized through the consolidation of a variable interest entity, if certain seasoning criteria are met. A loan is considered seasoned if it is obtained more than 90 days after its origination date and the transferee was not involved in the origination. This standard is effective for the Company for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Entities are required to apply the guidance prospectively. Early adoption is permitted. The Company is currently evaluating the disclosure impact of ASU 2025-08, however, does not expect it to have a material impact on its unaudited condensed consolidated financial statements.

In November 2025 , the FASB issued ASU 2025-09 - Derivatives and Hedging (“ASU 2025-09”). This standard amends certain aspects of its hedge accounting guidance to better reflect an entity’s risk management activities in the financial statements. The guidance expands the hedged risks permitted to be aggregated in a group of individual forecasted transactions and increases the variable price components eligible to be designated as the hedged risk in the forecasted purchase or sale of nonfinancial assets. It also eliminates the requirement to apply the net written option test when certain compound derivatives are used in interest rate hedges. In addition, the guidance simplifies the application of hedge accounting for entities hedging forecasted interest payments on choose-your-rate debt instruments and addresses application issues related to “dual hedges,” where a foreign-currency denominated debt instrument is designated as a hedging instrument and a hedged item. This standard is effective for the Company for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the disclosure impact that ASU 2025-09 may have on its unaudited condensed consolidated financial statement presentation and disclosures.

In December 2025 , the FASB issued ASU 2025-10 - Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (“ASU 2025-10”). This standard issues final guidance on the recognition, measurement and presentation of a government grant received by a business entity to reduce diversity in practice. The Board leveraged the guidance in IAS 20 on accounting for government grants, with certain targeted improvements, to develop the ASU. This standard is effective for the Company for fiscal years beginning after December 15, 2028 and interim periods within those fiscal years. Entities may apply the guidance using a modified prospective, modified retrospective or retrospective approach. Early adoption is permitted. The Company is currently evaluating the disclosure impact that ASU 2025-10 may have on its unaudited condensed consolidated financial statement presentation and disclosures.

In December 2025, the FASB issued ASU 2025-11 - Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”). This standard issues final guidance clarifying the current interim disclosure requirements and the applicability of ASC 270. The guidance creates a comprehensive list of interim disclosures required under US GAAP and incorporates a disclosure principle that requires disclosures at interim periods when an event or change that has a material effect on an entity has occurred since the previous year end. This standard is effective for the Company for interim reporting periods within annual reporting periods beginning after December 15, 2027. The ASU may be applied prospectively or retrospectively by all entities that provide interim financial statements and notes in accordance with US GAAP. The Company is currently evaluating the disclosure impact that ASU 2025-11 may have on its unaudited condensed consolidated financial statement presentation and disclosures.

In December 2025, the FASB issued ASU 2025-12 - Codification Improvements (“ASU 2025-12”). This standard issues final guidance to clarify, correct errors in or make other improvements to a variety of topics in the Codification that are intended to make it easier to understand and apply. The amendments apply to all reporting entities in the scope of the affected accounting guidance. The amendments, among other things, clarify the guidance in ASC 260 on how to calculate diluted earnings per share when an entity has a loss from continuing operations and a contract that may be settled in stock or cash that is reported as an asset or liability for accounting purposes. This standard is effective for the Company for annual reporting periods beginning after December 15, 2026, and interim periods within those annual periods. Entities are required to apply the amendments to ASC 260 retrospectively. All other amendments may be applied prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the disclosure impact that ASU 2025-12 may have on its unaudited condensed consolidated financial statement presentation and disclosures, however, does not expect it to have a material impact on its unaudited condensed consolidated financial statements.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

4. Revenue

Disaggregation of Revenue from Contracts with Customers

Revenue disaggregated according to the major product line for the three and six months ended September 30, 2025 and 2024, respectively, were as follows:


	For the Three Months Ended September 30,				For the Six Months Ended September 30,
	2025		2024		2025		2024
(In thousands)	(Unaudited)				(Unaudited)
Revenue generated per major product line
Stud sensor edge	$	6,647	$	6,479	$	10,578	$	9,476
Multifunctional scanners		1,086		921		1,834		1,696
Stud sensor center		1,212		1,211		2,069		2,365
Target control products		213		486		361		946
Other		270		265		648		690
Total Revenue	$	9,428	$	9,362	$	15,490	$	15,173

Revenue disaggregated according to the geographical location of customers for the three and six months ended September 30, 2025 and 2024, respectively, were as follows:


	For the Three Months Ended September 30,				For the Six Months Ended September 30,
	2025		2024		2025		2024
(In thousands)	(Unaudited)				(Unaudited)
Revenue by geographic location of customers
United States	$	8,367	$	8,417	$	13,473	$	13,519
Canada		587		549		1,039		824
Japan		348		190		595		456
Europe		84		104		188		223
Others		42		100		193		151
Total Revenue	$	9,428	$	9,362	$	15,490	$	15,173

5. Inventory, Net

Inventory consisted of the following:

Schedule of Inventory

	September 30, 2025		March 31, 2025
(In thousands)	(Unaudited)
Finished goods, net	$	5,833	$	6,948
Raw materials, net		3,318		4,233
Work in process, net		1,408		1,275
Inventory net	$	10,559	$	12,456

Allowance for slow moving and obsolete inventory was estimated at $1.4 million and $1.1 million as of September 30, 2025 and March 31, 2025, respectively.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

6. Property and Equipment

Property and equipment consisted of the following:

Schedule of Property and Equipment

	September 30, 2025			March 31, 2025
(In thousands)	(Unaudited)
Manufacturing equipment	$	9,868		$	9,806
Computer equipment		2,901			2,824
Leasehold improvements		1,206			1,155
Furniture and office equipment		931			908
Vehicles		273			272
Property and equipment, gross		15,179			14,965
Construction in progress		482			363
		15,661			15,328
Less accumulated depreciation and amortization		(14,048	)		(13,734	)
Property and equipment, net	$	1,613		$	1,594

For the three and six months ended September 30, 2025, depreciation and amortization expense was approximately $0.1 million and $0.3 million, respectively. For the three and six months ended September 30, 2024, depreciation and amortization expense was $0.2 million and $0.5 million, respectively.

Construction in progress consists of assets and technologies under development. The Company starts depreciation once the assets are completed and placed in service.

7. Intangible Assets

The Company’s intangible assets consisted of the following:

Schedule of Intangible Assets

	September 30, 2025							March 31, 2025
(In thousands)	(Unaudited)
Finite-lived intangible assets (1):	Intangibles, Gross		Accumulated Amortization			Intangibles, Net		Intangibles, Gross		Accumulated Amortization			Intangibles, Net
Patents issued and pending	$	2,336	$	(1,750	)	$	586	$	2,335	$	(1,708	)	$	627
Exclusivity rights and licenses		168		(113	)		55		168		(111	)		57
Total finite-lived intangible assets	$	2,504	$	(1,863	)	$	641	$	2,503	$	(1,819	)	$	684

Finite-lived intangible assets (1):	September 30, 2025 Weighted Average Life
Patents issued and pending		12.5
Exclusivity rights and licenses		4.5

(1)	Finite-lived intangible assets have estimated useful lives of five to twenty years, and are being amortized to operating expenses on a straight-line basis.

For the three and six months ended September 30, 2025 and 2024, amortization expense was less than $0.1 million.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Expected future amortization expense of acquired finite-lived intangible assets as of September 30, 2025 is as follows:

Schedule of Future Amortization Expense

For the Years Ending March 31, (In thousands)	Amount
Remainder of 2026	$	96
2027		130
2028		125
2029		100
2030		95
Thereafter		95
Total	$	641

8. Accrued Expenses

Accrued expenses consisted of the following:

Schedule of Accrued Liabilities

	September 30, 2025			March 31, 2025
(In thousands)	(Unaudited)
Rebates	$	1,273		$	278
Accrued taxes		(75	)		129
Sales expense		438			267
Payroll and related		355			303
Advertising allowance		76			87
Vacation		362			359
Professional services		392			297
Interest		9			—
Accrued liabilities	$	2,830		$	1,720

9. Debt

Line of Credit

On May 31, 2024, the Company entered into a Revolving Credit, Security, and Guaranty Agreement (the “Credit Agreement”) with FGI Worldwide LLC, as Agent for the lender (“FGI”). The Credit Agreement provides for a $15.0 million senior secured revolving credit facility (the “Credit Facility”) available to be used by the Company, Zircon and its Affiliates for replacement and discharge of the Company’s prior line of credit balance of $8.8 million, and matures on May 31, 2027. The Company, Zircon and the Affiliates are guarantors of all the obligations under the Credit Agreement and the Company’s four principal shareholders are limited guarantors thereof.

As of September 30, 2025, the Company was not in compliance with certain covenants under its revolving credit facility with FGI Worldwide, LLC (“FGI”) and entered into a series of forbearance agreements with FGI.

From July 2025 through March 2026, the Company and FGI entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. On March 17, 2026, the Company repaid in full and extinguished its revolving credit facility with FGI Worldwide, LLC using proceeds from a new senior secured revolving credit facility. Upon repayment, the FGI Credit Agreement was terminated and the Company was released from all remaining obligations.

On March 17, 2026 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Altriarch Holdings SPV, LLC, as lender (“Lender”). The Loan Agreement provides for a $12.5 million senior secured revolving credit facility (the “Credit Facility”) available to be used by the Company and Zircon for, among other things, replacement and discharge of the Company’s current loan of $15.0 million with FGI Worldwide, LLC and the ability to increase its borrowings from the Lender for working capital purposes. As a result of this repayment, the Company has no continuing obligations to FGI under the former Credit Agreement.

The Loan Agreement matures on March 17, 2029 (the “Maturity Date”), subject to the right of the Debtor to request to extend the Maturity Date for up to an additional one (1) year period. Prior to the Maturity Date or an Event of Default, the interest rate shall be the lesser of (a) the Maximum Rate (as defined in the Loan Agreement), and (b) the 3-month term SOFR (as defined in the Loan Agreement) plus the 8.75%. Accrued and unpaid interest on the outstanding principal balance of Credit Facility shall be due and payable monthly commencing on April 14, 2026 and continuing on the tenth (10^th) Business Day of each month thereafter and on the Maturity Date.

So long as no Event of Default (as defined in the Loan Agreement) has occurred and is continuing, upon notice to Lender, Debtor may, request increases in the Credit Facility (each, a “Commitment Increase”) by an amount not exceeding Five Million Dollars ($5,000,000.00) in the aggregate; provided that (i) Debtor may make a maximum of two (2) such requests and (ii) Lender may grant or deny all or any portion of such Commitment Increase in its sole discretion.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

The Loan Agreement requires the Company to comply with maximum tangible net worth and minimum fixed charge coverage ratios. However, the lender has waived compliance with the financial covenants through August 31, 2026. In addition, the Credit Agreement contains other standard affirmative and negative covenants such as those which (subject to certain thresholds) limit the ability of the Company and its subsidiary and affiliates to, among other things, incur debt, incur liens, engage in any Change of Control (as defined in the Loan Agreement), enter into new lines of business not related to the Company’s current lines of business, make certain investments, issue equity securities, engage in transactions with affiliates, or prepay any debt without the approval of the Lender. Events of default under the Loan Agreement include, among other things, payment defaults, breaches of representations, warranties or covenants, defaults under material indebtedness, certain events of bankruptcy or insolvency, judgment defaults, certain defaults or events relating to employee benefit plans or a change in control of the Company. The events of default would permit the lender to terminate commitments and accelerate the maturity of borrowings under the Loan Agreement if not cured within applicable grace periods.

If the Loan Agreement is terminated by Debtor anytime prior to the first (1^st), second (2^nd) or third (3^rd) anniversary of the Effective Date (including without limitation as a result of acceleration of the outstanding balance of the Loan Agreement as a result of the occurrence of an Event of Default), Debtor will pay to Lender, as a prepayment premium (the “Prepayment Premium”) and not as a penalty, an amount equal to one and one-half percent (1.50%), one percent (1%) and one-half percent (0.5%) of the Maximum Amount, respectively, provided that the Prepayment Premium will be waived if the Loan Agreement is terminated on or after the second (2^nd) anniversary of the Effective Date and the Loan Agreement is contemporaneously refinanced by a Federal Deposit Insurance Corporation insured financial institution.

The Company recognized deferred financing costs of approximately $0.3 million for bank fees which will be amortized over three years and recorded as interest expense. For the three and six months ended September 30, 2025 and 2024, the Company recognized less than $0.1 million, respectively, as interest expense for the amortization of deferred financing costs. For the three and six months ended September 30, 2025 and 2024, interest expense on the line of credit totaled $0.2 million and $0.4 million, respectively.

Notes payable to Stauss Family Administrative Trust

The Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of September 30, 2025, the outstanding principal balance was approximately $0.7 million. Under the original terms of the agreement, the notes were due and payable in December 2025 with interest accruing at 5.5% per annum, which was to be paid quarterly and is included in accrued expenses. On March 27, 2025, the Board of Directors of Zircon Corporation and the Stauss Family Administrative Trust agreed to extend the maturity dates of both promissory notes to December 31, 2027. There was no change to the principal amount or the annual interest rate. The notes are subordinated to the Credit Agreement, and no payment is to be made on the note without prior approval from FGI.

For the three and six months ended September 30, 2025 and 2024 the interest expense on the notes payable to the Stauss Family Administrative Trust totaled less than $0.1 million in each respective period.

10. Profit Sharing and 401(k) Plan

The Company has a defined contribution profit sharing plan for all eligible employees. Contributions to the profit-sharing plan are determined annually by the Board of Directors. There were no profit-sharing contributions made during the three and six months ended September 30, 2025 and 2024.

All eligible employees are also allowed to participate in the Company’s 401(k) plan. The Company’s contributions to the plan are based on a specified percentage of each participant’s eligible contribution, decided annually by the Board of Directors, as defined in the plan document. For the three and six months ended September 30, 2025 and 2024, the Company made contributions to the 401(k) plan of less than $0.1 million.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

11. Equity

On February 28, 2024 the Company adopted a 2024 Equity Incentive Plan (the “Equity Plan”). The Plan provides for granting of stock options (“Options”), restricted stock units (“RSUs”), and other equity-based awards tied to the value of shares of common stock to key personnel, including directors, officers, employees, consultants, and advisors of the Company and its subsidiaries. The Plan provides for the grant of options (which may include “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”)), stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other stock-based awards. As of September 30, 2025, 40,000,000 shares are authorized for issuance and 36,783,500 shares remain available for issuance under the Equity Plan. The number of shares of Common Stock available for grant and issuance under this Plan will be automatically increased on the first day of each calendar year beginning with the first January 1 following the effective date and ending with the last January 1 during the initial ten-year term of the Equity Plan, equal to the lesser of (A) five percent (5%) of the shares of Common Stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (B) such lesser number of shares of Common Stock as determined by the Board. The Board has determined that there will be no adjustment.

The following table summarizes the Company’s employee and non-employee Option activity under the Equity Plan for the following periods:

	Number of shares		Weighted average exercise price		Weighted average remaining term (years)		Aggregate intrinsic value (in thousands)
Outstanding as of March 31, 2025		3,216,500	$	0.79		3.44	$	—
Options granted		—		—		—		—
Options forfeited		—		—		—		—
Outstanding as of September 30, 2025		3,216,500	$	0.79		2.94	$	—
Exercisable as of September 30, 2025		1,032,300		$0.76		3.15	$	—

No stock options were granted nor exercised during the six months ended September 30, 2025. 1,032,300 shares were vested during the six months ended September 30, 2025.

For the three and six months ended September 30, 2025, the Company recognized less than $0.1 million in stock based compensation, respectively. For the three and six months ended September 30, 2024, the Company recognized less than $0.1 million in stock based compensation, respectively, primarily included in general and administrative expenses in the accompanying statements of operations and comprehensive loss. As of September 30, 2025, there was $0.7 million of unrecognized share-based compensation expense related to unvested stock options over a weighted average term of 2.9 years. As of September 30, 2024, there was $0.1 million of unrecognized share-based compensation expense related to unvested stock options over a weighted average term of 3.8 years.

During the six months ended September 30, 2025, the Company issued an aggregate of 53,498 common shares to consultants, with an aggregate value of less than $0.1 million. During the six months ended September 30, 2024, the Company issued an aggregate of 33,329 common shares to consultants, with an aggregate value of less than $0.1 million. As these common shares were fully vested upon the date of grant, the grant date fair value was expensed in the respective period of the grant date. The Company used the Black-Scholes model to value the option grants.

The assumptions used to calculate the fair value of the options are summarized as follows:

Schedule of Fair Value Assumptions

	September 30, 2025
Volatility		36% - 75	%
Risk-free rate		3.5% - 4.6	%
Expected life (in years)		3 - 5
Stock price	$	0.75 - 0.88
Exercise price	$	0.75 - 0.88

12. Warrants

As of March 31, 2025 and September 30, 2025, the Company had 217,184 warrants outstanding with a weighted-average exercise price of $0.20 and remaining term of 8.2 years and 7.7 years, respectively. There were no changes in warrants outstanding during the period.

The Advisor Warrants are exercisable any time ten years from the date of issuance and have been recorded as stockholders’ equity in the Company’s balance sheet

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

13. Commitments and Contingencies

Legal Proceedings

Zircon engages in procedures to protect its proprietary rights and has filed complaints with the Federal Trade Commission and the Customs and Border Patrol. As of September 30, 2025, no material contingencies exist.

Leases

The Company’s corporate headquarters in Campbell, California are leased from the Stauss Family Administrative Trust for approximately $19,000 per month under a lease expiring in December 2027. The lease requires the Company to pay utilities, maintenance and real estate taxes. Rent expense was approximately $115,000 for both of the six months ended September 30, 2025 and 2024, respectively.

The Company leases office equipment through a lease that expires in June 2026 and requires monthly lease payments of less than $0.1 million for a period of five years. The total lease expense for the six months ended September 30, 2025 and 2024 amounted to less than $0.1 million in each respective period.

The Company had leased a vehicle that expired on July 2024 and required monthly lease payments of less than $0.1 million for a period of three years. In July 2024 the Company leased a new vehicle under the same terms, that expires in June 2027 with required monthly lease payments of less than $0.1 million for a period of three years. The total lease expense for the six months ended September 30, 2025 and 2024 amounted to less than $0.1 million in each respective period.

The components of lease expense, which include short-term and variable lease expense and are included in selling, general and administrative expense, are as follows:

Schedule of Components of Lease Expense


	For the six months ended September 30,
	2025		2024
(In thousands)	(Unaudited)
Operating lease expense	$	115	$	115
Total lease cost	$	115	$	115

The following table provides the weighted average lease term and weighted average discount rate for the six months ended September 30, 2025 and 2024, respectively:

	For the six months ended September 30,
	2025			2024
	(Unaudited)
Weighted average remaining lease term (in years)		2.61			3.65
Weighted average discount rate		7.00	%		7.00	%

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Future minimum lease payment under non-cancellable lease as of September 30, 2025 are as follows:

Maturities of lease liabilities (In thousands)	Operating Leases
Year ending March 31,
Remainder of fiscal 2026	$	124
2027		239
2028		174
2029		—
2030 and thereafter		—
Total Minimum Lease Payments		537
Less effects of discounting		(57	)
Present value of future minimum lease liabilities		480
Less current portion of operating lease liability		(217	)
Operating lease liability, net of current portion	$	263

14. Related Party Transactions

Zircon is a member of a controlled group of companies and has revenue and cost-sharing activities with other members of the controlled group. Results of operations and financial condition may not represent amounts that would have been reported if Zircon operated as an unaffiliated entity.

Zircon has an exclusive manufacturing and technical assistance agreement with Zircon de Mexico S.A. de C.V. (the “Contractor”), an entity which is owned by certain shareholders of the Company. Under the terms of the agreement, Zircon provides materials, technical assistance, and expertise to the Contractor, and the Contractor assembles certain of Zircon’s products.

In September 2017, an affiliated company, Zircon Corporation Limited, was established in the United Kingdom to facilitate the sale of Zircon’s products to European customers and operations began during the year ended March 31, 2019. The ownership structure of the affiliate is similar to the premerger ownership of Zircon.

The Company leases from the Stauss Family Administrative Trust a 14,000 square foot facility owned by the Trust.

The Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of September 30, 2025, principal balance of $0.7 million is due and payable in December 2027. Interest accrued at 5.5% per annum is paid quarterly and included in accrued expenses. The notes are subordinated to FGI and no payment is to be made on the notes without prior approval from FGI. For the six months ended September 30, 2025 and 2024, the interest expense on notes payable to the Stauss Family Administrative Trust totaled less than $0.1 million, respectively.

15. Subsequent Events

From October 2025 through March 2026, the Company and FGI Worldwide, LLC (“FGI”) entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. On March 17, 2026, the Company repaid in full and extinguished its revolving credit facility with FGI Worldwide, LLC using proceeds from a new senior secured revolving credit facility. Upon repayment, the FGI Credit Agreement was terminated and the Company was released from all remaining obligations.

As a result of the extinguishment, the Company recognized a loss on extinguishment of debt of approximately $0.4M, which primarily consisted of the write-off of an early termination fee of $225,000 and unamortized deferred financing costs of $136,000.

On March 17, 2026, the Company entered into a $12.5 million senior secured revolving credit facility with Altriarch Holdings SPV, LLC and repaid in full its prior $15.0 million credit agreement with FGI Worldwide, LLC. The new facility matures in 2029 and is subject to customary terms and conditions. See Note 9, Debt, for additional information.

In accordance with an agreement with S.C.E. Partners (“SCE”) dated May 15, 2023 and amended on July 15, 2024, the Company issued an additional 49,998 common shares to SCE on July 15, 2025 and recorded stock-based compensation expense of less than $0.1 million in general and administrative expense.

The Company has evaluated all subsequent events through the date these financial statements were issued. Except for the events described above, no other material subsequent events requiring disclosure or adjustment were identified.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management discussion and analysis of the financial position and results of operations (“MD&A”) should be read in conjunction with the unaudited consolidated financial statements and related notes to the financial statements included elsewhere in this Report. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include, among others, those listed under “Forward-Looking Statements” and “Risk Factors” and those included elsewhere in this report.

OVERVIEW

Zircon is a Silicon Valley-based company operating in Northern California since 1977. Leveraging its proprietary sensor-based technology across a mix of global markets, including commercial and residential buildings, government infrastructure and building information modeling. Zircon is focused on creating new, technical solutions for global applications in the areas of home and workplace safety, project efficiency, and structural data analysis.

Zircon benefits from a multi-generational customer base of professional contractors and do-it-yourselfers who rely on Zircon’s innovative and easy-to-use products to get the job done.

RESULTS OF OPERATIONS

During the six months ended September 30, 2025, and as of March 31, 2025, Zircon’s selected financial information is the following (in thousands):

Financial Position Analysis

The information presented below as of September 30, 2025 as compared to March 31, 2025 for ZRCN Inc (in thousands):

	September 30, 2025
In thousands	(Unaudited)		March 31, 2025
Assets	$	25,045	$	23,378
Liabilities	$	21,810	$	17,848
Equity	$	3,235	$	5,530

Assets

Total assets on September 30, 2025 were $25.0 million compared to $23.4 million on March 31, 2025, which was a increase of approximately $1.6 million. This increase was driven primarily by a decrease in cash of $1.4 million, an increase in accounts receivable of $4.9 million, a decrease in inventory of $1.9 million, an increase in prepaids and other assets of $0.2 million, and a decrease in all other assets of $0.2 million.

Liabilities

Total liabilities on September 30, 2025 were $21.8 million compared to $17.8 million on March 31, 2025, which was an increase of approximately $4.0 million. This increase was driven primarily by an increase in our line of credit of $0.5 million, an increase in accounts payable of $2.5 million, an increase in accrued expenses of $1.1 million, and a decrease in the operating lease liability of $0.1 million.

Equity

Total equity on September 30, 2025 was $3.2 million compared to $5.5 million on March 31, 2025, which was a decrease of approximately $2.3 million and was driven by a comprehensive loss of $2.4 million offset by an increase in additional paid-in capital from stock-based compensation of $0.1 million.

Operating Results Analysis

	For the Three Months Ended September 30,						For the Six Months Ended September 30,
(In thousands)	2025			2024			2025			2024
Net Sales	$	9,428		$	9,362		$	15,490		$	15,173
Cost of goods sold		6,617			5,356			11,301			8,816
Gross Profit		2,811			4,006			4,189			6,357
Gross Margin		30	%		43	%		27	%		42	%

Operating Expenses
General & administrative		1,737			2,025			3,184			3,486
Marketing & selling		1,156			1,105			2,316			2,008
Research and development		428			432			839			857
Total Operating Expenses		3,321			3,562			6,339			6,351
Operating Income (Loss)		(510	)		444			(2,150	)		6

Other Expenses
Interest expense		201			203			405			426
Other loss		7			9			15			16
(Income) loss on foreign currency translation		42			(62	)		106			(165	)
Total other expenses		250			150			526			277

Income (Loss) before income taxes		(760	)		294			(2,676	)		(271	)
Benefit from (Provision for) income taxes		198			175			180			154
Net income (loss)	$	(562	)	$	469		$	(2,496	)	$	(117	)

Less: Net loss attributable to non-controlling interests		67			(176	)		185			(98	)
Net income (loss) attributable to ZRCN Inc. common stockholders	$	(629	)	$	645		$	(2,681	)	$	(19	)
Foreign currency translation adjustment		(72	)		(125	)		58			(8	)
Comprehensive income (loss)	$	(634	)	$	344		$	(2,438	)	$	(125	)

Sales revenue and gross margin

Revenue for the three months ended September 30, 2025 was $9.4 million compared to $9.4 million for the three months ended September 30, 2024 which was an increase of $66,000 or 1%. This was driven primarily by increased sales to one of our major customers. Gross profit for the three months ended September 30, 2025 was $2.8 million, or 30% compared to $4.0 million, or 43%, during the three months ended September 30, 2024, which was a decrease of $1.2 million, or 30%. The decrease in gross profit was primarily driven by an increase in duty expense resulting from increased tariffs on our products manufactured in China.

Revenue for the six months ended September 30, 2025 was $15.5 million compared to $15.2 million for the six months ended September 30, 2024 which was an increase of $0.3 million, or 2%. This increase was driven primarily by increased sales in the United States to our major customers. Gross profit for the six months ended September 30, 2025 was $4.2 million, or 27% compared to $6.4 million, or 42%, during the six months ended September 30, 2024, which was a decrease of $2.2 million, or 34%. The decrease in gross profit was primarily driven by an increase in duty expense resulting from increased tariffs on our products manufactured in China.

During the three and six months ended September 30, 2025, the U.S. government implemented and/or expanded tariffs pursuant to authorities under the International Emergency Economic Powers Act (‘IEEPA”), targeting imports from certain countries that are significant sources of raw materials, components, and finished goods used in the Company’s operations.

As a result, we experienced increased input costs associated with imported materials and products subject to these tariffs. The increased tariff expense recognized during the three months ended September 30, 2025 was approximately $1.0 million compared to $0.2 million during the three months ended September 30, 2024 which was an increase of $0.8 million. These costs were recognized primarily within cost of goods sold and contributed to a gross margin decrease of 1,300 basis points.

The increased tariff expense recognized during the six months ended September 30, 2025 was approximately $2.4 million compared to $0.5 million during the six months ended September 30, 2024 which was an increase of $1.9 million. These costs were recognized primarily within cost of goods sold and contributed to a gross margin decrease of 1,200 basis points.

The Company has taken the following actions to mitigate the impact of these tariffs going forward including:

	1.	Adjusting sourcing strategies, including shifting to alternative vendor locations and jurisdictions where feasible (primarily from subcon locations in China to Malaysia and our facility in Ensenada, Mexico,

	2.	Implementing selective price increases to our major customers; however, these increases are temporary,

	3.	Improving operational efficiencies.

However, these mitigation efforts have not fully offset the increased costs from the tariffs and the timing and effectiveness of such actions may vary. In addition, tariffs have contributed to supply chain disruptions, including longer lead times and increased logistics costs, which have affected inventory levels and fulfillment timing during the period.

Research and development

Research and development expenses for the three months ended September 30, 2025 were approximately $0.4 million compared to approximately $0.4 million for the three months ended September 30, 2024. This decrease of $4,000, or 1%, and was driven primarily by reduced consulting expenses.

Research and development expenses for the six months ended September 30, 2025 were $0.8 million compared to $0.9 million for the six months ended September 30, 2024. This decrease of $18,000, or 2%, was driven primarily by reduced consulting expenses.

General and Administrative expenses

General and administrative expenses for the three months ended September 30, 2025 were $1.7 million compared to $2.0 million for the three months ended September 30, 2024 which was a decrease of $0.3 million, or 14%. This decrease was driven primarily by a decrease in consulting and outside service expenses.

General and administrative expenses for the six months ended September 30, 2025 were $3.2 million compared to $3.5 million for the six months ended September 30, 2024 which was a decrease of $0.3 million, or 9%. This decrease was driven primarily by a decrease in consulting and outside service expenses.

Marketing and Selling expenses.

Marketing and selling expenses for the three months ended September 30, 2025 were $1.2 million compared to $1.1 million for the three months ended September 30, 2024 which was an increase of $0.1 million, or 5%. This increase was driven primarily by an increase in product marketing, consulting and advertising expenses.

Marketing and selling expenses for the six months ended September 30, 2025 were $2.3 million compared to $2.0 million for the six months ended September 30, 2024 which was an increase of $0.3 million, or 15%. This increase was driven primarily by additional consulting, advertising, sales commissions, and payroll expenses .

Other expenses

Other expenses for the three months ended September 30, 2025 were approximately $0.3 million compared to $0.2 million for the three months ended September 30, 2024 which was an increase of approximately $0.1 million, or 50%. This increase was driven primarily by small increases in interest expense and foreign exchange losses.

Other expenses for the six months ended September 30, 2025 were approximately $0.5 million compared to $0.3 million for the six months ended September 30, 2024 which was an increase of approximately $0.2 million, or 67%. This increase was driven primarily by an increase in foreign exchange gains of approximately $0.2 million.

Cash Flow Analysis

	For the Six Months Ended September 30,
In thousands	2025			2024
Operating activities	$	(1,453	)	$	(517	)
Investing activities		(121	)		(686	)
Financing activities		508			972
Effect of exchange rate changes		(301	)		151
Net increase (decrease) in cash	$	(1,367	)	$	(80	)

Operating Activities

During the six months ended September 30, 2025, net cash used in operating activities was $1.5 million. This decrease was due to a net loss of $2.5 million offset by non-cash expenses for depreciation, amortization, inventory obsolescence impairment, credit loss recovery, amortization of financing costs, and stock based compensation of $1.1 million, an increase in accounts receivable of $5.0 million, a decrease in inventories of $1.5 million, an increase in prepaids and other assets of $0.2 million, and an increase in accounts payable and accrued expenses of $3.6 million.

During the six months ended September 30, 2024, net cash used operating activities was $0.5 million. This decrease was due to a net loss of $0.1 million offset by non-cash expenses for depreciation, amortization, and inventory obsolescence impairment, credit loss recovery, amortization of financing costs, and stock based compensation of $1.3 million, common stock issued for advisory services of $47,000, a decrease in inventories of $0.4 million, offset by an increase in accounts receivable of $0.7 million, a decrease in accounts payable and accrued expenses of $0.4 million, an increase in deferred expenses of $0.3 million, an increase in prepaid expenses of $0.2 million, an increase in deferred tax assets of $0.2 million, a decrease in operating lease liabilities of $54,000, and increase in federal tax deposits of $66,000, and non-cash foreign currency gains of $0.2 million.

Investing Activities

During the six months ended September 30, 2025, net cash used in investing activities was $0.1 million and was due to purchases of property and equipment of $0.1 million.

During the six months ended September 30, 2024, net cash used in investing activities was $0.7 million and was due to purchases of property and equipment of $0.7 million.

Financing Activities

During the six months ended September 30, 2025, net cash provided by financing activities was $0.5 million. This increase was due to net borrowings on our line of credit of $0.5 million.

During the six months ended September 30, 2024, net cash provided by financing activities was $1.0 million. This increase was due to net borrowings on our line of credit of $1.3 million, offset by prior Subchapter S shareholder tax distributions of $0.3 million and repayment of debt assumed as part of the Harmony merger of $75,000.

Liquidity, Capital Resources and Sources of Financing

As of September 30, 2025 the Company had a cash balance of $40,000 and working capital of $1.2 million. Working capital as of March 31, 2025 was $3.5 million. The decrease of $2.3 million was driven primarily by a decrease in cash of $1.4 million, a decrease in inventory of $1.9 million, an increase in accounts payable and accrued expenses of $3.6 million, an increase in our line of credit of $0.5 million offset by an increase in accounts receivables of $4.9 million and prepaids and other current assets of $0.2 million. To date the Company has been financed primarily through retained earnings, loans and credit lines secured by accounts receivable, inventory and fixed assets.

The increased tariff-related costs have placed additional pressure on our working capital requirements. The decrease in gross profit and gross margin and extended supply chain cycles have resulted in a decrease in our cash balance of approximately $1.4 million from March 31, 2025. Continued or escalated tariffs will require additional financing and changes in capital allocation priorities including shifting payments to the U.S. Government from inventory suppliers to other vendors.

We do not believe our existing cash and cash equivalents along with borrowing capacity from our current lender will be sufficient to meet our anticipated cash needs over the next 12 months. The Company has incurred losses and anticipates that existing cash and available credit may not be sufficient to meet its operating and debt service needs for the next 12 months. As of September 30, 2025, the Company is not in compliance with its Credit Agreement covenants and is operating under a forbearance agreement. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing options to improve liquidity, including negotiating waivers or amendments to existing debt covenants, reducing discretionary spending, and evaluating potential capital raises. While these plans are intended to mitigate the risk, there can be no assurance that they will be successful in eliminating the substantial doubt.

On May 31, 2024, the Company entered into a Revolving Credit Agreement (the “Credit Agreement”) with FGI Worldwide LLC, as Agent for the lender (“FGI”). The Credit Agreement provides for a $15 million senior secured revolving credit facility (the “Credit Facility”) available to be used by the Company, Zircon and its Affiliates for replacement and discharge of the Company’s then current US Bank loan of $8,750,000 and matures on May 31, 2027. The Company, Zircon and the Affiliates are guarantors of all obligations under the Credit Agreement and the Company’s four principal shareholders are limited guarantors thereof. As of September 30, 2025, the outstanding balance on the FGI Credit Facility was approximately $8.9 million.

The Credit Agreement stipulates a base rate measured by the sum of Term SOFR for a period of one month, as published by the CME Group Benchmark Administration Limited (or any successor administration of Term SOFR) two business days prior to the beginning of the calendar month and a percentage equal to 0.10% (10 basis points) per annum. If at any time the displayed Term SOFR is less than 0.00%, Term SOFR is deemed to be 0.00% for the purposes of the credit facility.

The Credit Agreement bears interest measured by such outstanding amounts on receivable advances and inventory advances that accrue interest at the greater of 5.25% per annum or 3.00% above the base rate. Interest is charged on the last day of each month on a daily net balance of funds advanced or otherwise charged to the Company.

The Credit Agreement requires the Company to comply with maximum total net leverage of $15.0 million and a minimum fixed charge coverage ratio of 1.10. As of September 30, 2025 the Company was not in compliance with the fixed charge coverage ratio and is working with the lender to obtain a waiver and has entered into a third forbearance agreement and Credit Agreement amendment with regard thereto along with additional covenants.

Remediation of Material Weakness

During and subsequent to the period ended September 30, 2025, we have initiated steps to remediate the material weaknesses in our internal control over financial reporting related to (i) inadequate segregation of duties due to limited personnel and (ii) insufficient formalized policies and procedures for accounting, financial reporting and record keeping.

In furtherance of these efforts, we hired a Corporate Controller with significant accounting and financial reporting experience. The Corporate Controller is responsible for strengthening our financial reporting processes and internal control environment. As part of these efforts, the Corporate Controller has implemented enhanced review procedures, including the review and approval of all journal entries prior to posting.

In addition, we have begun to formalize and document key accounting and operational processes and controls. These efforts include the development and implementation of written policies and procedures related to, among other areas, journal entry preparation and review, revenue recognition and accounts receivable cycles, and the purchase order and procurement process. These policies are designed to improve consistency, establish clear control ownership, and enhance oversight across key transaction cycles.

We are also evaluating further enhancements to our control environment, including the potential addition of personnel or third-party resources, to improve segregation of duties and strengthen financial reporting oversight.

While these actions are intended to remediate the identified material weaknesses, the material weaknesses cannot be considered remediated until the applicable controls have been fully implemented and have operated effectively for a sufficient period of time and management has concluded, through testing, that these controls are effective. We continue to monitor the effectiveness of these remediation efforts and plan to complete the remediation process as promptly as reasonably possible.

Information on Outstanding Securities

The following table sets out the number of common shares and warrants outstanding as of the date hereof:

Information on Outstanding Securities as of September 30, 2025
Common shares issued and outstanding			10,359,924
Potential issuance of common shares
Warrants			217,184
Stock options			3,216,500
Fully diluted shares			13,793,608

During the six months ended September 30, 2025, the Company issued 53,498 common shares primarily to two service providers with the associated stock-based compensation being recorded in general and administrative expenses.

Related Party Transactions

The Company leases a 14,000 square foot facility from a trust owned by the Stauss Family Administrative Trust.

The Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of September 30, 2025, principal balance of $0.7 million is due and payable on December 31, 2027. Interest accrued at 5.5% per annum is paid quarterly and included in accrued expenses. The notes are subordinated to the credit note payable to FGI and no payment is to be made on the notes without prior approval from the lender.

For the three and six months ended September 30, 2025 and 2024 the interest expense on notes payable to the Stauss Family Administrative Trust was approximately $9,000 and $19,000, respectively.

On March 27, 2025 the Stauss Family Administrative Trust and the Company agreed to extend the maturity date of the Notes Payable to the trust to December 31, 2027.

Off-Balance Sheet Arrangements

ZRCN has no off-balance sheet arrangements.

Estimates, Judgments and Assumptions

ZRCN prepares its consolidated financial statements in accordance with US GAAP, which require management to make estimates and assumptions that affect the amounts of its assets and liabilities, the information provided with regard to future assets and liabilities as well as the amounts of revenues and expenses for the relevant periods. Readers are invited to refer to Note 3 of the financial statements for the three and six months ended September 30, 2025, for details.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Trade Policy and Tariff Risk

Our business is exposed to risk arising from changes in trade policy, including tariffs imposed under IEEPA. These tariffs may:

	●	Increase the cost of imported goods and materials,
	●	Reduce demand for our products due to higher prices,
	●	Disrupt supply chains and increase sourcing complexity, and
	●	Introduce volatility in gross margins.

Interest Rate Risk

ZRCN’s exposure to changes in interest rates relates primarily to Zircon’s cash, cash equivalents and outstanding debts.

Foreign Currency & Exchange Risk

ZRCN sources parts from foreign vendors and sells its products in various foreign markets around the world. Changes in foreign currency exchange for the purchase of components from vendors and the sale of products in foreign markets can have a material impact on the Company’s results of operations and liquidity. The Company hedges or takes other steps to mitigate the impact from foreign currency exchange rates, but there is no guarantee that these efforts will be successful in every instance.

Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive officer and principal accounting and financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal accounting and financial officer have concluded that as of September 30, 2025, our disclosure controls and procedures were not effective as of such date as a result of material weaknesses in our internal control over financial reporting due to inadequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping. Under the direction of our principal executive officer and principal financial and accounting officer, we are developing a plan to remediate the material weaknesses.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

As of September 30, 2025, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of September 30, 2025, our internal control over financial reporting had material weaknesses that lack adequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping and we are implementing plans to improve such internal control.

Changes in Internal Control Over Financial Reporting

During and subsequent to September 30, 2025, we initiated remediation actions in response to the material weaknesses identified in our internal control over financial reporting. These actions include the hiring of a Corporate Controller, the implementation of enhanced review procedures over journal entries, and the development and documentation of key accounting policies and procedures. These changes are intended to strengthen our internal control environment.

Other than the foregoing, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

From time to time and in the normal course of operations, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Other than as indicated below, we are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.

Item 1A. Risk Factors

Information regarding the primary risks and uncertainties that could materially and adversely affect our future performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements, appears in Part I, Item 1A - “Risk Factors” of our 2025 Form 10-K filed with the Securities and Exchange Commission on September 10, 2025 . There have been no material changes from the risk factors set forth in our Form 10-K filed on September 10^th, 2025.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We have not made any sales of unregistered securities of our common stock during the period from April 1, 2025 through September 30, 2025.

Item 3. Defaults Upon Senior Securities

See the Company’s 10-K for the fiscal year ended March 31, 2025 and its 8-K’s filed subsequent to the filing of its 10-K for the fiscal year ended March 31, 2025 for Forbearance Agreements executed with the Company’s former Senior Securities Lender, FGI Worldwide LLC, and the Company’s 8-K filed on March 23, 2026 describing its Loan and Security Agreement dated March 17, 2026 with Altriarch Holding SPV, LLC, the Company’s successor Senior Securities Lender.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the last fiscal quarter, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated by any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement.”

Item 6. Exhibits

Exhibit Number		Description
3.1		Certificate of Incorporation, dated June 19, 2018 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed by the Company on December 27, 2021)
3.2		Certificate of Amendment to Certificate of Incorporation, dated August 28, 2020 (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form 10 filed by the Company on December 27, 2021)
3.3		Certificate of Amendment to Certificate of Incorporation, dated July 9, 2021 (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form 10 filed by the Company on December 27, 2021)
3.4		Certificate of Amendment to Certificate of Incorporation, dated June 17, 2022 (incorporated by reference to Exhibit 3.5 to the Current Report on 8-K filed by the Company on June 21, 2022)
3.5		Certificate of Amendment to Certificate of Incorporation, dated June 17, 2023 (incorporated by reference to Exhibit 3.1 to the Current Report on 8-K filed by the Company on June 27, 2023)
3.6		Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form 10 filed by the Company on December 27, 2021)
4.1		Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities and Exchange Act (incorporated by reference to Exhibit 4.1 to the Current Report on Form 10-K filed by the Company on July 16, 2024)
10.1		Union Bank Loan Agreement (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K/A filed by the Company on August 22, 2023)
10.2+		ZRCN Inc. 2024 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 4.7 to the Registration Statement filed on Form S-8 filed by the Company on March 6, 2024)
10.3+		Form of Stock Option Agreement under the Plan (Incorporated by reference to Exhibit 4.8 to the Registration Statement filed on Form S-8 filed by the Company on March 6, 2024)
10.4†		Revolving Credit, Security And Guaranty Agreement, dated as of May 31, 2024, by and among Zircon Corporation, ZRCN Inc., Zircon de Mexico, S.A. de C.V., Zircon Corporation Limited, and FGI Worldwide LLC, as Agent For Lenders (incorporated by reference to Exhibit 10.4 to the Current Report on Form 10-K filed by the Company on July 16, 2024)
21.1		List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Current Report on Form 10-K filed by the Company on July 16, 2024)
31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ZRCN INC.

Date: June 26, 2026	By:	/s/ John Stauss
	Name:	John Stauss
	Title:	Chairman and Chief Executive Officer

Date: June 26, 2026	By:	/s/ Jeff Parsons
	Name:	Jeff Parsons
	Title:	Chief Financial Officer

ZRCN Inc. 10-Q