Financial Analysis

13. Commitments and Contingencies Legal Proceedings As of March 31, 2026, no material contingencies exist. In October 2025, the Company settled outstanding litigation with Stanley Black and Decker for $ 0.8 million which was recorded as other income in the Statement of Operations Leases The Companys corporate headquarters in Campbell, California are leased from the trust of one of the former shareholders of the Company 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 $ 0.2 million and $ 0.2 million for the years ended March 31, 2026 and 2025, respectively. The trust is considered a related party to both Zircon and ZRCN (Note 14). 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 years ended March 31, 2026 and 2025, 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 of 2024 the Company leased a new vehicle under the same terms, which 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 years ended March 31, 2026 and 2025 amou …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

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 Companys 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 Companys four principal shareholders are limited guarantors thereof. From July 2025 until March 17, 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. As of March 31, 2025, due to being in default of the loan covenants, the Company classified the line of credit as a current liability. As of March 31, 2026, borrowings under the Companys new revolving credit facility are classified as long-term debt because the facility does not mature until March 17, 2029, and no events of default existed that would require repayment within one year of the balance sheet date. On March 17, 2026, the Company repaid in full and extinguished its revolving credit facilit …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

Revenue disaggregated by major product line for the years ended March 31, 2026 and 2025, respectively, were as follows: Schedule of Revenue Disaggregated Transfer of Goods and Services (In thousands) 2026 2025 For the Year Ended March 31, (In thousands) 2026 2025 Revenue generated per major product line Stud sensor edge $ 16,921 $ 15,910 Multifunctional scanners 3,443 3,502 Stud sensor center 4,756 5,748 Target control products 593 1,571 Other 1,176 1,344 Total Revenue $ 26,889 $ 28,075

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15. Income Taxes The Companys provision for income taxes consists of federal, state, and international income taxes, which differ from amounts computed by applying the U.S. federal statutory rate to pre-tax income (loss) primarily due to changes in the valuation allowance against the Companys deferred tax assets, state taxes, and other permanent differences. For the year ended March 31, 2026, the Company recorded a total income tax benefit of $ 0.1 M on a pre-tax book loss of approximately $ 7.2 M, an effective tax rate of approximately 1.8 %. For the year ended March 31, 2025, the Company recorded a total income tax expense of $ 0.6 M on a pre-tax book loss of approximately $ 2.3 M, an effective tax rate of approximately (24.7) %; in both years the effective rate differed from the 21 % federal statutory rate primarily because of the valuation allowance. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, permitting taxpayers to deduct domestic research and experimentation expenditures in the year incurred rather than capitalizing and amortizing them, and allowing amended prior-year returns to accelerate this deduction. Under this provision, the Company amended prior-year federal returns during the quarter ended September 30, 2025 and expects a federal cash refund of approximately $ 0.2 M, which is reflected as a current federal tax benefit for the year ended March 31, 2026. The related $ 0.4 M reduction in the Companys gross deferred tax assets did not affec …

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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 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 did not early adopt the new standard. The new standard has been applied prospectively. The Company adopted ASU 2025-05 on December 15, 2025. 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 disclo …

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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 Zircon. Under the terms of the agreement, Zircon provides materials, technical assistance, and expertise to the Contractor, and the Contractor assembles certain of Zircons products. For fiscal 2026 and 2025, Zircon incurred expenses from the Contractor of $ 1.3 million and $ 1.3 million, respectively and had a net payable balance with the Contractor of $ 1.6 million and $ 1.1 million, respectively. In September 2017, an affiliated company, Zircon Corporation Limited, was established in the United Kingdom to facilitate the sale of Zircons products to European customers and operations began during the year ended March 31, 2019. The ownership structure of the affiliate is similar to the ownership of the premerger ownership of Zircon. The Company leases from the Stauss Family Administrative Trust a 14,000 square foot facility owned by the Trust. ZRCN Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2026 AND 2025 The Company has notes payable to the Stauss Fa …

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4. Revenue Disaggregation of Revenue from Contracts with Customers Revenue disaggregated by major product line for the years ended March 31, 2026 and 2025, respectively, were as follows: Schedule of Revenue Disaggregated Transfer of Goods and Services (In thousands) 2026 2025 For the Year Ended March 31, (In thousands) 2026 2025 Revenue generated per major product line Stud sensor edge $ 16,921 $ 15,910 Multifunctional scanners 3,443 3,502 Stud sensor center 4,756 5,748 Target control products 593 1,571 Other 1,176 1,344 Total Revenue $ 26,889 $ 28,075 Revenue disaggregated according to the geographical location of customers for the years ended March 31, 2026 and 2025, respectively, were as follows: Schedule of Revenue Disaggregated Geographical Location of Customers (In thousands) 2026 2025 For the Year Ended March 31, (In thousands) 2026 2025 Revenue by geographic location of customers United States $ 23,105 $ 24,617 Canada 2,008 1,762 Japan 1,120 1,138 Europe 373 477 Others 283 81 Total Revenue $ 26,889 $ 28,075

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3. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements of the Company are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). On this basis, revenue and the related assets are recognized when services are performed and products are sold, and expenses and related liabilities are recorded when the obligation is incurred. ZRCN Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2026 AND 2025 Principles of Consolidation The accompanying 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. 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 entit …

SignificantAccountingPoliciesTextBlock · excerpt; the full note is in the filing

1 1. 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 March 31, 2026, 40,000,000 shares are authorized for issuance and 36,823,500 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 following table summarizes the Companys employee and non-employee Option activity …

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16. Subsequent Events On June 22, 2026, the Companys Board of Directors approved an amendment to the Companys 2024 Omnibus Equity Incentive Plan, reducing the number of shares of common stock reserved for issuance under the plan from 40,000,000 shares to 5,000,000 shares. The amendment did not have a material impact on the Companys consolidated financial statements as of or for the year ended March 31, 2026. On June 24, 2026, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of Delaware, which became effective upon filing. The amendment reduced the number of authorized shares of the Companys common stock from 200,000,000 shares to 25,000,000 shares. This event occurred subsequent to the balance sheet date and has not been reflected in the accompanying financial statements. On February 20, 2026, the U.S. Supreme Court invalidated tariffs imposed by the current administration under the International Emergency Economic Powers Act as unconstitutional. No process or timeline was provided for recovery of illegally extracted tariffs. During the periods June through August 2026, to meet critical Zircon obligations since the tariff recovery funds had only been partially remitted at that time, the Stauss Family Administrative Trust (SFAT) loaned $ 0.6 M to Zircon. The loan from the SFAT is in compliance with the terms of the Subordination Agreement between the SFAT and the Companys principal Lender, Altriarch Holdings SPV, LLC. …

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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 June 30, 2026, no material contingencies exist. Leases The Companys 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 $ 58,000 for both of the three months ended June 30, 2026 and 2025, 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 three months ended June 30, 2026 and 2025 amounted to less than $ 0.1 million in each respective period. In July 2024 the Company leased a new vehicle that required a monthly lease payment of less than $ 0.1 million This lease expires in June 2027. The total lease expense for the three months ended June 30, 2026 and 2025 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 2026 2025 For the Three Months Ended June 30, …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

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 Companys 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 Companys four principal shareholders are limited guarantors thereof. As of June 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. …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

Revenue disaggregated according to the major product line for the three months ended June 30, 2026 and 2025, respectively, were as follows: Schedule of Revenue Disaggregated Transfer of Goods and Services For the Three Months Ended June 30, 2026 2025 (In thousands) (Unaudited) Revenue generated per major product line Stud sensor edge $ 3,374 $ 3,931 Multifunctional scanners 809 748 Stud sensor center 1,017 857 Target control products 102 148 Other 431 378 Total Revenue $ 5,733 $ 6,062

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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 No new accounting standards were adopted during the three months ended June 30, 2026. 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 rele …

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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 7would 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 Zircons products. In September 2017, an affiliated company, Zircon Corporation Limited, was established in the United Kingdom to facilitate the sale of Zircons 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 June 30, 2026, principal balance of $ 1.2 million is due and payable in December 2027. Interest for the initial loan balance of $ 0.7 million accrues at 5.5 % per annum, is paid quarterly, and is included in accrued expenses. The second borrowing of $ 0.5 million, …

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4. Revenue Disaggregation of Revenue from Contracts with Customers Revenue disaggregated according to the major product line for the three months ended June 30, 2026 and 2025, respectively, were as follows: Schedule of Revenue Disaggregated Transfer of Goods and Services For the Three Months Ended June 30, 2026 2025 (In thousands) (Unaudited) Revenue generated per major product line Stud sensor edge $ 3,374 $ 3,931 Multifunctional scanners 809 748 Stud sensor center 1,017 857 Target control products 102 148 Other 431 378 Total Revenue $ 5,733 $ 6,062 ZRCN Inc. CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025 Revenue disaggregated according to the geographical location of customers for the three months ended June 30, 2026 and 2025, respectively, were as follows: Schedule of Revenue Disaggregated Geographical Location of Customers For the Three Months Ended June 30, 2026 2025 (In thousands) (Unaudited) Revenue by geographic location of customers United States $ 4,968 $ 5,107 Canada 325 452 Japan 331 247 Europe 45 105 Others 64 151 Total Revenue $ 5,733 $ 6,062

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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 Companys significant accounting policies and recent accounting standards are summarized in Note 3 of the Companys consolidated financial statements for the year ended March 31, 2026. There were no significant changes to these accounting policies during the three months ended June 30, 2026. The financial information included herein should be read in conjunction with the Companys audited consolidated financial statements and related notes included in our Annual Report for the year ended March 31, 2026, on Form 10-K. Principles of Consoli …

SignificantAccountingPoliciesTextBlock · excerpt; the full note is in the filing

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. On June 22, 2026, the Companys Board of Directors approved an amendment to the Companys 2024 Omnibus Equity Incentive Plan, reducing the number of shares of common stock reserved for issuance under the Equity Plan from 40,000,000 shares to 5,000,000 shares. This amendment does not have an impact on the Companys financial statements for the three months ended June 30, 2026. As of June 30, 2026, 1,838,500 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 less …

StockholdersEquityNoteDisclosureTextBlock · excerpt; the full note is in the filing

15. Subsequent Events On July 24, 2026, the Company received a cash payment of approximately $ 0.7 million from U.S. Customs and Border Protection as a refund of previously paid IEEPA tariffs with interest. The refund has been recorded as a benefit to Cost of Sales to offset previous charges and has no impact on fiscal Q1 2027. On September 4, 2026, the Company received a second cash payment of approximately $ 1.0 million from U.S. Customs and Border Protection as a refund of previously paid IEEPA tariffs with interest. The refund has been recorded as a benefit to Cost of Sales to offset previous charges and has no impact on fiscal Q1 2027. On September 9, 2026, the Lender notified the Company that the Companys audited financial statements and related compliance certificate for the fiscal year ended March 31, 2026 had not been delivered to the Lender by June 30, 2026, the 90-calendar-day deadline required under Sections 9(b) and 9(d) of the Loan Agreement (Note 9), which constituted a default under the Loan Agreement. The Lender waived this default, and any Default or Event of Default arising from it, on a one-time basis limited solely to this default, and required the Company to deliver such audited financial statements and compliance certificate to the Lender on or before October 15, 2026, which the Company satisfied with its filing of the Annual Report on Form 10-K on September 28, 2026. The waiver letter stated that it is not an agreement of forbearance, does not waive an …

SubsequentEventsTextBlock · excerpt; the full note is in the filing