2. Liquidity and Going Concern

As of June 30, 2026, the Company had $0.1 million in cash and working capital of $3.7 million. To date, ZRCN has been financed primarily through secured loans and a revolving line of credit. The Company’s line of credit expires on March 17, 2029 (Note 9).  The line of credit is secured by the Company’s accounts receivable, inventory and fixed assets.

 On September 9, 2026, the Lender notified the Company that the Company’s 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.

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 which raises substantial doubt about the Company’s ability to continue as a going concern without any additional management actions. As of June 30, 2026, our additional borrowing capacity against the line of credit was $4.3 million. For the three months ended June 30, 2026, the Company had incurred a net loss of $1.5 million, had an accumulated deficit of $12.9 million, and a net stockholders’ deficiency of $2.4 million. We are dependent on the line of credit and our financial covenants were only waived through August 31, 2026. The covenants will be enforced beginning in September 2026 through the term of the agreement. Management is actively pursuing options to improve liquidity, including negotiating waivers and/or amendments to our financial covenants, reducing discretionary spending and capital expenditures, negotiating cost reductions with our suppliers, continuing to improve inventory and evaluating potential capital raises. These plans should help the Company improve its liquidity position over the next fiscal year and enable the Company to continue as a going concern; however, while these plans are intended to mitigate the risk, there can be no assurance that they will be successful in eliminating the substantial doubt about the Company’s ability to continue as a going concern.

ZRCN Inc.

CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025