ZRCN Inc 10-Q for FY2027 Q1
ZRCN Inc. (ZRCN)
About this 10-Q
ZRCN Inc filed this 10-Q on September 30, 2026, covering the quarter ended June 30, 2026 (FY2027 Q1).
Headline figures
Quarter ended June 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $5.73M
- down 5.4% from $6.06M a year earlier
- Net loss
- $1.46M
- compared with a net loss of $1.93M a year earlier
- Diluted EPS
- -$0.15
- compared with -$0.20 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark one)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| 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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(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. ☒
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). ☒
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 | ☐ | |
| ☒ | 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
As of September 24, 2026, 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
| 2 |
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements.
ZRCN Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
| June 30, 2026 | March 31, 2026 | |||||||
| Audited | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of provision for credit losses of $ | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Federal tax deposit | ||||||||
| Intangible assets, net | ||||||||
| Deposits | ||||||||
| Deferred financing costs | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | |||||||
| Accrued expenses | ||||||||
| Operating lease liability, current | ||||||||
| Total current liabilities | ||||||||
| Line of credit | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Notes payable to Stauss Family Administrative Trust, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 13) | ||||||||
| Stockholders’ deficit: | ||||||||
| Common stock; at $ par value, shares authorized, shares issued and outstanding as of June 30, 2026 and March 31, 2026, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total deficit attributable to ZRCN Inc. stockholders | ( | ) | ( | ) | ||||
| Non-controlling interests in variable interest entities | ||||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
ZRCN Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share data)
(Unaudited)
| 2026 | 2025 | |||||||
| For the Three Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Marketing and selling | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expenses: | ||||||||
| Interest expense | ||||||||
| Other expenses | ||||||||
| Loss (gain) on foreign currency transactions | ||||||||
| Total other expenses | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: Net loss (income) attributable to non-controlling interests | ||||||||
| Net loss attributable to ZRCN Inc. common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Gain on change in foreign currency translation adjustment | ||||||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Net loss attributable to non-controlling interests | ||||||||
| Other comprehensive loss attributable to non-controlling interest | ||||||||
| Comprehensive loss attributable to ZRCN common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per share attributable to ZRCN Inc.: | ||||||||
| Basic and diluted | $ | ) | $ | ) | ||||
| Weighted average common shares outstanding: | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
ZRCN Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(Unaudited)
| Shares | Amount | Loss | Capital | Deficit | to ZRCN | Interests | ||||||||||||||||||||||||||
| Common Stock | Accumulated Other Comprehensive | Additional Paid-in | Accumulated | Total Equity Attributable | Non-controlling | Total Stockholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Loss | Capital | Deficit | to ZRCN | Interests | Deficit | |||||||||||||||||||||||||
| Balance - March 31, 2026 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
| Change in foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Common stock issued for advisory services | ||||||||||||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - June 30, 2026 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
| Common Stock | Accumulated Other Comprehensive | Additional Paid-in | Accumulated | Total Equity Attributable | Non-controlling | Total Stockholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Loss | Deficit | Deficit | to ZRCN | Interests | Equity | |||||||||||||||||||||||||
| Balance - March 31, 2025 | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
| Balance | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Common stock issued for advisory services | ||||||||||||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||||||||||
| Net loss (income) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - June 30, 2025 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
ZRCN Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| 2026 | 2025 | |||||||
| For the Three Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation expense | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of right-of-use assets | ||||||||
| Inventory obsolescence impairment | ||||||||
| Provision (recovery) for credit losses | ( | ) | ||||||
| Amortization of financing costs | ||||||||
| Share based compensation expense | ||||||||
| Common stock issued for advisory services | ||||||||
| (Gain) loss on foreign currency transactions | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Federal tax deposit | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of intangible assets | ( | ) | ( | ) | ||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Borrowing on line of credit | ||||||||
| Repayment on line of credit | ( | ) | ( | ) | ||||
| Note Payable to Stauss Family Trust | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate fluctuations on cash | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Noncash investing and financing activities: | ||||||||
| Increase in debt due to accrued interest | $ | |||||||
The accompanying condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
1. Organization
The Business
Zircon Corporation (“Zircon”), ZRCN Inc. (“ZRCN” or the “Company”) wholly-owned subsidiary, 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, Inc. (“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 June 30, 2026, the Company had $
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 $
| 7 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
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, 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 Company’s 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 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.
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. Neither ZRCN Inc. nor Zircon Corporation have an ownership position in either entity.
| 8 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
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.
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 is presented net of amounts invoiced for product shipments that remained in transit at period end under FOB destination shipping terms, for which the related performance obligation, and therefore the associated revenue and receivable, had not yet been satisfied as of the balance sheet date (see Revenue Recognition below).
Accounts receivable consisted of the following:
Schedule of Accounts Receivable
| (In thousands) | June 30, 2026 | March 31, 2026 | ||||||
| Accounts receivable | $ | $ | ||||||
| Less provision for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Activity related to the Company’s provision for credit losses was as follows:
Schedule of Provision for Credit losses
| (In thousands) | June 30, 2026 | March 31, 2026 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Credit loss (recovery) provision | ||||||||
| Write-offs | ||||||||
| Balance, end of period | $ | $ | ||||||
Revenue Recognition
The
Company recognizes revenue in accordance with ASC 606 when control of goods transfers to the customer, which is generally upon shipment.
For shipments in transit at period end under FOB destination terms, the Company has concluded that revenue should not be recognized,
and the related amounts should not be recorded as accounts receivable, until delivery of the product to the customer’s specified
location. 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 $
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, 2026 on Form 10-K.
| 9 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
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
The CODM reviews the financial information presented on a consolidated basis (Zircon Corporation and the two VIEs) for purposes of making operating decisions, allocating resources, and evaluating the Company’s financial performance. The CODM utilizes financial metrics that are reported in the statement of operations: consolidated revenue, cost of goods sold (“COGS”) and the associated gross profit, operating expense, and income (loss) from operations, as the financial measures for making decisions. Categories within operating expense are: research and development (“R&D”), Marketing and selling and general and administrative (“G&A”). This enables the CODM to assess the overall level of available resources and determine how best to deploy these resources across projects in line with the long-term company-wide strategic goals. Management reviews its business as one consolidated segment and utilizes financial information as presented in the consolidated financial statements. The measure of segment assets is reported in the accompanying condensed consolidated balance sheets as “Total assets.” There is no change in the Company’s operating or reporting segments for the three months ended June 30, 2026.
Concentration of Business and Credit Risk
As of June 30, 2026, 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 June 30, 2026 and 2025, respectively, the Company generated approximately
As
of June 30, 2026 and March 31, 2026, respectively,
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.
| 10 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
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 Three Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
As of June 30, 2026, 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
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 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.
| 11 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
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.
| 12 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
In April 2026, the FASB issued ASU 2026-01 - Equity (Topic 505): Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock (“ASU 2026-01”). This standard introduces a single, standardized approach for the initial measurement of paid-in-kind (PIK) dividends on equity-classified preferred stock. This update addresses long-standing diversity in practice and improves comparability across entities. The new guidance mandates measurement based on the stated PIK dividend rate in the preferred stock agreement for in-scope arrangements. This approach aligns accounting with the underlying economics, reflects prevailing market practice, and enhances operability. Certain arrangements, including those involving fixed monetary amounts settled in variable shares, remain outside the scope. The amendments are effective for reporting periods beginning after December 15, 2026, with early adoption permitted. The Company is currently evaluating the disclosure impact that ASU 2026-01 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.
In May 2026, the FASB issued ASU 2026-02 - Environmental Credits and Environmental Credit Obligations (Topic 818) (“ASU 2026-02”). This standard improves the financial accounting for and disclosure of activities related to environmental credits and environmental credit obligations. This update provides recognition, measurement, presentation, and disclosure requirements for all entities that generate, purchase, or receive environmental credits or have a regulatory compliance obligation that may be settled with environmental credits. This standard is effective for the Company for annual reporting periods (and interim periods within those annual periods) beginning after Dec. 15, 2027, with early adoption permitted. The Company is currently evaluating the disclosure impact that ASU 2026-02 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.
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 | $ | $ | ||||||
| Multifunctional scanners | ||||||||
| Stud sensor center | ||||||||
| Target control products | ||||||||
| Other | ||||||||
| Total Revenue | $ | $ | ||||||
| 13 |
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 | $ | $ | ||||||
| Canada | ||||||||
| Japan | ||||||||
| Europe | ||||||||
| Others | ||||||||
| Total Revenue | $ | $ | ||||||
5. Inventory
Inventory consisted of the following:
Schedule of Inventory
| June 30, 2026 | March 31, 2026 | |||||||
| (In thousands) | (Unaudited) | |||||||
| Finished goods, net | $ | $ | ||||||
| Raw materials, net | ||||||||
| Work in process, net | ||||||||
| Inventory net | $ | $ | ||||||
Allowance
for slow moving and obsolete inventory was estimated at $
6. Property and Equipment
Property and equipment consisted of the following:
Schedule of Property and Equipment
| June 30, 2026 | March 31, 2026 | |||||||
| (In thousands) | (Unaudited) | |||||||
| Manufacturing equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Leasehold improvements | ||||||||
| Furniture and office equipment | ||||||||
| Vehicles | ||||||||
| Property and equipment, gross | ||||||||
| Construction in progress | ||||||||
| Property and equipment before accumulated depreciation and amortization | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| 14 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
For
the three months ended June 30, 2026 and 2025, depreciation and amortization expense was approximately $
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
| June 30, 2026 | March 31, 2026 | |||||||||||||||||||||||
| (In thousands) | (Unaudited) | |||||||||||||||||||||||
| Finite-lived intangible assets (1): | Intangibles, Gross | Accumulated Amortization | Intangibles, Net | Intangibles, Gross | Accumulated Amortization | Intangibles, Net | ||||||||||||||||||
| Patents issued and pending | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exclusivity rights and licenses | ( | ) | ( | ) | ||||||||||||||||||||
| Total finite-lived intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Finite-lived intangible assets (1): | June 30, 2026 Weighted Average Life | |||
| Patents issued and pending | ||||
| Exclusivity rights and licenses | ||||
| (1) |
For
the three months ended June 30, 2026 and 2025, amortization expense was less than $
Expected future amortization expense of acquired finite-lived intangible assets as of June 30, 2026 is as follows:
Schedule of Future Amortization Expense
| For the Years Ending March 31, (In thousands) | Amount | |||
| Remainder of 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| Thereafter | ||||
| Total | $ | |||
| 15 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
8. Accrued Expenses
Accrued expenses consisted of the following:
Schedule of Accrued Liabilities
| June 30, 2026 | March 31, 2026 | |||||||
| (In thousands) | (Unaudited) | |||||||
| Rebates | $ | $ | ||||||
| Accrued taxes | ||||||||
| Sales expense | ||||||||
| Payroll and related | ||||||||
| Advertising allowance | ||||||||
| Vacation | ||||||||
| Professional services | ||||||||
| Interest | ||||||||
| Accrued liabilities | $ | $ | ||||||
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 $
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.
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 $
The
Loan Agreement matures on March 17, 2029 (the “Maturity Date”), subject to the right of the Debtor to request to extend
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 ($
| 16 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
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 and will be enforcing those covenants beginning in September 2026 through the term of the agreement 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 (1st), second (2nd) or third (3rd) 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 (2nd) 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 $
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 June 30, 2026, the outstanding
principal balance was approximately $
For
the three months ended June 30, 2026 and 2025 the interest expense on the notes payable to the Stauss Family Administrative Trust totaled
less than $
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 months ended June 30, 2026 and 2025.
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 months ended
June 30, 2026 and 2025, the Company made contributions to the 401(k) plan of less than $
| 17 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
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 Company’s Board of Directors approved an amendment to the Company’s 2024 Omnibus Equity Incentive Plan, reducing the number of shares of common stock reserved for issuance under the Equity Plan from shares to shares. This amendment does not have an impact on the Company’s financial statements for the three months ended June 30, 2026. As of June 30, 2026, 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.
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 Company’s common stock from shares to shares.
Schedule of Employee and Non-employee Option Activity
| Number of shares | Weighted average exercise price | Weighted average remaining term (years) | Aggregate intrinsic value (in thousands) | |||||||||||||
| Outstanding as of March 31, 2026 | $ | $ | ||||||||||||||
| Options granted | — | |||||||||||||||
| Options forfeited | ( | ) | — | |||||||||||||
| Outstanding as of June 30, 2026 | $ | $ | ||||||||||||||
| Exercisable as of June 30, 2026 | $ | $ | ||||||||||||||
stock options were granted, vested, nor exercised during the three months ended June 30, 2026.
For the three months ended June 30, 2026 and 2025, the Company recognized $ million and $ million in stock-based compensation, respectively, included in operating expenses in the accompanying statements of operations and comprehensive loss. As of June 30, 2026, there was $ million of unrecognized share-based compensation expense related to unvested stock options over a weighted average term of years.
No additional common shares, warrants, or options were issued to consultants or service providers during the three months ended June 30, 2026.
Schedule of Fair Value Assumptions
| June 30, 2026 | ||||
| Volatility | % - | % | ||
| Risk-free rate | % - | % | ||
| Expected life (in years) | - | |||
| Stock price | $ | - | ||
| Exercise price | $ | - |
| 18 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
12. Warrants
The following table provides the activity for all warrants for the three months ended June 30, 2026:
| Total Warrants | Weighted Average Remaining Term | Weighted Average Exercise Price | ||||||||||
| Outstanding as of March 31, 2026 | $ | |||||||||||
| Outstanding as of June 30, 2026 | $ | |||||||||||
of these warrants were issued to service providers and are classified as equity warrants and were recorded as shareholders’ equity
at the time of the Harmony merger. The remaining
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
Company’s corporate headquarters in Campbell, California are leased from the Stauss Family Administrative Trust for approximately
$ 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 $
The
Company leases office equipment through a lease that expires in June 2026 and requires monthly lease payments of less than $
In
July 2024 the Company leased a new vehicle that required a monthly lease payment of less than $
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, | ||||||||
| 2026 | 2025 | |||||||
| (In thousands) | (Unaudited) | |||||||
| Operating lease expense | $ | $ | ||||||
| Total lease cost | $ | $ | ||||||
| 19 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
The following table provides the weighted average lease term and weighted average discount rate for the three months ended June 30, 2026 and 2025, respectively:
Schedule of Weighted Average Remaining Lease Terms and Discount Rate
| For the Three Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Future minimum lease payment under non-cancellable lease as of June 30, 2026 are as follows:
Schedule of Future Minimum Lease Payment Under Non-cancellable Lease
| Maturities of lease liabilities (In thousands) | Operating Leases | |||
| Year ending March 31, | ||||
| Remainder of fiscal 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 and thereafter | ||||
| Total Minimum Lease Payments | ||||
| Less effects of discounting | ( | ) | ||
| Present value of future minimum lease liabilities | ||||
| Less current portion of operating lease liability | ( | ) | ||
| Operating lease liability, net of current portion | $ | |||
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 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
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 $
| 20 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2026 AND 2025
15. Subsequent Events
On
July 24, 2026, the Company received a cash payment of approximately $
On
September 4, 2026, the Company received a second cash payment of approximately $
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. The waiver letter stated that it is not an agreement of forbearance, does not waive any other past, present or future default, and expressly reserves all of the Lender’s other rights, powers, privileges and remedies under the Loan Agreement and the other Loan Document.
The
Company borrowed an additional $
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.
| 21 |
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 three months ended June 30, 2026, and at March 31, 2026, Zircon’s selected financial information is the following (in thousands):
| In thousands | June 30,2026 | March 31, 2026 | ||||||
| Assets | $ | 18,363 | $ | 20,321 | ||||
| Liabilities | $ | 20,799 | $ | 21,413 | ||||
| Stockholders’ Deficit | $ | (2,436 | ) | $ | (1,092 | ) | ||
Financial Position Analysis
The information presented below as of June 30, 2026 as compared to March 31, 2026 for ZRCN Inc (in thousands):
Assets
Total assets on June 30, 2026 were $18.4 million compared to $20.3 million on March 31, 2026, which was a decrease of approximately $1.9 million. This decrease was driven primarily by a decrease in cash of $0.7 million, an increase in accounts receivable and prepaids of $0.2 million, a decrease in inventory of $1.2 million, and a decrease in property, plant, and equipment and right-of-use assets of $0.2 million.
Liabilities
Total liabilities on June 30, 2026 were $20.8 million compared to $21.4 million on March 31, 2026, which was a decrease of approximately $0.6 million. This decrease was driven primarily by an increase in our line of credit of $0.2 million, an increase in the note payable to the Stauss Family Administrative Trust of $0.5 million offset by a decrease in accounts payable and accrued expenses of $1.3 million.
stockholders’ deficit
Total stockholders’ deficit on June 30, 2026 was $2.4 million compared to $1.1 million on March 31, 2026, which was a decrease of approximately $1.3 million. This decrease was driven primarily by a comprehensive loss of $1.4 million offset by an increase in additional paid-in capital and other comprehensive loss of $0.1 million.
| 22 |
Operating Results Analysis
| For the Three Months Ended June 30, | ||||||||
| (In thousands) | 2026 | 2025 | ||||||
| Net Sales | $ | 5,733 | $ | 6,062 | ||||
| Cost of goods sold | 3,734 | 4,684 | ||||||
| Gross Profit | 1,999 | 1,378 | ||||||
| Gross Margin | 34.9 | % | 22.7 | % | ||||
| Operating Expenses | ||||||||
| General & administrative | 1,420 | 1,447 | ||||||
| Marketing & selling | 1,149 | 1,160 | ||||||
| Research and development | 432 | 411 | ||||||
| Total Operating Expenses | 3,001 | 3,018 | ||||||
| Operating Income (Loss) | (1,002 | ) | (1,640 | ) | ||||
| Other (Income) Expense | ||||||||
| Interest expense | 279 | 204 | ||||||
| Other expense | 9 | 8 | ||||||
| Loss (Gain) on foreign currency transactions | 66 | 64 | ||||||
| Total other expenses | 354 | 276 | ||||||
| Income (Loss) before income taxes | (1,356 | ) | (1,916 | ) | ||||
| Benefit from (Provision for) income taxes | (99 | ) | (18 | ) | ||||
| Net income (loss) | $ | (1,455 | ) | $ | (1,934 | ) | ||
| Foreign currency translation adjustment | 55 | 130 | ||||||
| Comprehensive income (loss) | $ | (1,400 | ) | $ | (1,804 | ) | ||
Sales revenue and gross margin
Revenue for the three months ended June 30, 2026 was $5.7 million compared to $6.1 million for the three months ended June 30, 2025 which was a decrease of $0.3 million, or 5%. This was driven primarily by decreased sales of our Stud Sensor Edge products offset by smaller sales increases of our Multifunctional scanner and Stud Sensor Center products. Revenues were down across all geographies except Japan but primarily in the United States and Canada. Gross profit for the three months ended June 30, 2026 was $2.0 million, or 34.9% compared to $1.4 million, or 22.8%, during the three months ended June 30, 2025, which was an increase of $0.6 million, or 45% and 12.1%, respectively. The increase in gross profit was primarily driven by a decrease in duty expense resulting from decreased tariffs on our products manufactured in China and Malaysia.
During the three months ended June 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. Tariff costs incurred during the three months ended June 30, 2025 was approximately $1.4 million which was an increase of $1.1 million compared to the three months ended June 30, 2024. These costs were recognized primarily within cost of goods sold and contributed to a gross margin decrease of 1,800 basis points.
The Company took 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 did not fully offset the increased costs from the tariffs and the timing and effectiveness of such actions may vary. In addition, the increased 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.
In February 2026, the IEEPA tariffs were declared illegal by the Court of International Trade with the presiding judge declaring that a) the IEEPA tariffs should no longer be collected by U.S. Customs and Border Protection and b) companies that paid IEEPA tariffs are due refunds. As a result, tariff expense incurred by the Company decreased by approximately $1.2 million. Subsequent to June 30, 2026, the Company received refunds from Customs and Border Protection of $0.7 million in July 2026 and $1.0 million in September 2026 (Note 15).
Research and Development
Research and development expenses for the three months ended June 30, 2026 were $0.4 million compared to $0.4 million for the three months ended June 30, 2025 which was an increase of $21,000, or 3%, and was driven primarily by increased consulting expenses.
General and Administrative expenses
General and administrative expenses for the three months ended June 30, 2026 were $1,4 million compared to $1.4 million for the three months ended June 30, 2025 which was a decrease of $27,000, or 2%. This decrease was driven primarily by a decrease in outside service expenses.
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Marketing and Selling expenses.
Marketing and selling expenses for the three months ended June 30, 2026 were $1.1 million compared to $1.2 million for the three months ended June 30, 2025 which was an increase of $11,000, or 1%. This decrease was driven primarily by a decrease in consulting and advertising expense.
Interest/Other expenses
Interest and other expenses for the three months ended June 30, 2026 were approximately $0.4 million compared to $0.3 million for the three months ended June 30, 2025 which was an increase of approximately $0.1 million, or 22%. This increase was driven primarily by an increase in interest expense resulting from our change in lender in March 2026.
Cash Flow Analysis
| For the Three Months Ended June 30, | ||||||||
| In thousands | 2026 | 2025 | ||||||
| Operating activities | $ | (1,231 | ) | $ | (42 | ) | ||
| Investing activities | (70 | ) | (93 | ) | ||||
| Financing activities | 713 | (694 | ) | |||||
| Effect of exchange rate changes | (117 | ) | 77 | |||||
| Net increase (decrease) in cash | $ | (705 | ) | $ | (752 | ) | ||
Operating Activities
During the three months ended June 30, 2026, net cash used in operating activities was $1.2 million. This decrease was due to a net loss of $1.5 million offset by non-cash expenses for depreciation, amortization, inventory obsolescence impairment, credit loss recovery, and amortization of deferred financing costs of $0.5 million, stock-based compensation and foreign currency losses of $0.1 million, a decrease in inventory of $1.2 million, an increase in accounts receivables and prepaids of $0.2 million, and a decrease in accounts payable, accrued expenses, and operating lease liabilities of $1.3 million.
During the three months ended June 30, 2025, net cash used in operating activities was $42,000. This decrease was due to a net loss of $1.9 million offset by non-cash expenses for depreciation, amortization, inventory obsolescence impairment and credit loss recovery of $0.4 million, total stock-based compensation of $0.1 million, a decrease in accounts receivable of $0.3 million, a decrease in inventories of $0.8 million, and an increase in accounts payable and accrued expenses of $0.3 million.
Investing Activities
During the three months ended June 30, 2026, net cash used in investing activities was $70,000. This decrease was due to purchases of intangible assets of $50,000 and property and equipment of $20,000.
During the three months ended June 30, 2025, net cash used in investing activities was $0.1 million. This decrease was due to purchases of property and equipment of $0.1 million.
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Financing Activities
During the three months ended June 30, 2026, net cash provided by financing activities was $0.7 million. This increase was due to net borrowings on our line of credit of $0.2 million and additional borrowings from the Stauss Family Administrative Trust of $0.5 million.
During the three months ended June 30, 2025, net cash used in financing activities was $0.7 million. This decrease was due to net repayments on our line of credit of $0.7 million.
Liquidity, Capital Resources and Sources of Financing
As of June 30, 2026, the Company had a cash balance of $0.1 million and working capital of $3.7 million. Working capital as of March 31, 2026 was $4.2 million. The decrease of $0.5 million was driven primarily by a decrease in cash of $0.7 million, an increase in accounts receivable of $0.1 million, a decrease in inventory of $1.2 million, an increase in prepaids of $0.1 million, and a decrease in accounts payable and accrued expenses of $1.2 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 in prior year have placed additional pressure on our working capital requirements. The increase in gross profit and gross margin from March 31, 2026 and extended supply chain cycles have contributed to a decrease in our cash balance of approximately $0.7 million. 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 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.
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 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.
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 (10th) 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.
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. The covenants will be enforced beginning in September 2026 through the term of the agreement. 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 (1st), second (2nd) or third (3rd) 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 (2nd) anniversary of the Effective Date and the Loan Agreement is contemporaneously refinanced by a Federal Deposit Insurance Corporation insured financial institution.
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.
The Company recognized deferred financing costs of approximately $0.8 million for bank fees which will be amortized over three years and recorded as interest expense. For the three months ended June 30, 2026 and 2025, the Company recognized less than $0.1 million, respectively, as interest expense for the amortization of deferred financing costs. For the three months ended June 30, 2026 and 2025, interest expense on our lines of credit totaled $0.3 million and $0.2 million, respectively.
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Remediation of SIGNIFICANT DEFICIENCY
As of June 30, 2026, we have initiated steps to remediate the significant deficiencies 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 significant deficiencies, the significant deficiencies 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 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 June 30, 2026 | ||||
| Common shares issued and outstanding | 10,360,924 | |||
| Potential issuance of common shares | ||||
| Warrants | 217,184 | |||
| Stock options | 3,161,500 | |||
| Fully diluted shares | 13,739,608 | |||
During the three months ended June 30, 2026, the Company did not issue any common shares, warrants, or options to any consultants or service providers. 15,000 employee stock options were forfeited during the three months ended June 30, 2026.
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 ownership of the premerger ownership of Zircon.
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 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, which occurred during June 2026, accrues at 6.0% per annum, is paid quarterly, and is included in accrued expenses. The notes are subordinated to the Lender and no principal payment is to be made on the notes without prior approval from the Lender. For the three months ended June 30, 2026 and 2025 the interest expense on notes payable to the Stauss Family Administrative Trust was approximately $9,000, 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.
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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 months ended June 30, 2026, 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.
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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 June 30, 2026, our disclosure controls and procedures were not effective as of such date as a result of significant deficiencies 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 significant deficiency.
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 June 30, 2026, 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 June 30, 2026, our internal control over financial reporting had significant deficiencies 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
As of June 30, 2026, we initiated remediation actions in response to the significant deficiencies 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 June 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 2026 Form 10-K filed with the Securities and Exchange Commission on September 24, 2026. There have been no material changes from the risk factors set forth in our Form 10-K filed on September 24.
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, 2026, through June 30, 2026.
Item 3. Defaults Upon Senior Securities
See the Company’s 10-K for the fiscal year ended March 31, 2026 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.
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 expects to 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 any other past, present or future default, and expressly reserves all of the Lender’s other rights, powers, privileges and remedies under the Loan Agreement and the other Loan Document.
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)
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Item 6. Exhibits
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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: September 30, 2026 |
By: | /s/ John Stauss |
| Name: | John Stauss | |
| Title: | Chairman and Chief Executive Officer | |
| Date: September 30, 2026 | By: | /s/ Jeff Parsons |
| Name: | Jeff Parsons | |
| Title: | Chief Financial Officer | |
| 31 |
Exhibit 31.1
Certification of Chief Executive Officer of ZRCN Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John Stauss, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of ZRCN Inc.; |
| 2. | Based on my knowledge and belief, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge and belief, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: September 30, 2026 | /s/ John Stauss |
| John Stauss | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
Certification of Chief Financial Officer of ZRCN Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jeff Parsons, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of ZRCN Inc.; |
| 2. | Based on my knowledge and belief, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge and belief, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: September 30, 2026 | /s/ Jeff Parsons |
| Jeff Parsons | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, John Stauss, Chief Executive Officer of ZRCN Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge and belief:
| 1. | The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2026 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: September 30, 2026 | /s/ John Stauss |
| John Stauss | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Jeff Parsons, Chief Financial Officer of ZRCN Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge and belief:
| 1. | The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2026 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: September 30, 2026 | /s/ Jeff Parsons |
| Jeff Parsons | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |