ZRCN 10-Q
ZRCN Inc. (ZRCN)
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 June 23, 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 |
ZRCN Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| September 30, 2025 | March 31, 2025 | |||||||
| (Unaudited) | 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: | ||||||||
| Line of credit | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Operating lease liability, current | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Notes payable to Stauss Family Administrative Trust, net of current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock; at $ par value, shares authorized, and shares issued and outstanding as of September 30, 2025 and March 31, 2025, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total equity attributable to ZRCN Inc. stockholders | ||||||||
| Non-controlling interests in variable interest entities | ||||||||
| Total stockholders’ equity | ||||||||
| 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)
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Marketing and selling | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
| Other expenses: | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Other expenses | ||||||||||||||||
| Loss (gain) on foreign currency transactions | ( | ) | ( | ) | ||||||||||||
| Total other expenses | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit (expense) | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Less: Net (income) loss attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to ZRCN Inc. common stockholders | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Gain (loss) on change in foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: Net loss (income) attributable to non-controlling interests | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive loss attributable to ZRCN common stockholders | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Net loss per share attributable to ZRCN Inc.: | ||||||||||||||||
| Basic | $ | ) | $ | $ | ) | $ | ) | |||||||||
| Diluted | ) | $ | $ | ) | $ | ) | ||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| 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)
| Common Stock | Accumulated Other Comprehensive | Additional Paid-in | Accumulated | Total Equity Attributable to | Non-controlling | Total Stockholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Loss | Capital | Deficit | ZRCN | Interests | Equity | |||||||||||||||||||||||||
| Balance - March 31, 2025 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Change in foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Common stock issued for advisory services | ||||||||||||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||||||||||
| Net loss (income) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - June 30, 2025 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Change in foreign currency translation adjustment | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Common stock issued for advisory services | ||||||||||||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - September 30, 2025 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Common Stock | Accumulated Other Comprehensive | Additional Paid-in | Retained | Total Equity Attributable to | Non-controlling | Total Stockholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Loss | Capital | Earnings | ZRCN | Interests | Equity | |||||||||||||||||||||||||
| Balance - March 31, 2024 - as revised | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Common stock issued for advisory services | ||||||||||||||||||||||||||||||||
| Net loss (income) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Common stock issued for advisory services | ||||||||||||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||||||||||
| Net income (loss) | — | ( | ) | |||||||||||||||||||||||||||||
| Balance - September 30, 2024 | $ | $ | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
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)
| For the Six Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| (in thousands) | ||||||||
| 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 for credit losses | ||||||||
| Amortization of financing costs | ||||||||
| Share based compensation expense | ||||||||
| Common stock issued for advisory services | ||||||||
| Deferred tax asset | ( | ) | ||||||
| (Gain) loss on foreign currency transactions | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Federal tax deposit | ( | ) | ||||||
| Deferred expenses | ( | ) | ||||||
| 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 | ||||||||
| Repayment of debt assumed in Harmony Merger | ( | ) | ||||||
| Borrowing on line of credit | ||||||||
| Repayment on line of credit | ( | ) | ( | ) | ||||
| Stockholder distributions | ( | ) | ||||||
| Net cash provided by 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 | ||||||||
| Right-of-use assets obtained in exchange for operating lease liability | ||||||||
The accompanying 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 SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
1. Organization
The Business
Zircon Corporation, (“Zircon”), a wholly-owned subsidiary of ZRCN Inc. (“ZRCN” or the “Company”), was incorporated in California in 1977. The Company, through Zircon, is principally engaged in the design and manufacture of electronic-based consumer hardware and sells its products primarily to retail outlets located throughout the United States, Canada, Japan and Europe. The Company and Zircon operate from their headquarters located in Campbell, California and an affiliate entity of Zircon, Zircon de Mexico S.A. de C.V., located in Ensenada, Mexico. The operations of the Company and Zircon are supported also by an affiliated entity of Zircon, Zircon Corporation Limited, located in the United Kingdom.
On April 14, 2023 (the “Closing Date”), Zircon Corporation effectuated a merger and reorganization with Harmony Energy Technologies Corporation (“Harmony”), a Delaware Corporation, ZRCN Inc., a California corporation and a wholly owned subsidiary of Harmony (the “Merger Sub”). The merger leverages Zircon’s sensor-based, ASIC (“Application-Specific Integrated Circuits”) processor technology and patent portfolio, to accelerate growth in its product lines and global markets as a publicly disclosed company, in accordance with the Securities Act of 1933 and the Exchange Act of 1934, both as amended. The combination of Harmony and Zircon was effectuated through a merger (the “Merger”) of Merger Sub into Zircon. The separate existence of Merger Sub ceased, and Merger Sub was merged with and into Zircon (Zircon, as the surviving corporation following the Merger). Upon completion of the Merger, Harmony changed its name to ZRCN Inc.
2. Liquidity and Going Concern
As
of September 30, 2025, the Company had $
From July 2025 through March 2026, the Company and FGI entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. Management considered the refinancing and repayment of the FGI credit facility subsequent to the balance sheet date as part of its evaluation of the Company’s liquidity and ability to continue as a going concern.
On
March 17, 2026, the Company entered into a Loan and Security Agreement with Altriarch Holdings SPV, LLC providing for a $
The
facility matures on March 17, 2029 (subject to potential extension) and bears interest at a variable rate based on the secured overnight financing rate (SOFR) plus an applicable
margin. The agreement contains customary affirmative and negative covenants, financial covenants (currently waived through August 31,
2026), and events of default. The facility also permits, subject to lender approval, incremental borrowings of up to $
Additional terms of the Credit Facility are described in Note 9, Debt.
3. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company and its subsidiaries’ financial position and interim results as of and for the periods presented have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Results for interim periods are not necessarily indicative of those that may be expected for a full year.
The Company’s significant accounting policies and recent accounting standards are summarized in Note 3 of the Company’s consolidated financial statements for the year ended March 31, 2025. There were no significant changes to these accounting policies during the six months ended September 30, 2025.
During the preparation of the Company’s consolidated financial statements for the year ended March 31, 2025, the Company’s management identified an immaterial error related to previously issued consolidated financial statements in the prior year.
| 7 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
| a. | Management
determined that the Shareholder distribution for approximately $ |
In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the correction and has determined that the related impact was not material to the previously issued financial statements that contained the error, based on overall considerations of both quantitative and qualitative factors. The Company has concluded that prior period financial statements as of and for the year ended March 31, 2024, were not materially misstated and can continue to be relied upon. Accordingly, the Company has corrected the previously reported immaterial error in the current period financial statements by adjusting the opening balances of the affected accounts.
In accordance with ASC 250, Accounting Changes and Error Corrections, the Company has recorded the impact of the prior period error through opening retained earnings in the current period financial statements. The affected prior period balances are displayed below and had no change on the Condensed Consolidated Statements of Operations and Comprehensive Loss, or Net Loss per Share.
Management and the Audit Committee have reviewed this adjustment and concluded that the financial statements, as corrected, present fairly, in all material respects, the balance sheet, results of operations and cash flows of the Company in accordance with U.S. GAAP.
As a result of the restatement, the Company prepared the following table to illustrate the effect on the financial statements for the year ended March 31, 2024.
| As Reported | As Revised | |||||||||||
| March 31, 2024 | March 31, 2024 | Difference | ||||||||||
| Liabilities | ||||||||||||
| Accrued expenses | $ | $ | $ | ( | ) | |||||||
| Total equity attributable to ZRCN Inc. stockholders | ||||||||||||
| Retained earnings | $ | $ | $ | |||||||||
As a result of the restatement, the Company prepared the following table to illustrate the effect on the financial statements for the three months ended June 30, 2024.
| As Reported | As Revised | |||||||||||
| September 30, 2024 | September 30, 2024 | Difference | ||||||||||
| Liabilities | ||||||||||||
| Accrued expenses | $ | $ | $ | ( | ) | |||||||
| Total equity attributable to ZRCN Inc. stockholders | ||||||||||||
| Retained earnings | $ | $ | $ | ( | ) | |||||||
The financial information included herein should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in our Annual Report for the year ended March 31, 2025, on Form 10-K.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of ZRCN as well as its variable interest entities. The Company consolidates all entities over which the Company has the power to govern the financial and operating policies and therefore exercises control, and upon which the Company has a controlling financial interest. The entities are consolidated from the date at which the Company obtains control and are de-consolidated from the date at which control ceases. All intercompany balances and transactions have been eliminated. Accounting policies of the entities have been revised where necessary to ensure consistency with the policies adopted by the Company.
| 8 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
Under Accounting Standards Codification (“ASC”) Topic 810-10-25, Consolidation, Zircon de Mexico S.A. de C.V. (“ZDM”) and Zircon Corporation Limited (“Zircon UK”) have been determined to be variable interest entities with Zircon as the primary beneficiary. Therefore, the financial statements of ZDM and Zircon UK are consolidated with Zircon and the Company, and all significant intercompany transactions and balances have been eliminated.
Non-controlling Interests
The
Company follows ASC 810, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially
owned consolidated entities and the loss of control of those entities. Non-controlling interest positions, which represent 100% of the
activity in the Company’s consolidated entities before intercompany transactions have been eliminated, are reported as a separate
component of consolidated stockholders’ equity from the equity attributable to ZRCN’s stockholders for all years presented.
Variable Interest Entities
In accordance with ASC 810, the Company consolidates entities determined to be variable interest entities (“VIE’s”) for which it is the primary beneficiary. The Company has determined that ZDM and Zircon UK are VIE’s with the Company’s wholly owned subsidiary, Zircon, as the primary beneficiary. This determination reflects the entities’ design and purpose, contractual and common control arrangements granting the Company power and benefits, and the need for additional subordinated financial support by the Company.
Use of Estimates
The preparation of these unaudited, condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures. Significant estimates include provisions for credit losses, inventory valuation, intangible asset fair values, accrued rebates, useful lives of property and equipment, uncertain tax positions, and share-based compensation. Actual results may differ from these estimates.
Accounts Receivable, Net
Accounts receivable consisted of the following:
| (In thousands) | September 30, 2025 | March 31, 2025 | ||||||
| Accounts receivable | $ | $ | ||||||
| Less provision for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Activity related to the Company’s provision for credit losses was as follows:
| (In thousands) | September 30, 2025 | March 31, 2025 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| 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. 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, 2025 on Form 10-K.
| 9 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
Segment Reporting
The Company determines its reporting units in accordance with FASB ASC 280, Segment Reporting (“ASC 280”). The Company evaluates a reporting segment by first identifying its operating segments under ASC 280. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) to allocate resources and assess performance. The Company defines its CODM to be its president and chief operating officer. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has one operating segment and therefore one reporting segment.
The CODM reviews the financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating the Company’s financial performance. The CODM utilizes financial metrics, such as consolidated revenue, gross profit, and income (loss) from operations, as the financial measures for making decisions. This enables the CODM to assess the overall level of available resources and determine how best to deploy these resources across research and development projects in line with the long-term company-wide strategic goals. Management reviews its business as a consolidated segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate. The measure of segment assets is reported in the accompanying unaudited condensed consolidated balance sheets as “Total assets.” There are no significant segment expenses as the expenses that are included in the unaudited condensed consolidated loss from operations are general and administrative and research and development. There is no change in the Company’s operating or reporting segments for the six months ended September 30, 2025.
Concentration of Business and Credit Risk
As of September 30, 2025, the Company maintained deposits in a single bank that exceeded the federal insured deposit limit of the Federal Deposit Insurance Corporation (FDIC).
During
the three months ended September 30, 2025 and 2024, respectively, the Company generated approximately
As
of September 30, 2025 and March 31, 2025, 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.
On July 4, 2025 , during the six months ended September 30, 2025, the President signed into law the One Big Beautiful Bill Act (“the OBBBA”), which among other provisions made various changes to the US federal income tax treatment of research and experimentation expenses. On August 28, 2025, the Internal Revenue Service released Revenue Procedure 2025-28, detailing the methods by which a Company is allowed to adopt the research and experimentation-related provisions of the OBBBA.
Under
the OBBBA and Rev. Proc. 2025-28, the Company is allowed to amend prior year US federal income tax returns to deduct the research and
experimentation expenses in the year incurred. This is expected to result in a net refund to the Company of approximately $
| 10 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
Basic net loss per share of common stock is computed by dividing net income or loss attributable to ZRCN by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share excludes, when applicable, the potential impact of stock options, warrant shares, and other dilutive instruments because their effect would be anti-dilutive. Diluted net income per share, when applicable, includes the stock options and warrant shares because their effect would be dilutive. Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive. The potentially dilutive securities outstanding are as follows:
| For the Six Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| For the Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
As of September 30, 2025 these securities are not dilutive.
Recently Issued Accounting Pronouncements
As an emerging growth company, the Company will have the option of adopting new accounting pronouncements on a delayed basis and has opted to take advantage of this option. As a result, the Company has been adopting new accounting standards based on the timeline for adoption afforded to privately held companies, unless it chooses to early adopt a new accounting standard.
Accounting Standards Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The new standard requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted. The Company did not early adopt the new standard. The new standard will be applied prospectively. The Company adopted ASU 2023-09 on April 1, 2024.
| 11 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
Recently Issued Accounting Standards Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), the intent of which is to improve financial reporting and respond to investor input by requiring public business entities to disclose additional information about certain expenses in the notes to financial statements in interim and annual reporting periods. Among other provisions, the new standard requires disclosure of disaggregated amounts for expenses such as employee compensation, depreciation, and intangible asset amortization included in each expense caption presented on the face of the income statement. Public business entities are required to include certain amounts that are already required to be disclosed under GAAP in the same disclosure as the other disaggregation requirements as well as a qualitative description of any amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The new standard also requires disclosure of the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. An entity is not precluded from providing additional voluntary disclosures that may provide investors with additional decision-useful information. In January 2025, the FASB issued ASU Update 2025-01, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40).” The Board issued this Update to clarify the effective date of Accounting Standards Update 2024-03 to be effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” The amendments in the new standard should be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. Management does not expect this guidance to have a material impact to its unaudited condensed consolidated financial statements or related disclosures.
In July 2025 , the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”). This standard introduces a practical expedient that companies can choose to apply when determining allowances for credit losses. Specifically, it permits companies to assume that the current conditions as of the balance sheet date remain unchanged throughout the remaining life of the assets. This standard is effective for the Company for annual reporting periods beginning after December 15, 2025, and requires prospective application. The Company is currently evaluating the impact of ASU 2025-05, however, does not expect it to have a material impact on its unaudited condensed consolidated financial statements.
In September 2025, the FASB issued ASU 2025-06 - Intangibles - Goodwill and Other - Internal-Use Software (“ASU 2025-06”). This standard removes all references to project stages throughout ASC 350-40 and clarifies the threshold entities apply to begin capitalizing costs. This standard is effective for the Company for annual reporting periods beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted for all entities. The Company is currently evaluating the impact of ASU 2025-06, however, does not expect it to have a material impact on its unaudited condensed consolidated financial statements.
In September 2025 , the FASB issued ASU 2025-07 - Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606) (“ASU 2025-07”). This standard issues final guidance to exclude from the scope of derivative accounting certain contracts with underlyings that are based on the operations or activities of one of the parties to the contract. The guidance clarifies that an entity receiving share-based noncash consideration from a customer that is consideration for the transfer of goods or services in a revenue contract is required to apply the guidance on noncash consideration in ASC 606. An entity would not apply the guidance in other topics (e.g., ASC 815, ASC 321) to share-based noncash consideration from a customer for the transfer of goods or services unless and until the entity’s right to receive or retain the share-based noncash consideration is unconditional under ASC 606. This standard is effective for the Company for annual reporting periods beginning after December 15, 2026, and interim periods within those annual periods. Entities may apply the guidance either on a modified retrospective or prospective basis. Early adoption is permitted. The Company is currently evaluating the disclosure impact that ASU 2025-07 may have on its unaudited condensed consolidated financial statement presentation and disclosures.
| 12 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
In November 2025 , the FASB issued ASU 2025-08 - Financial Instruments - Credit Losses (“ASU 2025-08”). This standard issues final guidance requiring entities to apply the gross-up approach in ASC 326 to all “purchased seasoned loans.” Purchased seasoned loans are loans (excluding purchased financial assets with credit deterioration, credit card receivables, debt securities and trade receivables) that are (1) acquired in a business combination or (2) obtained through a transfer that is not a business combination or initially recognized through the consolidation of a variable interest entity, if certain seasoning criteria are met. A loan is considered seasoned if it is obtained more than 90 days after its origination date and the transferee was not involved in the origination. This standard is effective for the Company for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Entities are required to apply the guidance prospectively. Early adoption is permitted. The Company is currently evaluating the disclosure impact of ASU 2025-08, however, does not expect it to have a material impact on its unaudited condensed consolidated financial statements.
In November 2025 , the FASB issued ASU 2025-09 - Derivatives and Hedging (“ASU 2025-09”). This standard amends certain aspects of its hedge accounting guidance to better reflect an entity’s risk management activities in the financial statements. The guidance expands the hedged risks permitted to be aggregated in a group of individual forecasted transactions and increases the variable price components eligible to be designated as the hedged risk in the forecasted purchase or sale of nonfinancial assets. It also eliminates the requirement to apply the net written option test when certain compound derivatives are used in interest rate hedges. In addition, the guidance simplifies the application of hedge accounting for entities hedging forecasted interest payments on choose-your-rate debt instruments and addresses application issues related to “dual hedges,” where a foreign-currency denominated debt instrument is designated as a hedging instrument and a hedged item. This standard is effective for the Company for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the disclosure impact that ASU 2025-09 may have on its unaudited condensed consolidated financial statement presentation and disclosures.
In December 2025 , the FASB issued ASU 2025-10 - Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (“ASU 2025-10”). This standard issues final guidance on the recognition, measurement and presentation of a government grant received by a business entity to reduce diversity in practice. The Board leveraged the guidance in IAS 20 on accounting for government grants, with certain targeted improvements, to develop the ASU. This standard is effective for the Company for fiscal years beginning after December 15, 2028 and interim periods within those fiscal years. Entities may apply the guidance using a modified prospective, modified retrospective or retrospective approach. Early adoption is permitted. The Company is currently evaluating the disclosure impact that ASU 2025-10 may have on its unaudited condensed consolidated financial statement presentation and disclosures.
In December 2025, the FASB issued ASU 2025-11 - Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”). This standard issues final guidance clarifying the current interim disclosure requirements and the applicability of ASC 270. The guidance creates a comprehensive list of interim disclosures required under US GAAP and incorporates a disclosure principle that requires disclosures at interim periods when an event or change that has a material effect on an entity has occurred since the previous year end. This standard is effective for the Company for interim reporting periods within annual reporting periods beginning after December 15, 2027. The ASU may be applied prospectively or retrospectively by all entities that provide interim financial statements and notes in accordance with US GAAP. The Company is currently evaluating the disclosure impact that ASU 2025-11 may have on its unaudited condensed consolidated financial statement presentation and disclosures.
In December 2025, the FASB issued ASU 2025-12 - Codification Improvements (“ASU 2025-12”). This standard issues final guidance to clarify, correct errors in or make other improvements to a variety of topics in the Codification that are intended to make it easier to understand and apply. The amendments apply to all reporting entities in the scope of the affected accounting guidance. The amendments, among other things, clarify the guidance in ASC 260 on how to calculate diluted earnings per share when an entity has a loss from continuing operations and a contract that may be settled in stock or cash that is reported as an asset or liability for accounting purposes. This standard is effective for the Company for annual reporting periods beginning after December 15, 2026, and interim periods within those annual periods. Entities are required to apply the amendments to ASC 260 retrospectively. All other amendments may be applied prospectively or retrospectively. Early adoption is permitted. The Company is currently evaluating the disclosure impact that ASU 2025-12 may have on its unaudited condensed consolidated financial statement presentation and disclosures, however, does not expect it to have a material impact on its unaudited condensed consolidated financial statements.
| 13 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
4. Revenue
Disaggregation of Revenue from Contracts with Customers
Revenue disaggregated according to the major product line for the three and six months ended September 30, 2025 and 2024, respectively, were as follows:
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| (In thousands) | (Unaudited) | (Unaudited) | ||||||||||||||
| Revenue generated per major product line | ||||||||||||||||
| Stud sensor edge | $ | $ | $ | $ | ||||||||||||
| Multifunctional scanners | ||||||||||||||||
| Stud sensor center | ||||||||||||||||
| Target control products | ||||||||||||||||
| Other | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
Revenue disaggregated according to the geographical location of customers for the three and six months ended September 30, 2025 and 2024, respectively, were as follows:
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| (In thousands) | (Unaudited) | (Unaudited) | ||||||||||||||
| Revenue by geographic location of customers | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Canada | ||||||||||||||||
| Japan | ||||||||||||||||
| Europe | ||||||||||||||||
| Others | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
5. Inventory, Net
Inventory consisted of the following:
| September 30, 2025 | March 31, 2025 | |||||||
| (In thousands) | (Unaudited) | |||||||
| Finished goods, net | $ | $ | ||||||
| Raw materials, net | ||||||||
| Work in process, net | ||||||||
| $ | $ | |||||||
Allowance
for slow moving and obsolete inventory was estimated at $
| 14 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
6. Property and Equipment
Property and equipment consisted of the following:
| September 30, 2025 | March 31, 2025 | |||||||
| (In thousands) | (Unaudited) | |||||||
| Manufacturing equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Leasehold improvements | ||||||||
| Furniture and office equipment | ||||||||
| Vehicles | ||||||||
| Construction in progress | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
For
the three and six months ended September 30, 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:
| September 30, 2025 | March 31, 2025 | |||||||||||||||||||||||
| (In thousands) | (Unaudited) | |||||||||||||||||||||||
| Finite-lived intangible assets (1): | Intangibles,
Gross | Accumulated
Amortization | Intangibles,
Net | Intangibles,
Gross | Accumulated
Amortization | Intangibles,
Net | ||||||||||||||||||
| Patents issued and pending | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exclusivity rights and licenses | ( | ) | ( | ) | ||||||||||||||||||||
| Total finite-lived intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Finite-lived intangible assets (1): | September 30, 2025 Weighted Average Life | |||
| Patents issued and pending | ||||
| Exclusivity rights and licenses | ||||
| (1) |
For
the three and six months ended September 30, 2025 and 2024, amortization expense was less than $
| 15 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
Expected future amortization expense of acquired finite-lived intangible assets as of September 30, 2025 is as follows:
| For the Years Ending March 31, (In thousands) | Amount | |||
| Remainder of 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| $ | ||||
8. Accrued Expenses
Accrued expenses consisted of the following:
| September 30, 2025 | March 31, 2025 | |||||||
| (In thousands) | (Unaudited) | |||||||
| Rebates | $ | $ | ||||||
| Accrued taxes | ( | ) | ||||||
| Sales expense | ||||||||
| Payroll and related | ||||||||
| Advertising allowance | ||||||||
| Vacation | ||||||||
| Professional services | ||||||||
| Interest | ||||||||
| $ | $ | |||||||
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 September 30, 2025, the Company was not in compliance with certain covenants under its revolving credit facility with FGI Worldwide, LLC (“FGI”) and entered into a series of forbearance agreements with FGI.
From July 2025 through March 2026, the Company and FGI entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. On March 17, 2026, the Company repaid in full and extinguished its revolving credit facility with FGI Worldwide, LLC using proceeds from a new senior secured revolving credit facility. Upon repayment, the FGI Credit Agreement was terminated and the Company was released from all remaining obligations.
On
March 17, 2026 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”)
with Altriarch Holdings SPV, LLC, as lender (“Lender”). The Loan Agreement provides for a $
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 SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
The Loan Agreement requires the Company to comply with maximum tangible net worth and minimum fixed charge coverage ratios. However, the lender has waived compliance with the financial covenants through August 31, 2026. In addition, the Credit Agreement contains other standard affirmative and negative covenants such as those which (subject to certain thresholds) limit the ability of the Company and its subsidiary and affiliates to, among other things, incur debt, incur liens, engage in any Change of Control (as defined in the Loan Agreement), enter into new lines of business not related to the Company’s current lines of business, make certain investments, issue equity securities, engage in transactions with affiliates, or prepay any debt without the approval of the Lender. Events of default under the Loan Agreement include, among other things, payment defaults, breaches of representations, warranties or covenants, defaults under material indebtedness, certain events of bankruptcy or insolvency, judgment defaults, certain defaults or events relating to employee benefit plans or a change in control of the Company. The events of default would permit the lender to terminate commitments and accelerate the maturity of borrowings under the Loan Agreement if not cured within applicable grace periods.
If the Loan Agreement is terminated by Debtor anytime prior to the first (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 September 30, 2025, the
outstanding principal balance was approximately $
For
the three and six months ended September 30, 2025 and 2024 the interest expense on the notes payable to the Stauss Family Administrative
Trust totaled less than $
The Company has a defined contribution profit sharing plan for all eligible employees. Contributions to the profit-sharing plan are determined annually by the Board of Directors. There were no profit-sharing contributions made during the three and six months ended September 30, 2025 and 2024.
All
eligible employees are also allowed to participate in the Company’s 401(k) plan. The Company’s contributions to the plan
are based on a specified percentage of each participant’s eligible contribution, decided annually by the Board of Directors, as
defined in the plan document. For the three and six months ended September 30, 2025 and 2024, the Company made contributions to the 401(k)
plan of less than $
| 17 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
11. Equity
On February 28, 2024 the Company adopted a 2024 Equity Incentive Plan (the “Equity Plan”). The Plan provides for granting of stock options (“Options”), restricted stock units (“RSUs”), and other equity-based awards tied to the value of shares of common stock to key personnel, including directors, officers, employees, consultants, and advisors of the Company and its subsidiaries. The Plan provides for the grant of options (which may include “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”)), stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other stock-based awards. As of September 30, 2025, shares are authorized for issuance and 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.
| Number of shares | Weighted average exercise price | Weighted average remaining term (years) | Aggregate intrinsic value (in thousands) | |||||||||||||
| Outstanding as of March 31, 2025 | $ | $ | ||||||||||||||
| Options granted | — | |||||||||||||||
| Options forfeited | — | |||||||||||||||
| Outstanding as of September 30, 2025 | $ | $ | ||||||||||||||
| Exercisable as of September 30, 2025 | $ | $ | ||||||||||||||
No stock options were granted nor exercised during the six months ended September 30, 2025. shares were vested during the six months ended September 30, 2025.
For the three and six months ended September 30, 2025, the Company recognized less than $ million in stock based compensation, respectively. For the three and six months ended September 30, 2024, the Company recognized less than $ million in stock based compensation, respectively, primarily included in general and administrative expenses in the accompanying statements of operations and comprehensive loss. As of September 30, 2025, there was $ million of unrecognized share-based compensation expense related to unvested stock options over a weighted average term of years. As of September 30, 2024, there was $ million of unrecognized share-based compensation expense related to unvested stock options over a weighted average term of years.
During
the six months ended September 30, 2025, the Company issued an aggregate of
common shares to consultants, with an aggregate value of less than $
| September 30, 2025 | ||||
| Volatility | % - | % | ||
| Risk-free rate | % - | % | ||
| Expected life (in years) | - | |||
| Stock price | $ | - | ||
| Exercise price | $ | - | ||
12. Warrants
As of March 31, 2025 and September 30, 2025, the Company had
The Advisor Warrants are exercisable any time ten years from the date of issuance and have been recorded as stockholders’ equity in the Company’s balance sheet
| 18 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
13. Commitments and Contingencies
Legal Proceedings
Zircon engages in procedures to protect its proprietary rights and has filed complaints with the Federal Trade Commission and the Customs and Border Patrol. As of September 30, 2025, no material contingencies exist.
Leases
The
Company’s corporate headquarters in Campbell, California are leased from the Stauss Family Administrative Trust for approximately
$ 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 $
The
Company had leased a vehicle that expired on July 2024 and required monthly lease payments 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:
| For the six months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| (In thousands) | (Unaudited) | |||||||
| Operating lease expense | $ | $ | ||||||
| Total lease cost | $ | $ | ||||||
The following table provides the weighted average lease term and weighted average discount rate for the six months ended September 30, 2025 and 2024, respectively:
| For the six months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
| 19 |
ZRCN Inc.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2025 AND 2024
Future minimum lease payment under non-cancellable lease as of September 30, 2025 are as follows:
| Maturities of lease liabilities (In thousands) | Operating Leases | |||
| Year ending March 31, | ||||
| Remainder of fiscal 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 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 would have been reported if Zircon operated as an unaffiliated entity.
Zircon has an exclusive manufacturing and technical assistance agreement with Zircon de Mexico S.A. de C.V. (the “Contractor”), an entity which is owned by certain shareholders of the Company. Under the terms of the agreement, Zircon provides materials, technical assistance, and expertise to the Contractor, and the Contractor assembles certain of Zircon’s products.
In September 2017, an affiliated company, Zircon Corporation Limited, was established in the United Kingdom to facilitate the sale of Zircon’s products to European customers and operations began during the year ended March 31, 2019. The ownership structure of the affiliate is similar to the premerger ownership of Zircon.
The
Company leases from the Stauss Family Administrative Trust a
The
Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of September 30, 2025, principal
balance of $
15. Subsequent Events
From October 2025 through March 2026, the Company and FGI Worldwide, LLC (“FGI”) entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. On March 17, 2026, the Company repaid in full and extinguished its revolving credit facility with FGI Worldwide, LLC using proceeds from a new senior secured revolving credit facility. Upon repayment, the FGI Credit Agreement was terminated and the Company was released from all remaining obligations.
As
a result of the extinguishment, the Company recognized a loss on extinguishment of debt of approximately $
On
March 17, 2026, the Company entered into a $
In
accordance with an agreement with S.C.E. Partners (“SCE”) dated May 15, 2023 and amended on July 15, 2024, the Company issued
an additional common shares to SCE on July 15, 2025 and recorded stock-based compensation expense of less than $
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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis of the financial position and results of operations (“MD&A”) should be read in conjunction with the unaudited consolidated financial statements and related notes to the financial statements included elsewhere in this Report. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include, among others, those listed under “Forward-Looking Statements” and “Risk Factors” and those included elsewhere in this report.
OVERVIEW
Zircon is a Silicon Valley-based company operating in Northern California since 1977. Leveraging its proprietary sensor-based technology across a mix of global markets, including commercial and residential buildings, government infrastructure and building information modeling. Zircon is focused on creating new, technical solutions for global applications in the areas of home and workplace safety, project efficiency, and structural data analysis.
Zircon benefits from a multi-generational customer base of professional contractors and do-it-yourselfers who rely on Zircon’s innovative and easy-to-use products to get the job done.
RESULTS OF OPERATIONS
During the six months ended September 30, 2025, and as of March 31, 2025, Zircon’s selected financial information is the following (in thousands):
Financial Position Analysis
The information presented below as of September 30, 2025 as compared to March 31, 2025 for ZRCN Inc (in thousands):
| September 30, 2025 | ||||||||
| In thousands | (Unaudited) | March 31, 2025 | ||||||
| Assets | $ | 25,045 | $ | 23,378 | ||||
| Liabilities | $ | 21,810 | $ | 17,848 | ||||
| Equity | $ | 3,235 | $ | 5,530 | ||||
Assets
Total assets on September 30, 2025 were $25.0 million compared to $23.4 million on March 31, 2025, which was a increase of approximately $1.6 million. This increase was driven primarily by a decrease in cash of $1.4 million, an increase in accounts receivable of $4.9 million, a decrease in inventory of $1.9 million, an increase in prepaids and other assets of $0.2 million, and a decrease in all other assets of $0.2 million.
Liabilities
Total liabilities on September 30, 2025 were $21.8 million compared to $17.8 million on March 31, 2025, which was an increase of approximately $4.0 million. This increase was driven primarily by an increase in our line of credit of $0.5 million, an increase in accounts payable of $2.5 million, an increase in accrued expenses of $1.1 million, and a decrease in the operating lease liability of $0.1 million.
Equity
Total equity on September 30, 2025 was $3.2 million compared to $5.5 million on March 31, 2025, which was a decrease of approximately $2.3 million and was driven by a comprehensive loss of $2.4 million offset by an increase in additional paid-in capital from stock-based compensation of $0.1 million.
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Operating Results Analysis
| For the Three Months Ended September 30, | For the Six Months Ended September 30, | |||||||||||||||
| (In thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||
| Net Sales | $ | 9,428 | $ | 9,362 | $ | 15,490 | $ | 15,173 | ||||||||
| Cost of goods sold | 6,617 | 5,356 | 11,301 | 8,816 | ||||||||||||
| Gross Profit | 2,811 | 4,006 | 4,189 | 6,357 | ||||||||||||
| Gross Margin | 30 | % | 43 | % | 27 | % | 42 | % | ||||||||
| Operating Expenses | ||||||||||||||||
| General & administrative | 1,737 | 2,025 | 3,184 | 3,486 | ||||||||||||
| Marketing & selling | 1,156 | 1,105 | 2,316 | 2,008 | ||||||||||||
| Research and development | 428 | 432 | 839 | 857 | ||||||||||||
| Total Operating Expenses | 3,321 | 3,562 | 6,339 | 6,351 | ||||||||||||
| Operating Income (Loss) | (510 | ) | 444 | (2,150 | ) | 6 | ||||||||||
| Other Expenses | ||||||||||||||||
| Interest expense | 201 | 203 | 405 | 426 | ||||||||||||
| Other loss | 7 | 9 | 15 | 16 | ||||||||||||
| (Income) loss on foreign currency translation | 42 | (62 | ) | 106 | (165 | ) | ||||||||||
| Total other expenses | 250 | 150 | 526 | 277 | ||||||||||||
| Income (Loss) before income taxes | (760 | ) | 294 | (2,676 | ) | (271 | ) | |||||||||
| Benefit from (Provision for) income taxes | 198 | 175 | 180 | 154 | ||||||||||||
| Net income (loss) | $ | (562 | ) | $ | 469 | $ | (2,496 | ) | $ | (117 | ) | |||||
| Less: Net loss attributable to non-controlling interests | 67 | (176 | ) | 185 | (98 | ) | ||||||||||
| Net income (loss) attributable to ZRCN Inc. common stockholders | $ | (629 | ) | $ | 645 | $ | (2,681 | ) | $ | (19 | ) | |||||
| Foreign currency translation adjustment | (72 | ) | (125 | ) | 58 | (8 | ) | |||||||||
| Comprehensive income (loss) | $ | (634 | ) | $ | 344 | $ | (2,438 | ) | $ | (125 | ) | |||||
Sales revenue and gross margin
Revenue for the three months ended September 30, 2025 was $9.4 million compared to $9.4 million for the three months ended September 30, 2024 which was an increase of $66,000 or 1%. This was driven primarily by increased sales to one of our major customers. Gross profit for the three months ended September 30, 2025 was $2.8 million, or 30% compared to $4.0 million, or 43%, during the three months ended September 30, 2024, which was a decrease of $1.2 million, or 30%. The decrease in gross profit was primarily driven by an increase in duty expense resulting from increased tariffs on our products manufactured in China.
Revenue for the six months ended September 30, 2025 was $15.5 million compared to $15.2 million for the six months ended September 30, 2024 which was an increase of $0.3 million, or 2%. This increase was driven primarily by increased sales in the United States to our major customers. Gross profit for the six months ended September 30, 2025 was $4.2 million, or 27% compared to $6.4 million, or 42%, during the six months ended September 30, 2024, which was a decrease of $2.2 million, or 34%. The decrease in gross profit was primarily driven by an increase in duty expense resulting from increased tariffs on our products manufactured in China.
During the three and six months ended September 30, 2025, the U.S. government implemented and/or expanded tariffs pursuant to authorities under the International Emergency Economic Powers Act (‘IEEPA”), targeting imports from certain countries that are significant sources of raw materials, components, and finished goods used in the Company’s operations.
As a result, we experienced increased input costs associated with imported materials and products subject to these tariffs. The increased tariff expense recognized during the three months ended September 30, 2025 was approximately $1.0 million compared to $0.2 million during the three months ended September 30, 2024 which was an increase of $0.8 million. These costs were recognized primarily within cost of goods sold and contributed to a gross margin decrease of 1,300 basis points.
The increased tariff expense recognized during the six months ended September 30, 2025 was approximately $2.4 million compared to $0.5 million during the six months ended September 30, 2024 which was an increase of $1.9 million. These costs were recognized primarily within cost of goods sold and contributed to a gross margin decrease of 1,200 basis points.
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The Company has taken the following actions to mitigate the impact of these tariffs going forward including:
| 1. | Adjusting sourcing strategies, including shifting to alternative vendor locations and jurisdictions where feasible (primarily from subcon locations in China to Malaysia and our facility in Ensenada, Mexico, | |
| 2. | Implementing selective price increases to our major customers; however, these increases are temporary, | |
| 3. | Improving operational efficiencies. |
However, these mitigation efforts have not fully offset the increased costs from the tariffs and the timing and effectiveness of such actions may vary. In addition, tariffs have contributed to supply chain disruptions, including longer lead times and increased logistics costs, which have affected inventory levels and fulfillment timing during the period.
Research and development
Research and development expenses for the three months ended September 30, 2025 were approximately $0.4 million compared to approximately $0.4 million for the three months ended September 30, 2024. This decrease of $4,000, or 1%, and was driven primarily by reduced consulting expenses.
Research and development expenses for the six months ended September 30, 2025 were $0.8 million compared to $0.9 million for the six months ended September 30, 2024. This decrease of $18,000, or 2%, was driven primarily by reduced consulting expenses.
General and Administrative expenses
General and administrative expenses for the three months ended September 30, 2025 were $1.7 million compared to $2.0 million for the three months ended September 30, 2024 which was a decrease of $0.3 million, or 14%. This decrease was driven primarily by a decrease in consulting and outside service expenses.
General and administrative expenses for the six months ended September 30, 2025 were $3.2 million compared to $3.5 million for the six months ended September 30, 2024 which was a decrease of $0.3 million, or 9%. This decrease was driven primarily by a decrease in consulting and outside service expenses.
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Marketing and Selling expenses.
Marketing and selling expenses for the three months ended September 30, 2025 were $1.2 million compared to $1.1 million for the three months ended September 30, 2024 which was an increase of $0.1 million, or 5%. This increase was driven primarily by an increase in product marketing, consulting and advertising expenses.
Marketing and selling expenses for the six months ended September 30, 2025 were $2.3 million compared to $2.0 million for the six months ended September 30, 2024 which was an increase of $0.3 million, or 15%. This increase was driven primarily by additional consulting, advertising, sales commissions, and payroll expenses .
Other expenses
Other expenses for the three months ended September 30, 2025 were approximately $0.3 million compared to $0.2 million for the three months ended September 30, 2024 which was an increase of approximately $0.1 million, or 50%. This increase was driven primarily by small increases in interest expense and foreign exchange losses.
Other expenses for the six months ended September 30, 2025 were approximately $0.5 million compared to $0.3 million for the six months ended September 30, 2024 which was an increase of approximately $0.2 million, or 67%. This increase was driven primarily by an increase in foreign exchange gains of approximately $0.2 million.
Cash Flow Analysis
| For the Six Months Ended September 30, | ||||||||
| In thousands | 2025 | 2024 | ||||||
| Operating activities | $ | (1,453 | ) | $ | (517 | ) | ||
| Investing activities | (121 | ) | (686 | ) | ||||
| Financing activities | 508 | 972 | ||||||
| Effect of exchange rate changes | (301 | ) | 151 | |||||
| Net increase (decrease) in cash | $ | (1,367 | ) | $ | (80 | ) | ||
Operating Activities
During the six months ended September 30, 2025, net cash used in operating activities was $1.5 million. This decrease was due to a net loss of $2.5 million offset by non-cash expenses for depreciation, amortization, inventory obsolescence impairment, credit loss recovery, amortization of financing costs, and stock based compensation of $1.1 million, an increase in accounts receivable of $5.0 million, a decrease in inventories of $1.5 million, an increase in prepaids and other assets of $0.2 million, and an increase in accounts payable and accrued expenses of $3.6 million.
During the six months ended September 30, 2024, net cash used operating activities was $0.5 million. This decrease was due to a net loss of $0.1 million offset by non-cash expenses for depreciation, amortization, and inventory obsolescence impairment, credit loss recovery, amortization of financing costs, and stock based compensation of $1.3 million, common stock issued for advisory services of $47,000, a decrease in inventories of $0.4 million, offset by an increase in accounts receivable of $0.7 million, a decrease in accounts payable and accrued expenses of $0.4 million, an increase in deferred expenses of $0.3 million, an increase in prepaid expenses of $0.2 million, an increase in deferred tax assets of $0.2 million, a decrease in operating lease liabilities of $54,000, and increase in federal tax deposits of $66,000, and non-cash foreign currency gains of $0.2 million.
Investing Activities
During the six months ended September 30, 2025, net cash used in investing activities was $0.1 million and was due to purchases of property and equipment of $0.1 million.
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During the six months ended September 30, 2024, net cash used in investing activities was $0.7 million and was due to purchases of property and equipment of $0.7 million.
Financing Activities
During the six months ended September 30, 2025, net cash provided by financing activities was $0.5 million. This increase was due to net borrowings on our line of credit of $0.5 million.
During the six months ended September 30, 2024, net cash provided by financing activities was $1.0 million. This increase was due to net borrowings on our line of credit of $1.3 million, offset by prior Subchapter S shareholder tax distributions of $0.3 million and repayment of debt assumed as part of the Harmony merger of $75,000.
Liquidity, Capital Resources and Sources of Financing
As of September 30, 2025 the Company had a cash balance of $40,000 and working capital of $1.2 million. Working capital as of March 31, 2025 was $3.5 million. The decrease of $2.3 million was driven primarily by a decrease in cash of $1.4 million, a decrease in inventory of $1.9 million, an increase in accounts payable and accrued expenses of $3.6 million, an increase in our line of credit of $0.5 million offset by an increase in accounts receivables of $4.9 million and prepaids and other current assets of $0.2 million. To date the Company has been financed primarily through retained earnings, loans and credit lines secured by accounts receivable, inventory and fixed assets.
The increased tariff-related costs have placed additional pressure on our working capital requirements. The decrease in gross profit and gross margin and extended supply chain cycles have resulted in a decrease in our cash balance of approximately $1.4 million from March 31, 2025. Continued or escalated tariffs will require additional financing and changes in capital allocation priorities including shifting payments to the U.S. Government from inventory suppliers to other vendors.
We do not believe our existing cash and cash equivalents along with borrowing capacity from our current lender will be sufficient to meet our anticipated cash needs over the next 12 months. The Company has incurred losses and anticipates that existing cash and available credit may not be sufficient to meet its operating and debt service needs for the next 12 months. As of September 30, 2025, the Company is not in compliance with its Credit Agreement covenants and is operating under a forbearance agreement. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing options to improve liquidity, including negotiating waivers or amendments to existing debt covenants, reducing discretionary spending, and evaluating potential capital raises. While these plans are intended to mitigate the risk, there can be no assurance that they will be successful in eliminating the substantial doubt.
On May 31, 2024, the Company entered into a Revolving Credit Agreement (the “Credit Agreement”) with FGI Worldwide LLC, as Agent for the lender (“FGI”). The Credit Agreement provides for a $15 million senior secured revolving credit facility (the “Credit Facility”) available to be used by the Company, Zircon and its Affiliates for replacement and discharge of the Company’s then current US Bank loan of $8,750,000 and matures on May 31, 2027. The Company, Zircon and the Affiliates are guarantors of all obligations under the Credit Agreement and the Company’s four principal shareholders are limited guarantors thereof. As of September 30, 2025, the outstanding balance on the FGI Credit Facility was approximately $8.9 million.
The Credit Agreement stipulates a base rate measured by the sum of Term SOFR for a period of one month, as published by the CME Group Benchmark Administration Limited (or any successor administration of Term SOFR) two business days prior to the beginning of the calendar month and a percentage equal to 0.10% (10 basis points) per annum. If at any time the displayed Term SOFR is less than 0.00%, Term SOFR is deemed to be 0.00% for the purposes of the credit facility.
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The Credit Agreement bears interest measured by such outstanding amounts on receivable advances and inventory advances that accrue interest at the greater of 5.25% per annum or 3.00% above the base rate. Interest is charged on the last day of each month on a daily net balance of funds advanced or otherwise charged to the Company.
The Credit Agreement requires the Company to comply with maximum total net leverage of $15.0 million and a minimum fixed charge coverage ratio of 1.10. As of September 30, 2025 the Company was not in compliance with the fixed charge coverage ratio and is working with the lender to obtain a waiver and has entered into a third forbearance agreement and Credit Agreement amendment with regard thereto along with additional covenants.
Remediation of Material Weakness
During and subsequent to the period ended September 30, 2025, we have initiated steps to remediate the material weaknesses in our internal control over financial reporting related to (i) inadequate segregation of duties due to limited personnel and (ii) insufficient formalized policies and procedures for accounting, financial reporting and record keeping.
In furtherance of these efforts, we hired a Corporate Controller with significant accounting and financial reporting experience. The Corporate Controller is responsible for strengthening our financial reporting processes and internal control environment. As part of these efforts, the Corporate Controller has implemented enhanced review procedures, including the review and approval of all journal entries prior to posting.
In addition, we have begun to formalize and document key accounting and operational processes and controls. These efforts include the development and implementation of written policies and procedures related to, among other areas, journal entry preparation and review, revenue recognition and accounts receivable cycles, and the purchase order and procurement process. These policies are designed to improve consistency, establish clear control ownership, and enhance oversight across key transaction cycles.
We are also evaluating further enhancements to our control environment, including the potential addition of personnel or third-party resources, to improve segregation of duties and strengthen financial reporting oversight.
While these actions are intended to remediate the identified material weaknesses, the material weaknesses cannot be considered remediated until the applicable controls have been fully implemented and have operated effectively for a sufficient period of time and management has concluded, through testing, that these controls are effective. We continue to monitor the effectiveness of these remediation efforts and plan to complete the remediation process as promptly as reasonably possible.
Information on Outstanding Securities
The following table sets out the number of common shares and warrants outstanding as of the date hereof:
| Information on Outstanding Securities as of September 30, 2025 | ||||
| Common shares issued and outstanding | 10,359,924 | |||
| Potential issuance of common shares | ||||
| Warrants | 217,184 | |||
| Stock options | 3,216,500 | |||
| Fully diluted shares | 13,793,608 | |||
During the six months ended September 30, 2025, the Company issued 53,498 common shares primarily to two service providers with the associated stock-based compensation being recorded in general and administrative expenses.
Related Party Transactions
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 September 30, 2025, principal balance of $0.7 million is due and payable on December 31, 2027. Interest accrued at 5.5% per annum is paid quarterly and included in accrued expenses. The notes are subordinated to the credit note payable to FGI and no payment is to be made on the notes without prior approval from the lender.
For the three and six months ended September 30, 2025 and 2024 the interest expense on notes payable to the Stauss Family Administrative Trust was approximately $9,000 and $19,000, respectively.
On March 27, 2025 the Stauss Family Administrative Trust and the Company agreed to extend the maturity date of the Notes Payable to the trust to December 31, 2027.
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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 and six months ended September 30, 2025, for details.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Trade Policy and Tariff Risk
Our business is exposed to risk arising from changes in trade policy, including tariffs imposed under IEEPA. These tariffs may:
| ● | Increase the cost of imported goods and materials, | |
| ● | Reduce demand for our products due to higher prices, | |
| ● | Disrupt supply chains and increase sourcing complexity, and | |
| ● | Introduce volatility in gross margins. |
Interest Rate Risk
ZRCN’s exposure to changes in interest rates relates primarily to Zircon’s cash, cash equivalents and outstanding debts.
Foreign Currency & Exchange Risk
ZRCN sources parts from foreign vendors and sells its products in various foreign markets around the world. Changes in foreign currency exchange for the purchase of components from vendors and the sale of products in foreign markets can have a material impact on the Company’s results of operations and liquidity. The Company hedges or takes other steps to mitigate the impact from foreign currency exchange rates, but there is no guarantee that these efforts will be successful in every instance.
Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
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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 September 30, 2025, our disclosure controls and procedures were not effective as of such date as a result of material weaknesses in our internal control over financial reporting due to inadequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping. Under the direction of our principal executive officer and principal financial and accounting officer, we are developing a plan to remediate the material weaknesses.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
As of September 30, 2025, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of September 30, 2025, our internal control over financial reporting had material weaknesses that lack adequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping and we are implementing plans to improve such internal control.
Changes in Internal Control Over Financial Reporting
During and subsequent to September 30, 2025, we initiated remediation actions in response to the material weaknesses identified in our internal control over financial reporting. These actions include the hiring of a Corporate Controller, the implementation of enhanced review procedures over journal entries, and the development and documentation of key accounting policies and procedures. These changes are intended to strengthen our internal control environment.
Other than the foregoing, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 2025 Form 10-K filed with the Securities and Exchange Commission on September 10, 2025 . There have been no material changes from the risk factors set forth in our Form 10-K filed on September 10th, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We have not made any sales of unregistered securities of our common stock during the period from April 1, 2025 through September 30, 2025.
Item 3. Defaults Upon Senior Securities
See the Company’s 10-K for the fiscal year ended March 31, 2025 and its 8-K’s filed subsequent to the filing of its 10-K for the fiscal year ended March 31, 2025 for Forbearance Agreements executed with the Company’s former Senior Securities Lender, FGI Worldwide LLC, and the Company’s 8-K filed on March 23, 2026 describing its Loan and Security Agreement dated March 17, 2026 with Altriarch Holding SPV, LLC, the Company’s successor Senior Securities Lender.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During
the last fiscal quarter, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
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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: June 26, 2026 |
By: | /s/ John Stauss |
| Name: | John Stauss | |
| Title: | Chairman and Chief Executive Officer | |
| Date: June 26, 2026 | By: | /s/ Jeff Parsons |
| Name: | Jeff Parsons | |
| Title: | Chief Financial Officer | |
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