ZRCN Inc 10-K for FY2026
ZRCN Inc. (ZRCN)
About this 10-K
ZRCN Inc filed this 10-K on September 28, 2026, covering the fiscal year ended March 31, 2026 (FY2026).
Headline figures
Fiscal year ended March 31, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $26.89M
- down 4.2% from $28.08M a year earlier
- Net loss
- $7.05M
- compared with a net loss of $2.89M a year earlier
- Diluted EPS
- -$0.68
- compared with -$0.28 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________to____________________________
Commission
File No.
(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:
Securities registered under Section 12(b) of the Exchange Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.0001 per share
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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 ST (§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, a smaller reporting company and 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. Yes ☐ No
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. Yes ☐ No
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No
The
aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $
As of August 31, 2026, the number of shares of the registrant’s common stock outstanding was .
ZRCN Inc
Table of Contents
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PART I
Forward-Looking Statements
This Annual Report on Form 10-K (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 the 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.
All of our forward-looking statements are as of the date of this Annual Report on Form 10-K only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Annual Report on Form 10-K or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Annual Report on Form 10-K, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Annual Report on Form 10-K that modify or impact any of the forward-looking statements contained in this Annual Report on Form 10-K will be deemed to modify or supersede such statements in this Annual Report on Form 10-K.
This Report may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies, clinical trials, and publications are reliable, we have not independently verified market and industry data from third-party sources.
Risk Factor Summary
Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors, but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors”, together with the other information in this Report. If any of the following risks actually occur (or if any of those listed elsewhere in this Report occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.
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Macroeconomic and Industry Risks
The market for our products is highly price sensitive and subject to change with market conditions.
Business Risks
To remain competitive and stimulate customer demand, we must successfully manage frequent introductions and transitions of products.
We depend on product manufacturing and logistical services provided by outsourcing partners, many of which are located outside of the U.S.
Future operating results depend upon our ability to obtain products in sufficient quantities on commercially reasonable terms.
We are exposed to the risk of write-downs on the value of our inventory and other assets, in addition to purchase commitment cancellation risk.
Demand for new products below expectations and our ability or inability to develop and introduce new products at favorable economic levels could adversely impact our financial results and prospects for growth.
A significant portion of our revenue is dependent upon our three largest customers that collectively accounted for approximately 68% of net revenue in fiscal 2026. The loss of any one of these customers would negatively impact our revenues and our results of operations.
If the products that we offer do not reflect our customers’ tastes and preferences, our net sales and profit margins could decrease.
Sales of our products, to a certain extent, are dependent on a strong housing and real estate market. Continued inflation and potential higher interest rates could have a negative effect on our sales, profitability and cash flow.
Legal and Regulatory Compliance Risks
We are subject to complex and changing laws and regulations, which expose us to potential liabilities, increased costs, and other adverse effects on our business.
Tariffs imposed by the US Government on products we import into the United States as well as tariffs imposed by foreign countries on the sales of our products into those countries have had and could have substantial negative impacts on our sales, costs, profits and cash flow.
Shifts in energy policy could have a negative impact on our supply chain and the transportation costs associated with our products.
Financial Risks
We manufacture and sell our products in numerous countries around the world. As a result, we may be exposed to foreign currency risks as we engage in transactions and make investments denominated in foreign currencies.
We are subject to changes in tax rates, the adoption of new U.S. or international tax legislation and exposure to additional tax liabilities.
Our results of operations could be negatively impacted by inflationary or deflationary economic conditions.
Financing Risks
We may incur future indebtedness and may in the future issue additional equity or debt securities to finance our business operations and strategic initiatives.
Tight capital and credit markets or the failure to maintain credit ratings could adversely affect us by limiting our ability to borrow or otherwise access liquidity.
We are exposed to credit risk on our accounts receivable.
We have the risk of non-compliance with the terms of the line of credit agreement with our new lender. Such non-compliance could impact our ability to borrow against the credit agreement and negatively impact our ability to pay our inventory and service providers.
Legal, Tax, Regulatory and Compliance Risks
Our brand names are important assets of our businesses and violation of our intellectual property or trademark rights, or the failure of our licensees or vendors to comply with our product quality, manufacturing requirements, marketing standards, and other requirements could negatively impact revenues and brand reputation.
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely affect our reputation and results of operations.
New laws and regulations regarding data privacy in various jurisdictions could cause us to incur additional production, information technology, and legal and reporting expenses to meet those requirements which could negatively impact our financial performance.
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Climate change and climate change legislation or regulations may adversely affect our business. Additionally, disruptions arising from natural disasters, including climate-related events or other unusual occurrences could materially impact our ability to ship products to our customers and impact our vendors’ ability to transport work-in process products to us.
Our failure to continue to successfully avoid, manage, defend, litigate, and accrue for claims and litigation could negatively impact our results of operations or cash flows.
The rapid development and adoption of artificial intelligence (“AI”) technologies may expose us to operational, legal, regulatory, reputational and competitive risks. We increasingly use, and may continue to expand our use of, AI technologies in our products, services, business processes and operations. The development, deployment and use of AI present significant risks and uncertainties, many of which are evolving and difficult to predict. AI technologies may not function as intended and may produce inaccurate, misleading, biased, offensive or otherwise flawed outputs. Certain of our products have embedded batteries. There are risks related to the replacement and disposals of these batteries (including fire risks) along with additional regulations being developed across various jurisdictions (including individual states). Complying with these regulations could cause the Company to incur additional expenses which could have a negative impact on our financial performance.
Our products are sold in plastic packaging. If environmental regulations increase, we may be forced to change the way we ship and show our products in our customers’ retails stores and incur additional expenses which could harm our financial performance.
Our products could be recalled.
Other Risks
Our results of operations and earnings may not meet guidance or future expectations.
If we are unable to maintain effective internal controls over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected, which could have a material adverse effect on our financial condition and the trading price of our common stock.
Risks Related to our Common Stock
Our common shares currently trade on the OTCQX exchange; however, to date there has been little trading activity in our shares.
We may conduct offerings of our equity securities in the future, in which case an investor’s proportionate interest may become diluted.
The sale or availability of substantial amounts of our common stock could adversely affect their market price.
Because we do not expect to pay dividends in the foreseeable future, investors must rely on price appreciation of our common stock as the only means of generating a positive return for any investment.
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PART I
ITEM 1. BUSINESS
Overview
We are a Silicon Valley-based company operating in Northern California since 1977. Leveraging our proprietary sensor-based technology across a mix of global markets, including commercial and residential buildings, government infrastructure and building information modeling, we are focused on creating new, technical solutions for global applications in the areas of home and workplace safety, project efficiency, and structural data analysis.
We have amassed a multi-generational customer base of professional contractors and do-it-yourself practitioners who rely on Zircon’s innovative and easy-to-use products to get the job done.
We recently launched SuperScan® advanced technology, our most innovative solution to date. We believe that this is a game-changing hand-held stud finder that will help millions of contractors and do-it-yourselfers better understand what’s behind a wall surface. In addition to locating wood studs, Wood Stud SuperScan® stud finder, also recognizes and filters out metallic and low-density objects, delivering a more accurate picture of wooden objects behind the wall surface.
Our Products
Building on over four decades of proprietary technology development and an extensive patent portfolio, we are the manufacturer of the original StudSensor™ stud finder, and a growing line of electronic hand tools, including MultiScanner™ wall scanners, MetalliScanner® metal detectors, and other electronic scanning, water detection and leveling tools.
Markets and Distribution
Our products are sold primarily to tool retailers for sale to do-it-yourself (DIY) enthusiasts and professional tool users throughout the world.
During the years ended March 31, 2026 and 2025, we generated approximately 68% and 64% of our total revenue from three customers, respectively. Accounts receivable from these customers amounted to approximately 80% and 64% of total accounts receivable as of March 31, 2026 and 2025, respectively.
Intellectual Property
Our policy is to protect and enhance the proprietary technologies, inventions, and improvements that are commercially important to our business by filing patent applications in the U.S. and other jurisdictions related to our proprietary technology, inventions, improvements, and products. We also rely on tradenames, trademarks, trade secrets, and know-how relating to our proprietary technologies and products, continuing innovation, and in licensing technology and products. This reliance is expected to develop, maintain, and strengthen our proprietary position for our products. We consider our Intellectual Property, including patents, tradenames, trademarks, and the like, to be among our most valuable assets (e.g., SuperScan®, StudSensor™, MultiScanner™, MetalliScanner® and other Zircon trademarks).
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As of March 31, 2026, we held approximately 50 active and pending patents in the United States and approximately 62 active and pending patents outside of the United States. In addition, we held approximately 25 active and pending trademarks in the United States and approximately 1 active and pending trademarks outside of the United States.
Competition
We face competition from several companies that sell similar scanning products through the same retail channel. Stanley, Black & Decker, Franklin, DeWalt, Ryobi, Klein, and others compete for space in retail outlets such as Home Depot and Lowe’s. All the competitors use the capacitive technology pioneered by us and have incorporated many other features introduced by us. Competition is characterized by aggressive pricing and generous rebates and marketing contributions resulting in downward pressure on gross margins.
Our ability to compete successfully depends heavily on ensuring the continuing and timely introduction of innovative new products to the marketplace. Principal competitive factors important to Zircon include our reputation, price, product features and performance, product quality and reliability, design innovation, very high fill rates and distribution capability, marketing and customer service.
Supply Chain
Our products are assembled by our affiliate, a single-customer Maquiladora company, Zircon de Mexico, located in Ensenada, Mexico and by various outsourced component manufacturers located in China and elsewhere. Zircon de Mexico is a variable interest entity that we consolidate as its primary beneficiary; see Note 3, “Variable Interest Entities,” for further discussion. Various components used in the production of our products are sourced from suppliers throughout the world.
Our products include proprietary Application Specific Integrated Circuits or ASIC Semiconductors, which are single sourced in the US. Due to the potentially long lead time in the production of microprocessors, Zircon typically seeks to maintain six to twelve months of anticipated unit volume in any given period as ‘safety stock’ of its ASIC chips to avoid supply shortages. Zircon has historically maintained a greater than 97% on-time delivery with its retail and distributor sales partners.
Our manufacturing affiliate, Zircon de Mexico, also benefits from a deep-water port in Ensenada, Mexico that facilitates direct delivery of product and parts from international vendors. Access to the port has allowed us to avoid historic supply chain disruptions caused by congestion in US ports or other impediments to shipping and receiving necessary components from offshore suppliers.
In September 2017, an affiliated company, Zircon Corporation Limited, was established in the United Kingdom to facilitate the sale of our products to European customers and operations began during the year ended March 31, 2019. The principal shareholders of ZRCN are the shareholders of the affiliates and the affiliates are operated solely for the benefit of Zircon.
Research and Development
During fiscal 2026 and fiscal 2025, we incurred research and development (R&D) expenses of $1.7 million and $1.7 million, respectively. Research and development costs that are not capitalizable under ASC 735-10-25 are expensed as incurred. We engage in research & development as a regular, ongoing part of our operations. Our products include proprietary technology, which we believe creates significant product performance advantages relative to products of our competitors and creates key competitive advantages for the Company. We intend to continue to invest materially in R&D to maintain the competitiveness of our existing products, and to develop and commercialize new technologies for future product and product portfolio expansion activities.
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Employees & Contractors
We strive to build a talented, motivated, and dedicated team. As of March 31, 2026, we had 32 full-time equivalent employees of which 7 were in R&D, 8 were in Sales, 6 were in Marketing and 10 were in G&A, and 1 was in Operations. As of March 31, 2026, Zircon de Mexico had 124 full-time equivalent employees of which 90 were in Operations, 6 were in Marketing, 12 were in R&D, and 16 were in Administration.
We utilize contractors and consultants, including financial advisors, SEC reporting consultants, Investor Relations consultants, Marketing consultants and other such providers that are deemed appropriate for achieving the goals and objectives laid out by management.
Available Information
When filed, the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the U.S. Securities and Exchange Commission (the “SEC”). When filed, such reports and other information filed by the Company with the SEC will be available free of charge when such reports are available on the SEC’s website. The Company periodically provides other information for investors on its website, www.zircon.com. Online investor information typically includes press releases and other information about financial performance, information on environmental, social and corporate governance and details related to the Company’s annual meeting of shareholders. The information contained on the websites referenced in this Report is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references for convenience only.
ITEM 1A. RISK FACTORS
Our business, results of operations and financial condition, and reputation as well as the price of our stock, if trading, can be affected by a number of factors, whether currently known or unknown, including those described below. When any one or more of these risks materialize from time to time, ZRCN’s business, results of operations and financial condition, as well as the price of our stock, can be materially and adversely affected.
You should consider carefully the risks described below together with the other information contained in this current report on Form 10-K. This report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described below.
Because of the following factors, as well as other factors affecting our results of operations and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. This discussion of risk factors contains forward-looking statements.
This section should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Report.
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Macroeconomic and Industry Risks
Our operations and performance depend significantly on global and regional economic conditions and adverse economic conditions can materially adversely affect our business, results of operations and financial condition.
We generate sales revenue primarily in the North American market with additional sales revenues coming from Europe and Asia. In addition, some of our global supply chain and our manufacturing partners, are located in Mexico, Malaysia and China. As a result, our operations and performance depend significantly on global and regional economic conditions. We take steps to mitigate manufacturing risks through redundancies and regular monitoring of business conditions, but there is no guarantee that these efforts will mitigate all associated risks and variables in the global supply chain can have a material impact on our revenue and profitability.
Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations can materially adversely affect demand for our products. In addition, consumer confidence and spending can be adversely affected in response to financial market volatility, negative financial news, high inflation and interest rate, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other economic factors.
In addition to an adverse impact on demand for Zircon’s products, uncertainty about, or a decline in, global or regional economic conditions can have a significant impact on Zircon’s suppliers, manufacturing partners, and logistics providers. Potential effects include financial instability; inability to obtain credit to finance operations and purchases of our products; and insolvency.
A downturn in the economic environment can also lead to increased business operation risks for the Company and limitations on our ability to conduct and finance our operations. These and other economic factors can materially adversely affect our business, results of operations and financial condition.
Our business can be impacted by political events, trade and other international disputes, Force Majeure events like war, terrorism, natural disasters, public health issues, industrial accidents and other unforeseen business disruptions.
Political events, trade and other international disputes, war, terrorism, natural disasters, public health issues, industrial accidents and other business interruptions can harm or disrupt international commerce and the global economy and could have unknown material adverse effects on us and our customers, suppliers, manufacturing partners, and logistics providers.
We believe that we benefit from growth in international trade. Trade and other international disputes can result in tariffs, sanctions, and other measures that restrict international trade and can adversely affect our business. For example, tensions between the U.S. and China have led to a series of tariffs being imposed by the U.S. on imports from mainland China, as well as other business restrictions. Tariffs increase the cost of our products and the components and raw materials that go into making them. These increased costs adversely impact the gross margin that we earn on our products. Tariffs can also make our products more expensive for customers, which could make our products less competitive and reduce consumer demand. Countries may also adopt other measures, such as controls on imports, that could adversely impact on our operations and supply chain and limit our ability to offer our products as designed. These measures can require us to take various actions, including changing suppliers and restructuring business relationships. Changing our operations in accordance with new or changed trade restrictions can be expensive, time-consuming, disruptive to our operations and distracting to management. Such restrictions can be announced with little or no advance notice, and we may not be able to effectively mitigate all adverse impacts from such measures. Political uncertainty surrounding trade and other international disputes could also have a negative effect on consumer confidence and spending, which could adversely affect our business.
Many of our suppliers and manufacturing partners are in locations that are prone to earthquakes and other natural disasters. In addition, such operations and facilities are subject to the risk of interruption by fire, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks and other hostile acts, ransomware and other cybersecurity attacks, labor disputes, public health issues, including pandemics such as the COVID-19 pandemic, and other events beyond our control. Global climate change is resulting in certain types of natural disasters occurring more frequently or with more intense effects. Such events can make it difficult or impossible for us to operate and deliver products to our customers. Following an interruption to our business, we may require substantial recovery time, experience significant expenditures to resume operations, and lose significant sales. Because we rely on single or limited sources for our products, a business interruption affecting such sources would exacerbate any negative consequences to us.
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Our operations are also subject to the risks of industrial accidents at our manufacturing partners. While our partners are required to maintain safe working environments and operations, an industrial accident could occur and could result in disruption to our business. Although we maintain insurance coverage for certain types of losses, such insurance coverage may be insufficient to cover all losses that may arise.
The market for our products is competitive but not subject to rapid technological change. If that were to change, we may be unable to compete effectively.
We take measures that we believe are prudent to manage our technology risks, including investing in research & development (R&D) to ensure that our products maintain technological competitiveness, seeking patent and intellectual property protections in key markets and legally asserting our intellectual property rights when we believe that our rights have been violated. These efforts have proven effective for us historically, but there is no guarantee that our technology, R&D or that our efforts to protect our intellectual property will be wholly successful in every instance going forward. Should efforts prove unsuccessful or insufficient, our technology may not be able to maintain our current level of market competitiveness.
The market for our products is highly price sensitive and subject to change with market conditions.
The United States represents our primary market. The US consumer retail market is a highly competitive market characterized by aggressive price competition and potential downward pressure on gross margins. The hand tool industry is not typically characterized by frequent introduction of new products with short product life cycles. Although customers and retailers often seek new product ideas, the industry is not known for rapid adoption of technological advancements. New product ideas often take a year or two to be phased into the Plan-o-gram and onto the retailers’ walls. The electronic tool category has had more innovation than most tools and consequently, more competition has emerged.
Our ability to compete successfully depends heavily on ensuring the continuing and timely introduction of innovative new products to the marketplace. We design and develop our products. As a result, we must make significant investments in R&D. There can be no assurance these investments will achieve the expected returns, and we may not be able to develop and market new products successfully. If we are unable to continue to develop and sell innovative new products with attractive margins, our ability to maintain a competitive advantage could be adversely affected.
We are responsible for creating the electronic wall scanning product category and have over 40 years of experience developing and marketing such tools. Nevertheless, we face substantial competition from companies that have significant technical, marketing, distribution, and other resources. In addition, some of our competitors have broader product lines, lower-priced products, a larger client base, and a longer operating history. Certain competitors have the resources, experience, or cost structures to provide products at little or no profit or even at a loss.
Our business, results of operations and financial condition will depend on our ability to continually improve our products to maintain their functional and design advantages. There can be no assurance we will be able to continue to provide products that compete effectively.
Business Risks
To remain competitive and stimulate customer demand, we must successfully manage frequent introductions and transitions of products.
Due to the competitive nature of the industry in which we compete, we must continue to introduce new product features and innovations and enhance existing products. We must continue to develop new technologies to stimulate consumer demand for new and upgraded products. We must successfully manage the transition to these new and upgraded products. The success of new product introductions depends on a number of factors, including timely and successful development, market acceptance, our ability to manage the risks associated with production ramp-up issues, the effective management of inventory levels in line with anticipated product demand, the availability of products in appropriate quantities and at expected costs to meet anticipated demand, and the risk that new products may have quality or other defects or deficiencies. There can be no assurance we will successfully manage future introductions and transitions of products and services.
We depend on product manufacturing and logistical services provided by outsourcing partners, many of which are located outside of the U.S.
Much of our manufacturing is performed by outsourcing partners located in China, Malaysia, and Mexico. A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in proximity to one another. We have also outsourced much of our transportation and logistics management to our affiliate, Zircon de Mexico. While these arrangements can lower operating costs, they also reduce our direct control over production. Such diminished control has, from time to time and may in the future, had an adverse effect on the quality or quantity of products manufactured, or adversely affect our flexibility to respond to changing conditions. Although we have a robust source inspection process and arrangements with partners contain provisions for product defect expense reimbursement, we remain responsible to the consumer for warranties in the event of product defects. Because of this we may experience an unanticipated product defect liability. While we rely on our partners to adhere to our quality standards, deviations may occur from time to time and could adversely affect our business, reputation, results of operations and financial condition.
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We rely on outsourcing suppliers in Mexico, Malaysia and China to manufacture our product. Any failure of these partners to perform can have a negative impact on our cost or finished goods. In addition, manufacturing and logistics or transit to final destinations can be disrupted for a variety of reasons, including natural and man-made disasters, information technology system failures, commercial disputes, military actions, economic, business, labor, environmental, public health or political issues, or international trade disputes.
We have invested in certain manufacturing equipment, much of which is held by certain of our outsourcing partners. While these arrangements help ensure the supply of the products, if these outsourcing suppliers experience severe financial problems or other disruptions in their business, such continued supply can be reduced or terminated, and the recoverability of manufacturing process equipment or prepayments can be negatively impacted or impossible.
We have no long-term contracts with the majority of our third-party suppliers that guarantee volume or the continuation of payment terms, making us vulnerable to supply problems and price fluctuations.
We have no long-term contracts with the majority of our third-party suppliers that guarantee volume or the continuation of payment terms. We depend on our suppliers to provide us with materials in a timely manner that meet our quality, quantity and cost requirements. The forecasts of demand we use to determine order quantities and lead times for components purchased from outside suppliers may be incorrect. If we do not increase our sales volumes, which drive our demand for our suppliers’ products, we may not procure volumes sufficient to receive favorable pricing, which could impact our gross margins if we are unable to pass along price differences to our customers. Recent global economic cost inflation trends could unfavorably impact pricing from our suppliers, which could impact our gross margins if we are unable to pass along price differences to our customers. Our failure to obtain required components or subassemblies when needed and at a reasonable cost would adversely affect our business. These suppliers may encounter problems during manufacturing for a variety of reasons, any of which could delay or impede their ability to meet our demand. Any difficulties in locating and hiring third-party suppliers, or in the ability of third-party suppliers to supply quantities of our products at the times and in the quantities, we need, could have a material adverse effect on our business.
Future operating results depend upon our ability to obtain products in sufficient quantities on commercially reasonable terms.
Because we currently obtain the products from limited sources, we are subject to significant supply and pricing risks. Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations that can materially adversely affect our business, results of operations and financial condition. For example, the global semiconductor industry is experiencing high demand and shortages of supply, which has adversely affected, and could materially adversely affect, our ability to obtain sufficient quantities of products on commercially reasonable terms or at all. While we have entered into agreements for the supply of the products, there can be no assurance we will be able to extend or renew these agreements on similar terms, or at all. The manufacturing partners may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting our ability to obtain products on commercially reasonable terms or at all. The effects of global or regional economic conditions on our suppliers may also affect our ability to obtain products. Therefore, we remain subject to risks of supply shortages and price increases that can materially adversely affect our business, results of operations and financial condition.
Our products may be affected from time to time by design and manufacturing defects that could materially adversely affect our business and result in harm to our reputation.
We offer products that can be affected by design and manufacturing defects. Defects can also exist in components and products assembled by our subcontractors. Component defects could make our products unsafe and create a risk of environmental or property damage and personal injury. These risks may increase as our products are introduced into specialized applications, including healthcare. There can be no assurance that we will be able to detect and fix all issues and defects in the products we offer. Failure to do so can result in widespread technical and performance issues affecting our products. In addition, we can be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines. Quality problems can also adversely affect the experience for users of our products, and result in harm to our reputation, loss of competitive advantage, poor market acceptance, reduced demand for products, delay in new product introductions and lost sales.
We are exposed to the risk of write-downs on the value of our inventory and other assets, in addition to purchase commitment cancellation risk.
We record write-downs for inventories that have become obsolete or exceed anticipated demand, or for which cost exceeds net realizable value. We review long-lived assets, including capital assets and consigned inventory held at our suppliers’ facilities, for impairment whenever events or circumstances indicate the assets may not be recoverable. If we determine that an impairment has occurred, we record a write-down equal to the amount by which the carrying value of the asset exceeds its fair value. Although we believe our inventory, capital assets, prepayments and other assets and purchase commitments are currently recoverable, there can be no assurance we will not incur write-downs, fees, impairments and other charges.
We are exposed to the risk of maintaining inventory levels that could misalign with sales depending upon changing market conditions.
We order our products and build inventory in advance of product announcements and shipments. Manufacturing purchase obligations cover our forecasted component and manufacturing requirements, typically for periods up to 90 days but with some as long as 18 months. Because the markets are volatile, competitive and subject to technology and price changes, there is a risk we will forecast incorrectly and order or produce excess or insufficient amounts of products or not fully utilize firm purchase commitments.
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We compete globally with companies that are often larger and better capitalized and if we cannot compete effectively, our business may be negatively affected.
The Company has several large competitors who have entered the market over the years, notably Stanley, Black and Decker, DeWalt and Ryobi. They, along with Franklin Sensor, have offered products in the wall scanning market. While our competitors have made inroads in the market, the Company believes its products outperform the competitors’ products.
Customer consolidation could have a material adverse effect on our business.
The emergence of ‘Big Box’ retail home stores in the hardware and tool retail market has forced many small retailers out of business and reduced the overall number of potential retailers able to purchase our tools. The growth of big box stores has not reduced the number of potential end user customers. However, the effect has been to consolidate buying power in fewer retailers. While the pace of the consolidation has slowed, there remains a risk that the top retailers could absorb or acquire the larger regional retailers, further enhancing their buying power which may put pressure on our prices and profitability.
Demand for new products below expectations and our ability or inability to develop and introduce new products at favorable economic levels could adversely impact our financial results and prospects for growth.
Historically, consumer demand for our products correlates to housing industry trends such as existing home turnover and new home construction. Housing turnover and new home construction are affected by inflation and interest rates. Both increased inflation and higher interest rates can impact demand for homes and new home construction. While the inflation rate has recently been decreasing because of US monetary policy, interest rates remain elevated. There can be no guarantee the fed policies will be successful in mitigating all aspects of inflation that affect home turnover and purchasing, nor can we predict future interest rates. If inflation were to continue increasing and interest rates continue to rise, we may not be able to mitigate all adverse impacts on end user demand for our products through traditional methods such as pricing adjustments or internal cost reductions.
A significant portion of our revenue is dependent upon a small number of customers, and our three largest customers that collectively accounted for approximately 68% and 64% of net revenue in fiscal 2026 and fiscal 2025, respectively. The loss of any one of these customers would negatively impact our revenues and our results of operations.
Sales to our top five customers accounted for approximately 75% and 76% of our net sales for the years ended March 31, 2026 and 2025, respectively. Sales to our largest customer accounted for approximately 40% and 46% of our net sales, respectively, and another two customers accounted for approximately 28% and 18%, respectively, of our net sales for the years ended March 31, 2026 and 2025. No other customer accounted for 10% or more of total sales. Contractual relationships with our major customers do not guarantee sales volumes or longevity. Consequently, our relationship with our major customers could change at any time. Our business, results of operations and financial condition would be materially and adversely affected if:
| ● | we lose any of our other major customers; | |
| ● | or any of our other major customers purchase fewer of our products; or | |
| ● | we experience any other adverse change in our relationship with any of our other major customers. |
If the products that we offer do not reflect our customers’ tastes and preferences, our net sales and profit margins could decrease.
Our success depends in part on our ability to offer products and services that reflect consumers’ tastes and preferences. Consumers’ tastes are subject to frequent, significant and sometimes unpredictable changes. If the merchandise we offer for sale fails to respond to changes in customer preferences, our sales could suffer and we could be required to mark down unsold inventory, which could depress profit margins, or we could be required to accept returned merchandise in exchange for full credit which could depress net sales and profit margins. In addition, any failure to offer products and services in line with customers’ preferences could allow competitors to gain market share, which could harm our business, results of operations and financial condition.
Our success depends largely on the continued service and availability of highly skilled employees, including key personnel.
Much of our future success depends on the continued availability and service of key personnel, including our Chief Executive Officer, executive team, and other highly skilled employees. Experienced personnel in the technology industry are in high demand and competition for their talents is intense. If we are unable to recruit and retain highly skilled employees, it could materially adversely affect our business, results of operations and financial condition.
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Key personnel may voluntarily terminate their relationship with us at any time, and competition for qualified personnel is intense. The process of locating additional personnel with the combination of skills and attributes required to carry out our strategy could be lengthy, costly, and disruptive.
If we lose the services of key personnel or fail to replace the services of key personnel who depart, we could experience a severe negative effect on our financial results and stock price. The loss of the services of any key personnel, marketing or other personnel or our failure to attract, integrate, motivate, and retain additional key employees could have a material adverse effect on our business, operating and financial results and stock price.
Investment in acquisitions and new business strategies could disrupt our ongoing business, present risks not originally contemplated and adversely affect Zircon’s business, reputation, results of operations and financial condition.
We have invested, and in the future may invest, in new business strategies and acquisitions. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, greater-than-expected liabilities and expenses, economic, legal, and regulatory challenges associated with operating in new businesses, regions or countries, inadequate return on capital, potential impairment of tangible and intangible assets, and significant write-offs. Investment and acquisition transactions are exposed to additional risks. We cannot assure that we will be able to fully realize the anticipated benefits of a transaction. These new ventures are inherently risky and may not be successful. The failure of any significant investment could adversely affect our business, reputation, results of operations and financial condition.
Legal and Regulatory Compliance Risks
We are subject to complex and changing laws and regulations, which expose us to potential liabilities, increased costs and other adverse effects on our business.
Our operations are subject to complex and changing laws and regulations on subjects, including privacy, data security and data localization; consumer protection; advertising, sales, billing and e-commerce; product liability; intellectual property ownership and infringement; availability of third-party software applications and services; labor and employment; anticorruption; import, export and trade; foreign exchange controls and cash repatriation restrictions; foreign ownership and investment; tax; and environmental, health and safety, including electronic waste, recycling, and climate change.
Compliance with these laws and regulations that affect our business can be onerous and expensive, increasing the cost of conducting our operations. Changes to laws and regulations can adversely affect our business by increasing our costs, limiting our ability to offer a product to customers, requiring changes to our supply chain and business practices or otherwise making our products less attractive to customers. We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors or agents will not violate such laws and regulations or our policies and procedures. If we are found to have violated laws and regulations, it could materially adversely affect our business, results of operations and financial condition. Regulatory changes and other actions that materially adversely affect our business may be announced with little or no advance notice and we may not be able to mitigate all adverse impacts from such measures.
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Financial Risks
We manufacture and sell our products in numerous countries around the world. As a result, we may be exposed to foreign currency risks as we engage in transactions and make investments denominated in foreign currencies.
Our primary market currently and historically is the US market, but our products are sold and distributed throughout the world. Further, we manufacture our products internationally and maintain supply and other relationships in Europe, Canada, Mexico, and Asia. Fluctuations in exchange rates across certain markets could adversely affect our business, results of operations and financial condition without warning. We are pursuing growth in international markets and if we experience growth in international markets and as they become a larger portion of our overall revenue from product sales, we expect the impact from currency fluctuations to become more pronounced in conjunction with changes in the geographic composition of sales.
We are subject to changes in tax rates, the adoption of new U.S. or international tax legislation and exposure to additional tax liabilities.
We are subject to taxes in the U.S. and foreign jurisdictions. Due to economic and political conditions, tax laws and tax rates for income taxes and other non-income taxes in various jurisdictions may be subject to significant change. Our effective tax rates are affected by changes in the earnings, changes in the valuation of deferred tax assets and liabilities, the introduction of new taxes, or changes in tax laws or their interpretation, including in the U.S., China and other foreign jurisdictions.
Our results of operations could be negatively impacted by inflationary or deflationary economic conditions.
Inflationary or deflationary economic conditions could affect our ability to obtain raw materials, component parts, freight, energy, labor, and sourced finished goods in a timely and cost-effective manner. We may also experience changes in interest rate environments that impact our cost of capital, the overall strength of the economy and possible demand for our products in the markets in which we operate and sell.
Financing Risks
If we are unable to generate sufficient cash flows from our operations, our liquidity will suffer and we may be unable to satisfy our obligations. As of the filing date of this annual report on Form 10K, we do not believe that we will have sufficient liquidity nor additional sources of liquidity to remain as a going concern over the next twelve months without additional management actions.
We currently rely on cash flow from operations and our revolving credit facility (the “Credit Facility”) to fund our business. Amounts outstanding on the Credit Facility are reported as a liability on our balance sheet. We do not believe our existing cash and cash equivalents along with borrowing capacity from our current lender will be sufficient to meet our anticipated cash needs over the next 12 months, which raises substantial doubt about the Company’s ability to continue as a going concern without any additional management actions. As of March 31, 2026, our additional borrowing capacity against the line of credit was $4.5 million. For fiscal 2026, the Company incurred a net loss of $6.9 million, had an accumulated deficit of $11.2 million, and a net stockholder’s deficit of $0.9 million. We are dependent on the line of credit, and our financial covenants have only been waived through August 31, 2026. Management is actively pursuing options to improve liquidity, including negotiating waivers or amendments to our financial covenants, reducing discretionary spending and capital expenditures, negotiating cost reductions with our suppliers, continuing to improve inventory turns, and evaluating capital raises. Various risks to our business could result in circumstances that would materially affect our liquidity. For example, cash flows from our operations could be affected by changes in consumer spending habits, macroeconomic conditions, the failure to maintain favorable vendor payment terms or our inability to successfully implement sales growth initiatives, among other factors including changes in the regulatory environment including new tariffs. While the IEEPA tariffs have been declared illegal by the Court of International Trade, new tariffs may be enacted which could put additional strain on our operations and associated cash flows. Also, we may be unsuccessful in securing alternative financing when needed on terms that we consider acceptable, or at all. There can be no assurance that our actions will be successful in eliminating the substantial doubt about the Company’s ability to continue as a going concern.
As of March 31, 2026, there was $8.0 million outstanding under the Credit Facility. Any significant increase in our leverage could have the following risks:
Our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired in the future;
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Our failure to comply with the financial and other restrictive covenants governing our debt, which requires us to comply with Fixed Cost Coverage Ratio (“FCCR”) and limits our ability to incur additional debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations; and
Our exposure to certain financial market risks, including fluctuations in interest rates associated with bank borrowings, could become more significant.
If we are unable to remain in compliance with our debt covenants, our lenders may restrict our ability to draw on our Credit Facility, which could have a negative impact on our operations, ability to pay dividends, and growth potential, including our ability to complete acquisitions.
The Company’s debt covenants may affect its liquidity or limit its ability to pursue acquisitions, incur debt, make investments, sell assets or complete other significant transactions.
The Company’s Credit Facility contains the usual and customary covenants regarding significant transactions, including restrictions on other indebtedness, liens, investments and acquisitions, merger or consolidation transactions, transactions with affiliates and changes in or amendments to the organizational documents for the Company and its subsidiaries. Unless waived by the Company’s lender, these covenants could limit the Company’s ability to pursue opportunities to expand its business operations, respond to changes in business and economic conditions and obtain additional financing, or otherwise engage in transactions that the Company considers beneficial.
The Company’s ability to comply with its credit facility is subject to future performance and other factors.
The Company’s ability to make required payments of principal and interest on its debts, to refinance its maturing indebtedness, to fund capital expenditures or to comply with its debt covenants will depend upon future performance. The Company’s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. The breach of any of the debt covenants could result in a default under the Company’s credit facility. Upon the occurrence of an event of default, the Company’s lender could make an immediate demand of the amount outstanding under the credit facility. If a default was to occur and such a demand was to be made, there can be no assurance that the Company’s assets would be sufficient to repay the indebtedness in full.
We may incur future indebtedness and may in the future issue additional equity or debt securities to finance our business operations and strategic initiatives.
Indebtedness or issuances of additional equity or debt securities in connection with mergers or acquisitions, may impact the manner in which we conduct business or our access to external sources of liquidity. The potential issuance of such securities may limit our ability to implement elements of our business strategy and may have a dilutive effect on earnings.
Tight capital and credit markets or the failure to maintain credit ratings could adversely affect us by limiting our ability to borrow or otherwise access liquidity.
We have historically maintained sufficient capital and liquidity to finance our ongoing operations and develop and manufacture our products. As we seek to access capital for growth, tight debt and equity capital markets could impede our ability to access such additional capitalization and impede or delay our growth plans and strategies.
We are exposed to credit risk on our accounts receivable.
Our outstanding trade receivables are not generally covered by collateral or credit insurance. While we have procedures to monitor and limit exposure to credit risk on our trade and non-trade receivables, there can be no assurance such procedures will effectively limit our credit risk and avoid losses, which could have an adverse effect on our financial condition and operating results.
We are not aware of any material credit risks with any of our customers, but there can be no guarantee that such risks will not develop in the future. While we have reserves set aside for doubtful accounts, a business failure by one of our major accounts could adversely impact our profits and operating results.
Legal, Tax, Regulatory and Compliance Risks
Our brand names are important assets of our businesses and violation of our intellectual property or trademark rights, or the failure of our licensees or vendors to comply with our product quality, manufacturing requirements, marketing standards, and other requirements could negatively impact revenues and brand reputation.
We seek to protect our intellectual property rights and our tradenames in the normal course of our business operations. Any inability to protect our other intellectual property rights could also reduce the value of our products and services or diminish our competitiveness. Assertion by us of our intellectual property and trademark rights can also be costly and time-consuming and may materially adversely affect our financial condition and operating results. If we are not able to access the additional liquidity internally or through external means to assert our intellectual property rights, we could incur damage to our brand identity and our sales and results of operations.
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Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely affect our reputation and results of operations.
We regularly move data across national borders, and consequently the Company is subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and data security. The scope of the laws that may be applicable to us is often uncertain and may be conflicting, particularly with respect to foreign laws. For example, the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, greatly increased the jurisdictional reach of European Union law and added a broad array of requirements for handling personal data, including the public disclosure of significant data breaches. Similarly, the California Consumer Privacy Act of 2018 (“CCPA”), which became effective in January 2020, provided, among other things, a new private right of action for data breaches, required companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, and provided consumers with additional rights. The California Privacy Rights Act of 2020, which became effective on January 1, 2023, amends and expands the CCPA, creating new industry requirements, consumer privacy rights and enforcement mechanisms. Virginia and Colorado have also passed robust privacy laws that came into effect on January 1, 2023, and July 1, 2023, respectively. Our reputation and brand and our ability to attract new customers could also be adversely impacted if we fail, or are perceived to have failed, to properly respond to security breaches of our third party’s information technology systems. Such failure to properly respond could also result in similar exposure to liability.
Additionally, other countries have enacted or are seeking to enact data localization laws that require data to stay within their borders. In many cases, these laws and regulations apply not only to transfers between unrelated third parties but also to transfers between us and our subsidiaries, vendors or manufacturing partners.
Evolving compliance and operational requirements may impose costs that are likely to increase over time. Privacy laws that may be implemented in the future, and court decisions impacting activities across borders, including the Schrems II decision invalidating the EU - U.S. Privacy Shield, will continue to require changes to certain business practices, thereby increasing costs, or may result in negative publicity, require significant management time and attention, and may subject us to remedies that may harm our business, including fines or demands or orders that we modify or cease existing business practices.
Climate change and climate change legislation or regulations may adversely affect our business.
Compliance with government regulations, including environmental and climate change regulations, has not had, and based on current information and the applicable laws and regulations currently in effect, is not expected to have a material effect on our capital expenditures, results of operations or competitive position. However, laws and regulations may be changed, accelerated or adopted that impose significant operational restrictions and compliance requirements upon us and which could negatively impact our operating results and financial condition.
Our failure to continue to successfully avoid, manage, defend, litigate and accrue for claims and litigation could negatively impact our results of operations or cash flows.
We are exposed to and may become involved in various litigation matters arising out of the ordinary routine conduct of our business, including, from time to time, actual or threatened litigation relating to such items as commercial transactions, product liability, workers compensation, arrangements between us and our distributors, franchisees or vendors, intellectual property claims and regulatory actions.
In addition, we are subject to environmental laws in each jurisdiction in which our business is conducted. Some of our products incorporate substances that are regulated in some jurisdictions in which we conduct manufacturing operations. Changes in environmental and other laws and regulations in both domestic and foreign jurisdictions could adversely affect our operations due to increased costs of compliance and potential liability for non-compliance.
Allegations that our products and services are not properly manufactured, configured, installed, designed or delivered, resulting in personal injuries, property damage or business interruption could subject us to claims for damages. The costs associated with defending ongoing or future product liability claims and payment of damages could be substantial. Our reputation could also be adversely affected by such claims, whether or not successful.
There can be no assurance that we will be able to continue to successfully avoid, manage and defend such matters. In addition, given the inherent uncertainties in evaluating certain exposures, actual costs to be incurred in future periods may vary from our estimates for such contingent liabilities.
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Our products could be recalled.
We maintain an awareness of and responsibility for the potential health and safety impacts on our customers. Our product development processes include product safety reviews and extensive testing. Safety reviews are performed at various product development milestones, including a review of product labeling and marking to ensure safety and operational hazards are identified for the customer.
Despite safety and quality reviews, the Consumer Product Safety Commission or other applicable regulatory bodies may require, or Zircon may voluntarily institute, the recall, repair or replacement of our products if those products are found to not be in compliance with applicable standards or regulations. To date, the Company has not had to issue a recall of its products; however, the risk of a recall, while remote, still exists and a recall could increase our costs and adversely impact our reputation.
Users might not understand the product limitations.
Certain of our tools are designed to detect objects behind opaque surfaces, such as electrical wiring or pipes. However, these tools have known technical limitations. In particular, they may not detect alternating current (AC) activity or other objects if the wires or components are located mor than two inches (5 cm) behind the scanned surface, embedded in concrete, encased in conduit or shielded cable, behind a plywood shear wall or metallic wall covering or wall covering that includes metallic or similar particles, or if there is moisture in the scanned wall covering surface material of surrounding environment.
Users may not comply with safety instructions.
Users are expressly warned not to rely exclusively on our tools for locating concealed items. Safe and effective use of the product requires that users supplement tool readings with additional information, such as construction plans, visual identification of entry points for wiring and piping (e.g. in basements), and general knowledge of standard construction practices, including stud-spacing conventions. Users are further warned not to assume that the absence of a detection reading equates to the absence of live electrical wiring. Before drilling, cutting, or otherwise penetrating any wall or surface, users are strongly advised to shut off all electrical, gas, and water supplies. Failure to follow these instructions may result in electric shock, fire, severe injury, or significant property damage.
We cannot guarantee that users will comply with all safety instructions or that all hazards will be identified by the tool under all conditions. As such, improper use of our products may result in liability, personal injury (up to and including death)), property damage, or reputational harm, any of which could adversely affect our business, financial condition, results of operations, and cash flows.
Other Risks
Our results of operations and earnings may not meet forecasted future expectations.
Our results of operations and earnings may not meet forecasted future expectations. We may provide forecasts of expected results of operations for future periods. This forecast would be comprised of forward-looking statements subject to risks and uncertainties, including the risks and uncertainties described in this Report and in our other public filings and public statements, and would be based necessarily on assumptions we make at the time we provide such forecast. Our forecast may not always be accurate. If, in the future, our results of operations for a particular period do not meet our forecast or the expectations of investment analysts, the market price of our common stock could decline significantly.
If we are unable to maintain effective internal controls over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected, which could have a material adverse effect on our financial condition and the trading price of our common stock.
As a public company, we are required to design and maintain proper and effective internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 may require that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal controls over financial reporting, which must be attested to by our independent registered public accounting firm. If we become unable to maintain effective internal controls over financial reporting, our ability to record, process and report financial information timely and accurately could be adversely affected.
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Risks Related to our Common Stock
We may become involved in securities class action litigation that could divert management’s attention and harm our business.
The stock market in general, and the shares of small-cap companies in particular, can experience extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of the companies involved. If these fluctuations occur in the future, the market price of our stock could fall regardless of Zircon’s operating performance. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. If the market price or volume of our stock suffers extreme fluctuations, then we may become involved in this type of litigation, which would be expensive and divert management’s attention and resources from managing our business.
As a publicly listed company, we may also from time to time make forward-looking statements about future operating results and provide some financial forecasts to the public markets. Projections may not be made timely or set at expected performance levels and could materially affect the price of our shares. Any failure to meet published forward-looking statements that adversely affect the stock price could result in losses to investors, stockholder lawsuits or other litigation, sanctions or restrictions issued by the SEC.
Our common stock may trade below $5.00 per share and be deemed a “penny stock,” which could make it more difficult for investors to sell their shares.
The SEC has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:
| ● | that a broker or dealer approves a person’s account for transactions in penny stocks, and | |
| ● | the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| ● | obtain financial information and investment experience objectives of the person, and | |
| ● | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:
| ● | sets forth the basis on which the broker or dealer made the suitability determination and | |
| ● | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
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Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
We have elected to avail ourselves of the extended transition period for complying with new or revised accounting standards pursuant to Section 102(b)(1) of the JOBS Act, and further the JOBS Act will allow us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in the Company.
For so long as we remain an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies.” In particular, as an emerging growth company we:
| ● | are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; | |
| ● | are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”); | |
| ● | are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes); | |
| ● | are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure; | |
| ● | may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations (“MD&A”); and | |
| ● | are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. |
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended (the “Securities Act”), or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1,235,000,000 in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. We would cease to be an emerging growth company on the last day of the fiscal year following the date of the fifth anniversary of our first sale of common equity securities under an effective registration statement or a fiscal year in which we have $1 billion in gross revenues.
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Therefore, our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.
Our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an “emerging growth company,” which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an “emerging growth company,” we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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We believe cybersecurity is critical to advancing our technological developments. As a manufacturing and technology company, we face a multitude of cybersecurity threats that are common to most industries, such as ransomware and denial-of service. Our customers, suppliers, subcontractors, and business partners face similar cybersecurity threats, and a cybersecurity incident impacting us or any of these entities could materially adversely affect our business strategy, performance, and results of operations. These cybersecurity threats and related risks make it imperative that we expend resources on cybersecurity.
Risk Management
We
engage
In the event of an incident, we intend to follow our cybersecurity incident response plan, which outlines the steps to be followed from incident detection to mitigation, and notification. We contract with external firms that have extensive information technology and program management experience. We have implemented a governance structure and processes to assess, identify, manage, and report cybersecurity risks. As a public company, we must comply with extensive regulations, including requirements for reporting cybersecurity incidents to the SEC. We believe we are positioned to meet the requirements of the SEC. In addition to following SEC guidance and implementing pre-existing third party frameworks, we have developed our own practices and frameworks, which we believe enhance our ability to identify and manage cybersecurity risks. Assessing, identifying, and managing cybersecurity related risks are factored into our overall business approach. We rely heavily on our supply chain to deliver our products and services, and a cybersecurity incident at a subcontractor or business partner could materially adversely impact us. We require that our subcontractors report cybersecurity incidents to us so that we can assess the direct impact of the incident.
ITEM 2. PROPERTIES
We lease facilities under an operating lease in Campbell, CA. through 2027. ZRCN and Zircon are headquartered in a 14,000 square foot building in Campbell, CA. The Company also has inventory located in Ensenada, Mexico, the Netherlands, Canada, the United Kingdom and two of our manufacturing subcontractors located in China.
We believe our facilities are suitable for their present and intended purposes and are operating at a level consistent with the requirements of the industry in which we operate. We also believe that our leases are at competitive or market rates and do not anticipate any difficulty in leasing suitable additional space upon expiration of our current lease terms.
ITEM 3. 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. 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.
In October 2024 we settled outstanding litigation with Stanley, Black and Decker and received $0.8 million which was recorded as Other Income in our financial statements.
ZRCN is engaged in procedures to protect its proprietary rights and has filed complaints with the Federal Trade Commission and the U.S. Customs and Border Protection.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock was formerly listed and traded is on the OTCQX Market. There have been fewer than fifty trades since the shares were listed on February 24, 2025. There were no trades during fiscal 2026; the Company’s shares were delisted during fiscal 2026.
Holders of Our Common Stock
As of March 31, 2026, there were approximately 160 stockholders of record of our common stock.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate declaring or paying any cash dividends in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant.
Recent Sales of Unregistered Securities
There have been no sales of unregistered securities during the three months ended March 31, 2026.
SELECTED FINANCIAL DATA
The following selected consolidated financial information has been derived from the audited consolidated financial statements of Zircon. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes to those statements included therein.
| For the Years Ended March 31, | ||||||||
| (in thousands) | 2026 | 2025 | ||||||
| Liquidity Data: | ||||||||
| Cash and cash equivalents | $ | 784 | $ | 1,407 | ||||
| Working capital | 4,187 | 3,460 | ||||||
| Total assets | 20,321 | 23,378 | ||||||
| Long-term obligations | 8,788 | 1,049 | ||||||
| Total stockholders’ (deficit) equity | (1,092 | ) | 5,530 | |||||
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ITEM 7. 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 audited 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
The Company’s selected financial information for fiscal 2026 and fiscal 2025 is as follows. All the data are presented in United States dollars.
Financial Position Analysis
The information presented as of March 31, 2026 and March 31, 2025 represents the information for ZRCN Inc.
| In thousands | March 31, 2026 | March 31, 2025 | ||||||
| Total assets | $ | 20,321 | $ | 23,378 | ||||
| Total liabilities | $ | 21,413 | $ | 17,848 | ||||
| Total stockholders’ (deficit) equity | $ | (1,092 | ) | $ | 5,530 | |||
Assets
Total assets as of March 31, 2026, were $20.3 million compared to $23.4 million as of March 31, 2025, which was a decrease of approximately $3.1 million. This decrease was driven primarily by a decrease in cash of $0.6 million, a decrease in inventory of $2.2 million, a decrease in operating use assets of $0.2 million offset by a decrease in accounts receivable of $0.7 million and an increase in deferred financing cost of $0.6 million resulting from our new line of credit with Altriarch Holdings.
Liabilities
Total liabilities as of March 31, 2026, were $21.4 million compared to $17.9 million as of March 31, 2025, which was an increase of approximately $3.6 million. This increase was driven primarily by an increase in accounts payable and accrued expenses of $4.2 million which was offset by a decrease in operating lease liabilities of $0.2 million and a decrease in the line of credit of $0.4 million.
Equity
The total net deficit as of March 31, 2026, was $1.1 million compared to equity of $5.5 million as of March 31, 2025, which was a decrease of approximately $6.6 million. This decrease was driven primarily by a net loss of $7.1 million offset by increased stock-based compensation of $0.3 million and an increase in accumulated other comprehensive income of $0.2 million.
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Operating Results Analysis
Readers are invited to take into consideration the consolidated operating results of Zircon Corporation for the fiscal years ended March 31, 2026 and 2025.
| For the Year Ended March 31, | ||||||||
| (In thousands) | 2026 | 2025 | ||||||
| Net Sales | $ | 26,889 | $ | 28,075 | ||||
| Cost of goods sold | 19,001 | 16,936 | ||||||
| Gross Profit | 7,888 | 11,139 | ||||||
| Gross Margin | 29.3 | % | 39.7 | % | ||||
| Operating Expenses | ||||||||
| General & administrative | 7,340 | 7,354 | ||||||
| Marketing & selling | 4,756 | 4,528 | ||||||
| Research and development | 1,660 | 1,712 | ||||||
| Total Operating Expenses | 13,756 | 13,594 | ||||||
| Operating Income (Loss) | (5,868 | ) | (2,455 | ) | ||||
| Other (Income) Expense | ||||||||
| Settlement of litigation | 0 | (800 | ) | |||||
| Interest expense | 739 | 804 | ||||||
| Other expense | 32 | 30 | ||||||
| Loss on extinguishment of debt | 396 | - | ||||||
| Loss (Gain) on foreign currency transactions | 143 | (172 | ) | |||||
| Total other expenses | 1,310 | (138 | ) | |||||
| Income (Loss) before income taxes | (7,178 | ) | (2,317 | ) | ||||
| Benefit from (Provision for) income taxes | 129 | (573 | ) | |||||
| Net income (loss) | $ | (7,049 | ) | $ | (2,890 | ) | ||
| Foreign currency translation adjustment | 170 | (160 | ) | |||||
| Comprehensive income (loss) | $ | (6,879 | ) | $ | (3,050 | ) | ||
Sales revenue and gross margin
Revenue for fiscal 2026 was $26.9 million compared to $28.1 million in fiscal 2025 which was a decrease of $1.2 million, or 4%. This decrease was driven primarily by decreased sales in the United States from one major customer. Revenue from Stud Senor Edge products increased by $1.0 million which was offset by decreases in Stud Sensor Center and Target Control Products of $2.0 million. Gross profit for fiscal 2026 was $7.9 million, or 29.3% compared to $11.1 million, or 39.7%, which was a decrease of $3.2 million, or 29% and 10.4%, respectively. While one reason for the decrease in gross profit was reduced revenue from one key customer, additional decreases in gross profit and gross margin were driven by increased cost of sales of $1.8 million from tariffs on products manufactured in China and Malaysia, an increase of $0.2 million in the allowance for slow moving and obsolete inventory, and an increase in standard cost of sales of $0.1 million due to an unfavorable change in the product mix
During the year ended March 31 2026, 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, the Company experienced increased input costs associated with imported materials and products subject to these tariffs, primarily China and Malaysia. The tariff expense recognized during the year ended March 31, 2026, was approximately $2.9 million compared to $1.1 million during the year ended March 31, 2025, which was an increase of $1.8 million, or 164%. Less than $50,000 of tariff expenses incurred were capitalized within inventory on the Company’s balance sheet as of March 31, 2026. The remainder of these costs were recognized within cost of goods sold as incurred and contributed to a gross margin decrease of approximately 1,000 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. Earlier in calendar 2026 certain tariffs have been declared illegal by the Court of International Trade and could result in material refunds accruing to the Company. In July 2026 and September 2026, the Company received refunds of approximately $0.7 million and $1.0 million, respectively.
Research and development
Research and development expenses for fiscal 2026 were $1.7 million compared to $1.7 million in fiscal 2025. The decrease in 2026 was $52,000, or 3%, and was driven primarily by reduced consulting expenses.
Marketing and selling
Marketing and selling expenses for fiscal 2026 were $4.8 million compared to $4.5 million in fiscal 2025 which was an increase of $0.3 million, or 5%. This increase was driven primarily by an increase in payroll expenses.
Administrative expenses
General and administrative expenses for fiscal 2026 were $7.3 million compared to $7.3 million in fiscal 2025 which was a decrease of $14,000, or less than 1%. This decrease was driven primarily by reduced consulting and outside service fees.
Other income/expense
Interest and other expenses for fiscal 2026 were $1.3 million compared to $0.7 million in fiscal 2025 which was an increase of $0.6 million or 98%.
Other income for fiscal 2026 was $ nil compared to $0.8 million in fiscal 2025 which was a decrease of $0.8 million. This decrease was driven by a one-time settlement benefit reduction of $0.8 million resulting from the Stanley Black & Decker litigation. This litigation was closed in October 2024.
Interest expense for fiscal 2026 was $0.7 million compared to $0.8 million in fiscal 2025 which was a decrease of $65,000 or 8%. This decrease was driven primarily a reduction in average borrowings with our prior lender, FGI, resulting in lower interest expense during the year.
We incurred a loss on the extinguishment of the FGI line of credit of $0.4 million during fiscal 2026. This loss was due to an early termination fee paid to FGI of $0.2 million, a write-off of deferred financing costs of approximately $0.1 million and additional legal fees of $35,000. No gain or loss was recognized during fiscal 2025.
We incurred a foreign currency transaction loss of $0.1 million in fiscal 2026 compared to a gain of $0.2 million during fiscal 2025. The loss was driven by various currency movements in Euros, Canadian dollars, and Mexican pesos against the U.S. dollar.
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Income taxes
The Company moved from a provision for income taxes of $0.6 million during the year ended March 31, 2025, to a benefit position of $0.1 million for the year ended March 31, 2026. The provision recorded in fiscal 2025 was due primarily to a full valuation allowance being recorded against all deferred tax assets recorded through that fiscal year. The benefit recorded during fiscal 2026 is due primarily to an expected refund of $0.2 million resulting from a change in accounting for research and development expense in accordance with the One Big Beautiful Bill Act (“OBBBA”).
Cash Flow Analysis
| For the Years Ended March 31, | ||||||||
| In thousands | 2026 | 2025 | ||||||
| Operating activities | $ | 1,504 | $ | 2,153 | ||||
| Investing activities | (436 | ) | (788 | ) | ||||
| Financing activities | (1,267 | ) | (667 | ) | ||||
| Effect of exchange rate changes | (424 | ) | 207 | |||||
| Net increase (decrease) in cash | $ | (623 | ) | $ | 905 | |||
Operating Activities
During the year ended March 31, 2026, net cash provided by operating activities was $1.5 million. This increase was due to a net loss of $7.0 million offset by non-cash operating expenses of $1.8 million and foreign currency losses of $0.1 million, a decrease inventory of $1.9 million, an increase in accounts payable and accrued expenses of $4.2 million, a decrease in accounts receivable of $0.7 million and a decrease in operating lease liabilities of $0.2 million. The Company’s accounts payable as of March 31, 2026, were $10.0 million of which $4.5 million were over 90 days old.
During the year ended March 31, 2025, net cash provided by operating activities was $2.2 million. This increase was due to a decrease in accounts receivable of $2.3 million, a decrease in inventory and prepaids of $1.0 million, depreciation of $1.0 million, amortization of intangibles, right-of-use assets, and deferred financing costs of $0.4 million, inventory obsolescence impairment of $0.6 million, provision for credit losses of $0.2 million, stock based compensation of $0.3 million, a reduction in deferred tax assets of $0.5 million, and a reduction in tax deposits of $0.2 million all offset by a net loss of $2.9 million, a decrease in accounts payable and accrued expense of $1.0 million, a decrease in lease liabilities of $0.2 million, and a foreign exchange gain of $0.2 million.
Investing Activities
During the year ended March 31, 2026, net cash used in investing activities was $0.4 million. This decrease was due to purchases of property and equipment of $0.3 million and purchases of intangible assets of $0.1 million.
During the year ended March 31, 2025, net cash used in investing activities was $0.8 million. This decrease was due to purchases of property and equipment of $0.8 million.
Financing Activities
During the year ended March 31, 2026, net cash used in financing activities was $1.3 million. This decrease was due to borrowings under the Company’s line of credit of $25.5 million offset by repayment of borrowings of $26.0 million and deferred financing costs of $0.8 million.
During the year ended March 31, 2025, net cash used in financing activities was $0.7 million. This decrease was due to borrowings under the Company’s line of credit of $25.0 million offset by repayment of borrowings of $24.6 million, net shareholder distributions of approximately $0.7 million, deferred financing costs of $0.3 million, and repayment of debt assumed as part of the Harmony merger of $0.1 million.
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Liquidity, Capital Resources and Sources of Financing
As of March 31, 2026, the Company had a cash balance of $0.8 million and working capital of $4.2 million. Working capital as of March 31, 2025, was $3.4 million. This increase of $0.8 million was driven primarily by a decrease in cash of $0.6 million, a decrease in accounts receivable of $0.6 million and a decrease in inventory of $2.2 million offset by an increase in accounts payable and accrued expenses of $4.2 million, and a decrease in the current portion of the line of credit of $8.4 million. To date the Company has been financed primarily through 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 $0.6 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. For fiscal year 2026, the Company incurred total tariff expense, including IEEPA tariffs, of $2.9 million. The Company has received tariff refunds of $1.7 million during the first six months of fiscal 2027.
We do not believe our existing cash and cash equivalents along with borrowing capacity from our current lender will be sufficient to meet our anticipated cash needs over the next 12 months, which raises substantial doubt about the Company’s ability to continue as a going concern without any additional management actions. As of March 31, 2026, our additional borrowing capacity against the line of credit was $4.5 million. For fiscal 2026, the Company incurred a net loss of $7.0 million, had an accumulated deficit of $11.4 million, and a net capital deficiency of $1.1 million. We are dependent on the line of credit and our financial covenants have only been waved through August 31. 2026. Management is actively pursuing options to improve liquidity, including negotiating waivers or amendments to existing debt covenants, reducing discretionary spending and capital expenditures, working with inventory vendors to reduce product costs, continuing to improve inventory turns, and evaluating potential capital raises. These plans should help the Company improve its liquidity position over the next fiscal year and enable the Company to continue as a going concern; however, while these plans are intended to mitigate the risk, there can be no assurance that they will be successful in eliminating the substantial doubt about the Company’s ability to continue as a going concern
On May 31, 2024, the Company entered into a Revolving Credit 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 $8.8 million 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.
From July 2025 until March 17, 2026, the Company and FGI entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. As of March 31, 2025, due to being in default of the loan covenants, the Company classified the line of credit as a current liability. As of March 31, 2026, borrowings under the Company’s new revolving credit facility are classified as long-term debt because the facility does not mature until March 17, 2029, and no events of default existed that would require repayment within one year of the balance sheet date. On March 17, 2026, the Company repaid in full and extinguished its revolving credit facility with FGI Worldwide, LLC using proceeds from a new senior secured revolving credit facility. Upon repayment, the FGI Credit Agreement was terminated and the Company was released from all remaining obligations.
On March 17, 2026 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Altriarch Holdings SPV, LLC, as lender (“Lender”). The Loan Agreement provides for a $12.5 million senior secured revolving credit facility (the “Credit Facility”) available to be used by the Company and Zircon for, among other things, replacement and discharge of the Company’s current loan of $15.0 million with FGI Worldwide, LLC and the ability to increase its borrowings from the Lender for working capital purposes. As a result of this repayment, the Company has no continuing obligations to FGI under the former Credit Agreement.
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The Loan Agreement matures on March 17, 2029 (the “Maturity Date”), subject to the right of the Debtor to request to extend the Maturity Date for up to an additional one (1) year period. Prior to the Maturity Date or an Event of Default, the interest rate shall be the lesser of (a) the Maximum Rate (as defined in the Loan Agreement), and (b) the 3-month term SOFR (as defined in the Loan Agreement) plus the 8.75%. Accrued and unpaid interest on the outstanding principal balance of Credit Facility shall be due and payable monthly commencing on April 14, 2026, and continuing on the tenth (10th) Business Day of each month thereafter and on the Maturity Date.
So long as no Event of Default (as defined in the Loan Agreement) has occurred and is continuing, upon notice to Lender, Debtor may, request increases in the Credit Facility (each, a “Commitment Increase”) by an amount not exceeding Five Million Dollars ($5,000,000.00) in the aggregate; provided that (i) Debtor may make a maximum of two (2) such requests and (ii) Lender may grant or deny all or any portion of such Commitment Increase in its sole discretion.
The Loan Agreement requires the Company to comply with maximum tangible net worth and minimum fixed charge coverage ratios. However, the lender has waived compliance with the financial covenants through August 31, 2026. The Fixed Charge Coverage Ratio (“FCCR”) is calculated by adding back non-cash expense amounts, such as depreciation and amortization, changes in inventory and bad debt allowances, stock-based compensation, and net interest expense to income before taxes and subtracting capital expenditures then dividing that result by the sum of interest expense and rent expense. The initial reporting period begins in September 2026 and incorporates the prior six months of data to calculate the FCCR ratio. Subsequent periods add one month of data until the calculation reaches 12 months. At that time, calculation is performed for the prior 12 months and remains at that level going forward. The target ratio for the first five months is 1.1 with the subsequent ratio being 1.2 thereafter. The Company has forecasted that it will be in compliance with both covenants when the measurement period begins with the September 2026 accounting period. Tangible net worth is calculated by summing accounts and other receivables, inventory, fixed and subordinated debt and dividing by the outstanding balance of the Altriarch line of credit. The initial reporting period begins in September 2026. The ratio for the first five months is 15%, increasing to 25% thereafter. The Company is currently forecasting that it will meet the covenants once they begin. 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. Repayments on the loan are made as customer cash payments are deposited into the Company’s bank account and remitted daily to Altriarch under a Blocked Account Control Agreement (“BACA”).
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.
As of March 31, 2026, the amount outstanding under the Altriarch line of credit was $8.0 million compared to $8.4 million under the FGI facility as of March 31, 2025.
Subsequent to March 31, 2026, on September 9, 2026, the Lender notified the Company that the Company had not delivered its audited financial statements and related compliance certificate for the fiscal year ended March 31, 2026 within the 90-day period required under the Loan Agreement, which constituted a default. The Lender waived this default on a one-time basis and required the Company to deliver such audited financial statements and compliance certificate on or before October 15, 2026, which the Company expects to satisfy in connection with the filing of this Annual Report on Form 10-K. See Note 16 to the consolidated financial statements included in this Annual Report on Form 10-K.
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REMEDIATION OF SIGNIFICANT DEFICIENCIES
During the year ended March 31, 2026, we have initiated steps to remediate the significant deficiencies in our internal control over financial reporting related to (i) inadequate segregation of duties due to limited personnel and (ii) insufficient formalized policies and procedures for accounting, financial reporting and record keeping.
In furtherance of these efforts, we hired a Corporate Controller with significant accounting and financial reporting experience. The Corporate Controller is responsible for strengthening our financial reporting processes and internal control environment. As part of these efforts, the Corporate Controller has implemented enhanced review procedures, including the review and approval of all journal entries prior to posting.
In addition, we have begun to formalize and document key accounting and operational processes and controls. These efforts include the development and implementation of written policies and procedures related to, among other areas, journal entry preparation and review, revenue recognition and accounts receivable cycles, and the purchase order and procurement process. These policies are designed to improve consistency, establish clear control ownership, and enhance oversight across key transaction cycles.
We are also evaluating further enhancements to our control environment, including the potential addition of personnel or third-party resources, to improve segregation of duties and strengthen financial reporting oversight.
While these actions are intended to remediate the identified significant deficiencies, the significant deficiencies cannot be considered remediated until the applicable controls have been fully implemented and have operated effectively for a sufficient period of time and management has concluded, through testing, that these controls are effective. We continue to monitor the effectiveness of these remediation efforts and plan to complete the remediation process as promptly as 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 March 31, 2026 | ||||
| Common shares issued and outstanding | 10,360,924 | |||
| Potential issuance of common shares | ||||
| Warrants | 217,184 | |||
| Stock options | 3,176,500 | |||
| Fully diluted shares | 13,754,608 | |||
During the year ended March 31, 2026, the Company issued another 54,498 common shares to various service providers. The Company also had stock option forfeitures of 40,000 shares.
During the year ended March 31, 2025, the Company issued 289,490 common shares primarily to two legal firms in lieu of cash payments to settle outstanding liabilities for services related to patent infringement litigation and patent acquisition.
In accordance with a services agreement with Semi-Cap Equity Partners (“SCE”), an investment bank, dated May 15, 2023 and amended on July 15, 2024, the Company issued an additional 24,999 common shares to SCE earned during the period from March 31, 2025 through September 4, 2025. As of September 4, 2025, the Company’s agreement with SCE has been terminated.
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Related Party Transactions
Zircon is a member of a controlled group of companies and has revenue and cost-sharing activities with other members of the controlled group. Results of operations and financial condition may not represent amounts that would have been reported if Zircon operated as an unaffiliated entity.
Zircon has an exclusive manufacturing and technical assistance agreement with Zircon de Mexico S.A. de C.V. (the “Contractor”), an entity which is owned by certain shareholders of Zircon. Under the terms of the agreement, Zircon provides materials, technical assistance, and expertise to the Contractor, and the Contractor assembles certain of 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 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 March 31, 2026, 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 note is subordinated to the line of credit note payable to Altriarch Holdings SPV, LLC and no payment is to be made on the note without prior approval from Altriarch.
For the years ended March 31, 2026 and 2025 the interest expense on notes payable to the Stauss Family Administrative Trust totaled $37,000 and $37,000 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.
Contractual Obligations and Commitments
As of March 31, 2026, we had contractual obligations for building leases, interest on our line of credit with Altriarch SPV LLC, notes payable with the Stauss Family Administrative Trust including interest on the notes, and commitments based on outstanding purchase orders. Inventory is purchased on purchase orders as required; there are no long-term contracts or take or pay agreements for inventory. The building leases include our corporate office in Campbell, CA that will expire in December 2027. As of March 31, 2026, our future contractual commitments for our leases were $0.4 million, our line of credit was $8.0 million and is set to expire in March 2029, and our long-term debt obligations were $0.7 million which mature in December 2027. For additional information on our leases and timing of future payments, please see Note 9 and Note 13 to the consolidated financial statements included in this Annual Report on this Form 10-K.
| Contractual Obligations | ||||||||
| Within | Beyond | |||||||
| in thousands | 12 months | 12 months | ||||||
| Altriarch loan | $ | - | $ | 8,000 | ||||
| Altriarch interest | $ | 1,000 | $ | 2,000 | ||||
| Building leases | $ | 200 | $ | 200 | ||||
| Shareholder notes | $ | - | $ | 667 | ||||
| Interest on shareholder notes | $ | 37 | $ | 28 | ||||
| Outstanding purchase orders | $ | 1,400 | $ | - | ||||
| Total | $ | 2,637 | $ | 10,895 | ||||
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 regarding 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 year ended March 31, 2026, for details.
Critical Accounting Policies and Estimates
Please refer to Note 3 Summary of Significant Accounting Policies of the Financial Statements for disclosures regarding the critical accounting policies related to our business. Critical estimates associated with revenue would be related to discounts, rebates and marketing co-op accruals not based on contractual percentages but on prior trends and history. These estimates can vary as the Company’s revenues vary. The bad debt allowance is based on customer quality in terms of reputation, sales and payment history with the Company, and its current financial position including its liquidity position including net working capital. Inventory allowances are dependent on product sales forecasts and history, price changes, technology changes which could render products obsolete, quality of product shipped by our suppliers, or disruptions to our supply chains.
Recently Issued Accounting Standards
Our recently issued accounting standards are included in Note 3 Summary of Significant Accounting Policies of the Financial Statements for disclosures regarding the critical accounting policies related to our business. The Company is currently evaluating the disclosure impacts of recently issued accounting standards, however, does not expect them to have a material impact on its audited consolidated financial statements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
ZRCN’s exposure to changes in interest rates relates primarily to Zircon’s cash, cash equivalents and outstanding debts. As of March 31, 2026, the Company had an outstanding balance on its line of credit of approximately $8.0 million. Based on the amount, an increase or decrease of one percent in the interest rate would increase or decrease annual interest expense by $80,000. On March 31, 2026, the balance on the shareholder notes was $0.7 million. An increase or decrease of one percent in the interest rate would increase or decrease annual interest expense by approximately $7,000.
Foreign Currency & Exchange Risk
ZRCN sources parts and materials 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 could hedge or take 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.
| 30 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
| Report of Independent Registered Public Accounting Firm (PCAOB ID: |
F-1 |
| Balance Sheets | F-2 |
| Statements of Operations | F-3 |
| Statements of Stockholders’ Equity | F-4 |
| Statements of Cash Flows | F-5 |
| Notes to Financial Statements | F-6 |
| 31 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of ZRCN Inc.
Opinion on the Financial Statements
Material Uncertainty Related to Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, as of March 31, 2026, the Company had cash of approximately $0.8 million and working capital of approximately $4.4 million. For the year ended March 31, 2026, the Company incurred a net loss of approximately $7.0 million, had an accumulated deficit of approximately $11.4 million and a stockholders’ deficiency of approximately $1.1 million.
The Company is dependent on its revolving line of credit and other financing to fund operations. As of March 31, 2026, the Company had approximately $4.5 million of additional borrowing capacity; however, existing liquidity is not expected to be sufficient to meet anticipated cash requirements for the next twelve months. In addition, covenant waivers extend only through August 31, 2026. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans, as described in Note 2, include seeking covenant waivers or amendments, reducing expenditures and supplier costs, improving inventory levels, and evaluating potential capital raises. There can be no assurance these actions will alleviate the substantial doubt. The financial statements do not include any adjustments that may result from this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2025.
September 28, 2026
knowing you.
corporation registered in California, USA |
2108 N. ST. #7535 Sacramento, CA 9581
krestongta.com |
An independent member of the Kreston Global network
|
| F-1 |
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements.
ZRCN Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| March 31, 2026 | March 31, 2025 | |||||||
| 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 | ||||||||
| Intangible assets, net | ||||||||
| Deposits | ||||||||
| Deferred financing costs | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Line of credit, current | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Operating lease liability, current | ||||||||
| Total current liabilities | ||||||||
| Line of credit | $ | $ | ||||||
| Operating lease liability, net of current portion | ||||||||
| Notes payable to Stauss Family Administrative Trust, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 13) | ||||||||
| Stockholders’ (deficit) equity: | ||||||||
| Common stock; at $ par value, shares authorized, and shares issued and outstanding as of March 31, 2026 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’ (deficit) equity | ( | ) | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
ZRCN Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share data)
| 2026 | 2025 | |||||||
| For the Year Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Marketing and selling | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (income) expenses: | ||||||||
| Other income | ( | ) | ||||||
| Interest expense | ||||||||
| Other expenses | ||||||||
| Loss on extinguishment of debt | ||||||||
| (Gain) loss on foreign currency transactions | ( | ) | ||||||
| Total other (income) expenses | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax (expense) benefit | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: Net income (loss) attributable to non-controlling interests | ( | ) | ||||||
| Net loss attributable to ZRCN Inc. common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Income (loss) on change in foreign currency translation adjustment | ( | ) | ||||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Net income (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 and diluted | $ | ) | $ | ) | ||||
| Weighted average common shares outstanding: | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
ZRCN Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
| Shares | Amount |
Income | Capital |
Deficit) |
ZRCN |
Interests | (Deficit) | |||||||||||||||||||||||||
| Common Stock | Accumulated Other Comprehensive (Loss) | Additional Paid-in | Retained Earnings (Accumulated | Total Equity Attributable to | Non- controlling | Total Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount |
Income | Capital |
Deficit) |
ZRCN |
Interests | (Deficit) | |||||||||||||||||||||||||
| Balance - March 31, 2024 | $ | $ | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Change in foreign currency translation adjustment | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Common stock issued for advisory services | ||||||||||||||||||||||||||||||||
| Contributions paid by stockholders | — | |||||||||||||||||||||||||||||||
| Stockholders’ distributions | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance - March 31, 2025 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||
| Change in foreign currency translation adjustment | — | |||||||||||||||||||||||||||||||
| Common stock issued for advisory services | ||||||||||||||||||||||||||||||||
| Share based compensation | — | |||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - March 31, 2026 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
ZRCN Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| 2026 | 2025 | |||||||
| For the Year Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net (loss) income 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 | ||||||||
| Write-off 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 | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Disposal (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 | ( | ) | ( | ) | ||||
| Deferred financing costs | ( | ) | ( | ) | ||||
| Bank overdraft | ||||||||
| Stockholder contributions | ||||||||
| Stockholder distributions | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate fluctuations on cash | ( | ) | ||||||
| Net increase 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 consolidated financial statements.
| F-5 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
1. Organization
The Business
Zircon Corporation (“Zircon”), ZRCN Inc. (“ZRCN” or the “Company”) wholly owned subsidiary, was incorporated in California in 1977. The Company, through Zircon, is principally engaged in the design and manufacture of electronic-based consumer hardware and sells its products primarily to retail outlets located throughout the United States, Canada, Japan and Europe. The Company and Zircon operate from their headquarters located in Campbell, California and an affiliate entity of Zircon, Zircon de Mexico S.A. de C.V., located in Ensenada, Mexico. The operations of the Company and Zircon are supported also by an affiliated entity of Zircon, Zircon Corporation Limited, located in the United Kingdom.
On April 14, 2023 (the “Closing Date”), Zircon Corporation effectuated a merger and reorganization with Harmony Energy Technologies, Inc. (“Harmony”), a Delaware Corporation, ZRCN Inc., a California corporation and a wholly owned subsidiary of Harmony (the “Merger Sub”). The merger leverages Zircon’s sensor-based, ASIC (“Application-Specific Integrated Circuits”) processor technology and patent portfolio, to accelerate growth in its product lines and global markets as a publicly disclosed company, in accordance with the Securities Act of 1933 and the Exchange Act of 1934, both as amended. The combination of Harmony and Zircon was effectuated through a merger (the “Merger”) of Merger Sub into Zircon. The separate existence of Merger Sub ceased, and Merger Sub was merged with and into Zircon (Zircon, as the surviving corporation following the Merger). Upon completion of the Merger, Harmony changed its name to ZRCN Inc. While Harmony was the legal acquirer of Zircon in the Merger, the Merger is treated as a reverse recapitalization, whereby Zircon is deemed to be the accounting acquirer, and the historical financial statements of Zircon became the historical financial statements of Harmony (renamed ZRCN Inc.) upon the closing of the Merger. Under this method of accounting, Harmony was treated as the “acquired” company and Zircon is treated as the acquirer for financial reporting purposes.
Accordingly, for accounting purposes, the Merger was treated as the equivalent of Zircon issuing stock for the net assets of Harmony, accompanied by a recapitalization. The net assets of Harmony were stated at historical cost, with no goodwill or other intangible assets recorded.
2. Going Concern
As
of March 31, 2026, the Company had $
We
do not believe our existing cash and cash equivalents along with borrowing capacity from our current lender will be sufficient to meet
our anticipated cash needs over the next 12 months, which
raises substantial doubt about the Company’s ability to continue as a going concern without any additional management actions.
As of March 31, 2026, our additional borrowing capacity against the line of credit was $
3. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of the Company are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). On this basis, revenue and the related assets are recognized when services are performed and products are sold, and expenses and related liabilities are recorded when the obligation is incurred.
| F-6 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of ZRCN as well as its variable interest entities. The Company consolidates all entities over which the Company has the power to govern the financial and operating policies and therefore exercises control, and upon which the Company has a controlling financial interest. The entities are consolidated from the date at which the Company obtains control and are de-consolidated from the date at which control ceases. All intercompany balances and transactions have been eliminated. Accounting policies of the entities have been revised where necessary to ensure consistency with the policies adopted by the Company.
Under Accounting Standards Codification (“ASC”) Topic 810-10-25, Consolidation, Zircon de Mexico S.A. de C.V. (“ZDM”) and Zircon Corporation Limited (“Zircon UK”) have been determined to be variable interest entities with Zircon as the primary beneficiary. Therefore, the financial statements of ZDM and Zircon UK are consolidated with Zircon and the Company, and all significant intercompany transactions and balances have been eliminated. Neither ZRCN Inc. nor Zircon Corporation have an ownership position in either entity.
Non-controlling Interests
The Company follows ASC 810, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated entities and the loss of control of those entities. Non-controlling interest positions, which represent 100% of the activity in the Company’s consolidated entities before intercompany transactions have been eliminated, are reported as a separate component of consolidated stockholders’ equity from the equity attributable to ZRCN’s stockholders for all years presented. 100% of Zircon de Mexico and 85% of Zircon UK are held by common shareholders. As of March 31, 2026, these same shareholders held collectively approximately 73% of ZRCN Inc. The net (loss) income attributed to the NCI’s is separately designated in the accompanying consolidated statements of operations and comprehensive loss.
Variable Interest Entities
In accordance with ASC 810, Consolidation (“ASC 810”), the Company assesses whether it has an explicit or implicit variable interest in legal entities in which it has a financial relationship and, if so, whether or not those entities are variable interest entities (“VIEs”). Variable interests are contractual, ownership, or other pecuniary interests in an entity whose value changes with changes in the fair value of the entity’s net assets, exclusive of variable interests. Explicit variable interests are those which directly absorb the variability of a VIE and can include contractual interests such as loans or guarantees as well as equity investments. An implicit variable interest acts the same as an explicit variable interest except it involves the absorbing of variability indirectly, such as through related party arrangements or implicit guarantees. The analysis includes consideration of the design of the entity, its organizational structure, including decision making ability over the activities that most significantly impact the VIE’s economic performance. For those entities that qualify as VIEs, ASC 810 requires the Company to determine if the Company is the primary beneficiary of the VIE, and if so, to consolidate the VIE.
If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company - that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary.
The Company has determined that ZDM and Zircon UK are variable interest entities with the Company’s wholly owned subsidiary, Zircon, as the primary beneficiary, and thus the Company, with the ability to exercise control, as determined under the guidance of ASC 810. In its determination, management considered the following qualitative and quantitative factors:
| a. | the overall purpose and design of the entities, which exist primarily for the benefit of or on behalf of the Company and; | |
| b. | the Company’s contractual and common control arrangements with the VIEs, through which it gains both the power to direct the activities that most significantly impact their economic performance, and the obligation to absorb losses and receive benefits that potentially could be significant to the VIEs; | |
| c. | the equity at risk of the entities is not sufficient to finance the entities’ activities without additional subordinated financial support by the Company (i.e., the entities are thinly capitalized). |
| F-7 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
The following table summarizes the carrying amount of the assets and liabilities of ZDM included in the Company’s consolidated balance sheets at March 31, 2026 and 2025 (after elimination of intercompany transactions and balances):
Schedule of Carrying Amount of Assets and Liabilities for Variable Interest Entities
| March 31, 2026 | March 31, 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | $ | |||||||
| Prepaid expenses and other assets | $ | |||||||
| Total current assets | ||||||||
| Property and equipment | $ | |||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | $ | |||||||
| Total current liabilities | $ | $ | ||||||
The following table summarizes the carrying amount of the assets and liabilities of Zircon UK included in the Company’s consolidated balance sheets at March 31, 2026 and 2025 (after elimination of intercompany transactions and balances):
Schedule of Carrying Amount of Assets and Liabilities for Variable Interest Entities
| March 31, 2026 | March 31, 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Total current assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Total current liabilities | $ | $ | ||||||
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Significant estimates used in preparing these consolidated financial statements include the provision for credit losses, allowance for inventory obsolescence, allocation of overhead to inventory, estimated future benefit and fair value of intangible assets, accrued rebates and advertising allowances, useful lives and depreciation methods of property and equipment, uncertain tax positions, and share-based compensation. It is at least reasonably possible that the significant estimates used will change within the next year.
Cash
The
carrying value of cash approximates fair value due to its short-term nature. From time to time, the Company may be in the position of
a “book overdraft” in which outstanding checks exceed cash. The Company classifies book overdrafts in accounts payable within
its consolidated balance sheets and classifies the change in accounts payable associated with book overdrafts as an operating activity
within the consolidated statement of cash flows. As of March 31, 2026 and 2025, the book overdraft included within accounts payable was
less than $
| F-8 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
Accounts Receivable, Net
Accounts receivables are stated at the amount the Company expects to collect. The Company provides credit without requiring collateral, in the normal course of business, to credit-worthy customers as determined by management’s review of references and credit reports. Bad debts are charged against the provision for credit losses. The provision for credit losses is adjusted to provide a specific and general allowance for estimated uncollectible accounts, which is based on management’s judgment based on a number of factors, including the length of time the receivables are past due, significant one-time events and historical experience. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the provision for credit losses and a credit to accounts receivable. Based on management’s assessment of the credit history with customers having outstanding balances and current relationships with them, management believes that losses on balances outstanding will not exceed the provision for credit losses.
Accounts receivable is presented net of amounts invoiced for product shipments that remained in transit at period end under FOB destination shipping terms, for which the related performance obligation, and therefore the associated revenue and receivable, had not yet been satisfied as of the balance sheet date (see Revenue Recognition below).
Accounts receivable consisted of the following:
Schedule of Accounts Receivable
| (In thousands) | March 31, 2026 | 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:
Schedule of Provision for Credit losses
| (In thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Credit loss provision | ||||||||
| Write-offs | ( | ) | ||||||
| Balance, end of period | $ | $ | ||||||
Inventory, net
Inventories,
which consist of raw materials, work in process, and finished goods, are stated
at the lower of cost or net realizable value and are valued at standard cost which include materials, direct labor, and overhead. Overhead
includes indirect labor and materials, depreciation and maintenance, and building rent and other facilities costs. Variances, which can
include abnormal spoilage, idle capacity and abnormal labor efficiency, are recorded against standard cost are expensed as incurred.
The Company states inventory cost utilizing the first-in, first-out (FIFO) method. The need for an allowance for inventory obsolescence
is based on an evaluation of slow-moving or potentially obsolete inventory. For the years ended March 31, 2026 and 2025, the Company
recognized $
Property and Equipment, Net
Property and equipment are stated at cost. Leasehold improvements are amortized over the shorter of the lease terms or estimated useful lives of the respective assets. Depreciation is computed using the straight-line method over the following estimated useful lives of the respective assets:
Schedule of Useful Life of Asset
| Leasehold improvement | ||||
| Computer equipment | ||||
| Manufacturing equipment | ||||
| Furniture and office equipment | ||||
| Vehicles |
| F-9 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
Intangible Assets, Net
Included
in intangible assets are external amounts paid to vendors as well as consulting and legal fees for purchased
patents and the cost of the exclusivity rights and licenses secured by the Company for certain technology. The intangible assets are
recorded at cost on the balance sheet and adjusted for amortization, abandonments, and impairments (see Note 7). Acquired identifiable
intangible assets are valued at the acquisition date primarily by using a discounted cash flow method. Amortization is computed using
the straight-line method over their estimated useful lives of
Impairment of Long-Lived Assets
The
Company reviews its long-lived assets for impairment whenever events or circumstances exist that indicate
the carrying amount of an asset or asset group may not be recoverable. The recoverability of long-lived assets is measured by a comparison
of the carrying amount of the asset or asset group to the future undiscounted cash flows expected to be generated by that asset group.
If the asset or asset group is considered to be impaired, an impairment loss is recorded to adjust the carrying amounts to the estimated
fair value. The excess of the carrying value of the reporting unit over the estimated fair value is first allocated to the intangibles
and then to goodwill. Fair value is determined using the income approach. During the years ended March 31, 2026 and 2025, there has been
Revenue Recognition
The Company’s revenues result from the sale of products and reflect the consideration to which the Company expects to be entitled. The Company records revenue based on a five-step model in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). For its contracts with customers, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is transferred to the customer. A good or service is transferred when (or as) the customer obtains control of that good or service. The Company satisfies its performance obligation and recognizes revenue at the time the customer obtains the rights to the product, which is generally when goods are shipped. As a result, the majority of the Company’s revenue is recognized at a point in time, at shipment. For product sales shipped under FOB destination shipping terms, control of the product transfers to the customer upon delivery of the product to the customer’s specified location. Accordingly, revenue for these arrangements is recognized upon delivery.
During the year, the Company refined its application of this policy for certain FOB destination product shipments to better align the timing of revenue recognition with the transfer of control. For shipments in transit at period end under FOB destination terms, the Company has concluded that revenue should not be recognized, and the related amounts should not be recorded as accounts receivable, until delivery of the product to the customer’s specified location. Because the Company has not received, and does not have an unconditional right to receive, consideration in advance of satisfying its performance obligation for these shipments, no contract liability is recognized for such shipments; instead, the amounts invoiced for shipments in transit at period end are presented as a reduction of accounts receivable until control of the product transfers to the customer upon delivery. This refinement did not represent a change in the Company’s revenue recognition accounting policy, but rather a clarification of the application of ASC 606 to specific circumstances. The impact of this refinement was not material to any prior period financial statements and was consistent with prior year adjustment.
Provisions
for customer volume rebates, product returns, discounts and allowances are variable consideration and are recorded as a reduction of
revenue in the same period the related sales are recorded. Such provisions are calculated using historical averages adjusted for any
expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a
reduction of revenue except to the extent that there is a distinct good or service and evidence of the fair value of the advertising,
in which case the expense is classified as marketing and selling expense. Advertising expenses included within marketing and selling
expenses were $
Research and Development
The Company incurs research and development costs of products for use in scanning behind opaque surfaces. The Company will continue to invest in research and development to develop additional components and products of its scanning product offerings and remains committed to providing its customers and partners with best-in-class scanning products and services. Such research and development costs, software development costs, and any new product development costs, are expensed as incurred, and include personnel-related costs, depreciation related to engineering and test equipment, allocated costs of facilities and information technology, outside services and consultant costs, supplies, software tools and product certification.
| F-10 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
The Company expenses share based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Share-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. For awards with performance conditions, compensation cost is recognized over the requisite service period based on the actual or expected achievement of the performance condition. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of share-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Company estimates the fair value of restricted stock award grants on the date of issuance. All share-based compensation costs are recorded within the applicable operating expense category in the condensed consolidated statements of operations and comprehensive loss based upon the underlying individual’s role at the Company. Share based awards that do not meet the criteria for equity classification are recorded as liabilities and adjusted to fair value at the end of each reporting period.
Comprehensive Loss
Comprehensive loss of all periods presented is comprised primarily of net (loss) income and foreign currency translation adjustments.
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 Executive 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 (Zircon Corporation and the two VIEs) for purposes of making operating decisions, allocating resources, and evaluating the Company’s financial performance. The CODM utilizes financial metrics that are reported in the statement of operations: consolidated revenue, cost of goods sold (“COGS”) and the associated gross profit, operating expense, and income (loss) from operations, as the financial measures for making decisions. Categories within operating expense are: research and development (“R&D”), Marketing and selling and general and administrative (“G&A”). This enables the CODM to assess the overall level of available resources and determine how best to deploy these resources across projects in line with the long-term company-wide strategic goals. Management reviews its business as one consolidated segment and utilizes financial information as presented in the consolidated financial statements. The measure of segment assets is reported in the accompanying consolidated balance sheets as “Total assets.” There is no change in the Company’s operating or reporting segments for the fiscal year ended March 31, 2026.
Concentration of Business and Credit Risk
As of March 31, 2026, the Company maintained deposits in a single bank that exceeded the federal insured deposit limit of the Federal Deposit Insurance Corporation (FDIC).
During
the years ended March 31, 2026 and 2025, respectively, the Company generated approximately
As
of March 31, 2026 and March 31, 2025, respectively,
| F-11 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
Fair Value of Financial Instruments
In accordance with FASB ASC 820 Fair Value Measurements and Disclosures, the Company uses a three-level hierarchy for fair value measurements of certain assets and liabilities for financial reporting purposes that distinguishes between market participant assumptions developed from market data obtained from outside sources (observable inputs) and our own assumptions about market participant assumptions developed from the best information available to us in the circumstances (unobservable inputs). The fair value hierarchy is divided into three levels based on the source of inputs as follows:
| ● | Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; | |
| ● | Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly including inputs in markets that are not considered to be active; and | |
| ● | Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Schedule of Fair Value of Financial Instruments
| Carrying | ||||||||||||||||||||
| Financial Instrument | Value | Fair value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Shareholder note payable Line of credit | $ | $ | $ | $ | ||||||||||||||||
Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company believes the carrying amounts of its cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses, and other current liabilities approximated their fair values as of March 31, 2026 and March 31, 2025 due to their short-term nature. All carrying amounts of other applicable assets and liabilities on the Company’s balance sheet approximate fair value.
The carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value on a recurring basis as of March 31, 2026, are as follows:
| ● | Shareholder
Note Payable: The Company holds a % fixed rate note payable to a shareholder with
a remaining time to maturity of | |
| ● | Line of Credit: The carrying amount of the variable-rate line of credit approximates its fair value because the interest rate resets frequently with market indices and reflects current market borrowing terms (Level 2). |
Foreign Operations and Foreign Currency
The Company’s reporting currency is the U.S. dollar and the Company’s records are maintained in U.S. dollars. Assets and liabilities, including any amounts due or receivable from foreign entities, are translated into the reporting currency using the exchange rates in effect on the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the consolidated statement of operations translation process. Any revenues or expenses that are billed in foreign currency are converted at the average rates of exchange prevailing during each period. Realized and unrealized foreign currency exchange gains and losses arising from transactions denominated in currencies other than the U.S. dollar are reflected in earnings. The cumulative translation adjustments associated with the net assets of foreign entities are recorded in accumulated other comprehensive loss in the accompanying consolidated statements of changes in stockholders’ equity.
Operations outside the United States include entities in Mexico, conducting business in Mexican Pesos, and the United Kingdom, conducting business in the British Pound. The Company also transacts business in other foreign countries. Foreign operations are subject to risks inherent in operating under different legal systems and various political and economic environments. Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange.
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.
| F-12 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
Basic net loss per share of common stock is computed by dividing net income or loss attributable to ZRCN by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share excludes, when applicable, the potential impact of stock options, warrant shares, and other dilutive instruments because their effect would be anti-dilutive. Diluted net income per share, when applicable, includes the stock options and warrant shares because their effect would be dilutive. Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive. The potentially dilutive securities outstanding are as follows:
| March 31, 2026 | March 31, 2025 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
Leases
The Company accounts for leases under ASC Topic 842, which requires the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet.
The Company’s lease arrangements relate primarily to office space, a vehicle, and office equipment. The Company’s leases may include renewal options and rent escalation clauses. The Company is typically required to make fixed minimum rent payments relating to its right to use an underlying leased asset.
The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are presented as right-of-use (“ROU”) assets and the corresponding lease liabilities are included in operating lease liabilities, current and operating lease liabilities on the Company’s consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset, and lease liabilities represent the Company’s obligation for lease payments in exchange for the ability to use the asset for the duration of the lease term. The Company does not recognize short-term leases that have a term of twelve months or less as ROU assets or lease liabilities.
ROU assets and lease liabilities are recognized at commencement date and determined using the present value of the future minimum lease payments over the lease term. The Company uses an incremental borrowing rate based on estimated rate of interest for collateralized borrowing since the Company’s leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease economic environment, and actual lease term at commencement date. The lease term may include options to extend when it is reasonably certain that the Company will exercise that option. The Company recognizes lease expense on a straight-line basis over the lease term.
The Company has lease agreements which contain both lease and non-lease components, which it has not elected to account for as a single lease component. As such, minimum lease payments exclude fixed payments for non-lease components within a lease agreement, in addition to excluding variable lease payments not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period.
| F-13 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component
of stockholders’ equity at the time of issuance. There are
Recently Issued Accounting Pronouncements
As an emerging growth company, the Company will have the option of adopting new accounting pronouncements on a delayed basis and has opted to take advantage of this option. As a result, the Company has been adopting new accounting standards based on the timeline for adoption afforded to privately held companies, unless it chooses to early adopt a new accounting standard.
Accounting Standards Adopted
In July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”). This standard introduces a practical expedient that companies can choose to apply when determining allowances for credit losses. Specifically, it permits companies to assume that the current conditions as of the balance sheet date remain unchanged throughout the remaining life of the assets. This standard is effective for the Company for annual reporting periods beginning after December 15, 2025, and requires prospective application. The Company did not early adopt the new standard. The new standard has been applied prospectively. The Company adopted ASU 2025-05 on December 15, 2025.
Recently Issued Accounting Standards Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), the intent of which is to improve financial reporting and respond to investor input by requiring public business entities to 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 audited consolidated financial statements or related disclosures.
| F-14 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
In November 2025, the FASB issued ASU 2025-08 - Financial Instruments - Credit Losses (“ASU 2025-08”). This standard issues final guidance requiring entities to apply the gross-up approach in ASC 326 to all “purchased seasoned loans.” Purchased seasoned loans are loans (excluding purchased financial assets with credit deterioration, credit card receivables, debt securities and trade receivables) that are (1) acquired in a business combination or (2) obtained through a transfer that is not a business combination or initially recognized through the consolidation of a variable interest entity, if certain seasoning criteria are met. A loan is considered seasoned if it is obtained more than 90 days after its origination date and the transferee was not involved in the origination. This standard is effective for the Company for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Entities are required to apply the guidance prospectively. Early adoption is permitted. The Company is currently evaluating the disclosure impact of ASU 2025-08, however, does not expect it to have a material impact on its audited 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 audited 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 audited 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 audited 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 audited consolidated financial statements.
| F-15 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
In April 2026, the FASB issued ASU 2026-01 - Equity (Topic 505): Initial Measurement of Paid-in-Kind Dividends on Equity-Classified Preferred Stock (“ASU 2026-01”). This standard introduces a single, standardized approach for the initial measurement of paid-in-kind (PIK) dividends on equity-classified preferred stock. This update addresses long-standing diversity in practice and improves comparability across entities. The new guidance mandates measurement based on the stated PIK dividend rate in the preferred stock agreement for in-scope arrangements. This approach aligns accounting with the underlying economics, reflects prevailing market practice, and enhances operability. Certain arrangements, including those involving fixed monetary amounts settled in variable shares, remain outside the scope. The amendments are effective for reporting periods beginning after December 15, 2026, with early adoption permitted. The Company is currently evaluating the disclosure impact that ASU 2026-01 may have on its unaudited condensed consolidated financial statement presentation and disclosures, however, does not expect it to have a material impact on its audited consolidated financial statements.
In May 2026, the FASB issued ASU 2026-02 - Environmental Credits and Environmental Credit Obligations (Topic 818) (“ASU 2026-02”). This standard improves the financial accounting for and disclosure of activities related to environmental credits and environmental credit obligations. This update provides recognition, measurement, presentation, and disclosure requirements for all entities that generate, purchase, or receive environmental credits or have a regulatory compliance obligation that may be settled with environmental credits. This standard is effective for the Company for annual reporting periods (and interim periods within those annual periods) beginning after Dec. 15, 2027, with early adoption permitted. The Company is currently evaluating the disclosure impact that ASU 2026-02 may have on its unaudited condensed consolidated financial statement presentation and disclosures, however, does not expect it to have a material impact on its audited consolidated financial statements.
| F-16 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
4. Revenue
Disaggregation of Revenue from Contracts with Customers
Revenue disaggregated by major product line for the years ended March 31, 2026 and 2025, respectively, were as follows:
Schedule of Revenue Disaggregated Transfer of Goods and Services
| (In thousands) | 2026 | 2025 | ||||||
| For the Year Ended March 31, | ||||||||
| (In thousands) | 2026 | 2025 | ||||||
| Revenue generated per major product line | ||||||||
| Stud sensor edge | $ | $ | ||||||
| Multifunctional scanners | ||||||||
| Stud sensor center | ||||||||
| Target control products | ||||||||
| Other | ||||||||
| Total Revenue | $ | $ | ||||||
Revenue disaggregated according to the geographical location of customers for the years ended March 31, 2026 and 2025, respectively, were as follows:
Schedule of Revenue Disaggregated Geographical Location of Customers
| (In thousands) | 2026 | 2025 | ||||||
| For the Year Ended March 31, | ||||||||
| (In thousands) | 2026 | 2025 | ||||||
| Revenue by geographic location of customers | ||||||||
| United States | $ | $ | ||||||
| Canada | ||||||||
| Japan | ||||||||
| Europe | ||||||||
| Others | ||||||||
| Total Revenue | $ | $ | ||||||
5. Inventory
Inventory consisted of the following:
Schedule of Inventory
| (In thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Finished goods, net | $ | $ | ||||||
| Raw materials, net | ||||||||
| Work in process, net | ||||||||
| Inventory net | $ | $ | ||||||
Allowance
for slow moving and obsolete inventory was estimated at $
Schedule of Inventory Allowances
| In thousands | March 31,2026 | March 31,2025 | ||||||
| Inventory Allowances | ||||||||
| In thousands | March 31,2026 | March 31,2025 | ||||||
| Beginning Balance | $ | $ | ||||||
| Additions | ||||||||
| Scrap | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| F-17 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
6. Property and Equipment
Property and equipment consisted of the following:
Schedule of Property and Equipment
| (In thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Manufacturing equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Leasehold improvements | ||||||||
| Furniture and office equipment | ||||||||
| Vehicles | ||||||||
| Property and equipment, gross | ||||||||
| Construction in progress | ||||||||
| Property and equipment before accumulated depreciation and amortization | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
For
the years ended March 31, 2026 and 2025, depreciation and amortization expense was $
Construction in progress consists of assets and technologies under development. The Company starts depreciation once the assets are completed and placed in service.
7. Intangible Assets
The Company’s intangible assets consisted of the following:
Schedule of Intangible Assets
| (In thousands) | March 31, 2026 | March 31, 2025 | ||||||||||||||||||||||
| 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): | March 31, 2026 Weighted Average Life | |||
| Patents issued and pending | ||||
| Exclusivity rights and licenses | ||||
| (1) |
For
the years ended March 31, 2026 and 2025, amortization expense was approximately $
| F-18 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
Expected future amortization expense of acquired finite-lived intangible assets as of March 31, 2026, is as follows:
Schedule of Future Amortization Expense
| For the Years Ending March 31, (In thousands) | Amount | |||
| $ | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| Thereafter | ||||
| Total | $ | |||
8. Accrued Expenses
Accrued expenses consisted of the following as of March 31, 2026 and 2025, respectively:
Schedule of Accrued Liabilities
| (In thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Rebates | $ | $ | ||||||
| Accrued taxes | ||||||||
| Sales expense | ||||||||
| Payroll and related | ||||||||
| Advertising allowance | ||||||||
| Vacation | ||||||||
| Professional services | ||||||||
| Interest | ||||||||
| Accrued liabilities | $ | $ | ||||||
9. Debt
Line of Credit
On
May 31, 2024, the Company entered into a Revolving Credit, Security, and Guaranty Agreement (the “Credit Agreement”) with
FGI Worldwide LLC, as Agent for the lender (“FGI”). The Credit Agreement provides for a $
From July 2025 until March 17, 2026, the Company and FGI entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. As of March 31, 2025, due to being in default of the loan covenants, the Company classified the line of credit as a current liability. As of March 31, 2026, borrowings under the Company’s new revolving credit facility are classified as long-term debt because the facility does not mature until March 17, 2029, and no events of default existed that would require repayment within one year of the balance sheet date. On March 17, 2026, the Company repaid in full and extinguished its revolving credit 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 “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
Schedule of Maturity Date Longterm Debt
| Year ended | Year ended | Year ended | ||||||||||
| Maturity date | March 31, 2027 | March 31, 2028 | March 31, 2029 | |||||||||
| (In thousands) | ||||||||||||
| Line of credit | $ | $ | $ | |||||||||
| Shareholder notes | ||||||||||||
| Total long-term debt | $ | $ | $ | |||||||||
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 ($
| F-19 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
The Loan Agreement requires the Company to comply with maximum tangible net worth and minimum fixed charge coverage ratios. However, the lender has waived compliance with the financial covenants through August 31, 2026. 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 $
Subsequent to March 31, 2026, the Lender notified the Company that the Company had not delivered its audited financial statements and related compliance certificate for the fiscal year ended March 31, 2026 within the 90-day period required under the Loan Agreement, which constituted a default. The Lender waived this default on a one-time basis and required delivery of such audited financial statements and compliance certificate on or before October 15, 2026. See Note 16, Subsequent Events.
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 March 31, 2026, principal
balance of $
For
the years ended March 31, 2026 and 2025, the interest expense on the notes payable to the Stauss Family Administrative Trust totaled
$
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 years ended March 31, 2026 and 2025.
All
eligible employees are also allowed to participate in the Company’s 401(k) plan. The
Company’s contributions to the plan are based on a specified percentage of each participant’s eligible contribution, decided
annually by the Board of Directors, as defined in the plan document. For the years ended March 31, 2026 and 2025, the Company made contributions
to the 401(k) plan of less than $
| F-20 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
11. Equity
On February 28, 2024, the Company adopted a 2024 Equity Incentive Plan (the “Equity Plan”). The Plan provides for granting of stock options (“Options”), restricted stock units (“RSUs”), and other equity-based awards tied to the value of shares of common stock to key personnel, including directors, officers, employees, consultants, and advisors of the Company and its subsidiaries. The Plan provides for the grant of options (which may include “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”)), stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other stock-based awards. As of March 31, 2026, 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.
Schedule of Employee and Non-employee Option Activity
| Number of shares | Weighted average exercise price | Weighted average remaining term (years) | Aggregate intrinsic value (in thousands) | |||||||||||||
| Outstanding as of March 31, 2024 | — | |||||||||||||||
| Options granted | — | |||||||||||||||
| Forfeited | — | |||||||||||||||
| Outstanding as of March 31, 2025 | ||||||||||||||||
| Options granted | — | |||||||||||||||
| Forfeited | — | |||||||||||||||
| Outstanding as of March 31, 2026 | ||||||||||||||||
| Exercisable as of March 31, 2026 | ||||||||||||||||
During
the year ended March 31, 2025, the Company issued common stock options, with an aggregate grant date fair value of $
During the year ended March 31, 2026 and March 31, 2025, the Company recognized $ million and $ million, respectively, in stock-based compensation recorded within the applicable operating expense category based upon the underlying individual’s role at the Company, in the accompanying statements of operations and comprehensive income (loss). As of March 31, 2026, there was $ million of unrecognized stock-based compensation expense related to unvested stock options over a weighted average term of years.
Schedule of Fair Value Assumptions
| March 31, 2026 | ||||
| Volatility | % - | % | ||
| Risk-free rate | % - | % | ||
| Expected life (in years) | - | |||
| Stock price | $ | - | ||
| Exercise price | $ | - | ||
| F-21 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
During
the year ended March 31, 2026, the Company issued common shares to a consultant and former employee, with each issuance valued at less
than $
| ● | On
April 15, 2025, the Company issued common shares with a value of approximately $ | |
| ● | On
May 1, 2025, the Company issued an additional common shares with a value of approximately $ | |
| ● | On
July 7, 2025, August 5, 2025 and September 3, 2025, the Company issued an additional common shares, respectively, for a total
of common shares with a value of approximately $ | |
| ● | On
July 15, 2025, the Company issued an additional common shares with a value of approximately $ | |
| ● | On
October 3, 2025 and November 3, 2025, the Company issued an additional common shares, respectively, for a total of common
shares with a value of approximately $ |
As these common shares were fully vested upon the date of grant, the grant date fair value was expensed in the respective period of the grant date.
12. Warrants
As
of March 31, 2026 and March 31, 2025, the Company had
of these warrants were issued to service providers and are classified as equity warrants and were recorded in shareholders’ equity
at the time of the Harmony merger. The remaining
| F-22 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
13. Commitments and Contingencies
Legal Proceedings
As
of March 31, 2026, no material contingencies exist. In October 2025, the Company settled outstanding litigation with Stanley Black and
Decker for $
Leases
The
Company’s corporate headquarters in Campbell, California are leased from the trust of one of the former shareholders of the Company
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:
Schedule of Components of Lease Expense
| (In thousands) | March 31, 2026 | March 31, 2025 | ||||||
| Operating lease expense | $ | $ | ||||||
| Total lease cost | $ | $ | ||||||
| F-23 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
The following table provides the weighted average lease term and weighted average discount rate as of March 31, 2026 and 2025, respectively:
Schedule of Weighted Average Remaining Lease Terms and Discount Rate
| March 31, 2026 | March 31, 2025 | |||||||
| Weighted average remaining lease term (in years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Future minimum lease payment under non-cancellable lease as of March 31, 2026 are as follows:
Schedule of Future Minimum Lease Payment Under Non-cancellable Lease
| Maturities of lease liabilities (In thousands) | Operating Leases | |||
| Year ending March 31, | ||||
| 2027 | $ | |||
| 2028 | ||||
| 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 | $ | |||
Executive Agreement
On
October 1, 2012, Zircon Corporation (the” Company”) and John R. Stauss (the “Executive”) entered into an Employment
Agreement (“Agreement”). The Agreement established an annual Base Salary of not less than $
Tariffs
The U.S. Court of International Trade (CIT) on March 4, 2026, issued an order that tariffs collected as part of the International Emergency Economic Powers Act (IEEPA) were unlawful and should be refunded. The Company working with its customs broker determined that it may be eligible to receive refunds of some or all of the IEEPA tariffs already paid. However, no accounting gain was accrued during fiscal 2026 as, under ASC 450-30-Gain Contingencies, no recognition of any gain related to tariff refunds can be recorded until the proceeds have been received. As of March 31, 2026, no tariff refunds have been received.
| F-24 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
Purchase Commitments
As
of March 31, 2026, the Company had purchase commitments outstanding on its purchase orders of approximately $
Product Warranties
The Company warrants to the original purchaser (or original user by gift) that its products will be free from defects in materials and workmanship for its useful life (not to exceed twenty years from date of purchase). Typically, the Company sends the purchaser a replacement product if the original purchase is returned under warranty. To date, returns have been minimal and no liability has been recorded on the Company’s balance sheet.
Product Liability
The
Company manufactures and sells products containing embedded and non-embedded batteries. Global regulations, including those for certain
individual states within the United States. are undergoing structural changes focused on circular economy mandates, consumer right-to-repair,
and strict digital traceability. In California, if an electronic hand tool features an internal, non-removable battery, it falls under
the Covered Battery Embedded Products Law. This law requires collection of fees by retailers and certain additional labelling on the
product’s packaging. Certain of the Company’s products are covered by this regulation and may be subject to additional regulations
in California and other jurisdictions in the future. During the year ended March 31, 2026, sales of these products by the Company totaled
less than $
Guarantees under the Credit Agreement
Under the Limited Recourse Collateral Pledge Agreement (“Pledge Agreement”) between the Company and the Lender, certain of the Company’s shareholders have pledged their shares in the Company and its two affiliates to the Lender in the event of a default. In the event of a default, the Company will have the ability to remedy the default; however, if the default continues and is not remedied, the Lender will be able to exercise its rights and remedies under the Pledge Agreement.
14. Related Party Transactions
Zircon is a member of a controlled group of companies and has revenue and cost-sharing activities with other members of the controlled group. Results of operations and financial condition may not represent amounts that would have been reported if Zircon operated as an unaffiliated entity.
Zircon
has an exclusive manufacturing and technical assistance agreement with Zircon de Mexico S.A. de C.V. (the “Contractor”),
an entity which is owned by certain shareholders of Zircon. Under the terms of the agreement, Zircon provides materials, technical assistance,
and expertise to the Contractor, and the Contractor assembles certain of Zircon’s products. For fiscal 2026 and 2025, Zircon incurred
expenses from the Contractor of $
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 from the Stauss Family Administrative Trust a
| F-25 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
The
Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of March 31, 2026, principal
balance of $
15. Income Taxes
The
Company’s provision for income taxes consists of federal, state, and international income taxes, which differ from amounts computed
by applying the U.S. federal statutory rate to pre-tax income (loss) primarily due to changes in the valuation allowance against the
Company’s deferred tax assets, state taxes, and other permanent differences. For the year ended March 31, 2026, the Company recorded
a total income tax benefit of $
On
July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, permitting taxpayers to deduct domestic research and
experimentation expenditures in the year incurred rather than capitalizing and amortizing them, and allowing amended prior-year returns
to accelerate this deduction. Under this provision, the Company amended prior-year federal returns during the quarter ended September
30, 2025 and expects a federal cash refund of approximately $
The components of income tax expense (benefit) consist of the following:
Schedule of Components of Income Tax Expense Benefit
| (In thousands) | 2026 | 2025 | ||||||
| For the Years Ended March 31, | ||||||||
| (In thousands) | 2026 | 2025 | ||||||
| Current: | ||||||||
| Federal | $ | ( | ) | $ | ( | ) | ||
| State | ||||||||
| International | ||||||||
| Total current expense | ( | ) | ||||||
| Deferred: | ||||||||
| Federal | ||||||||
| State | ||||||||
| Total deferred (benefit) expense | ||||||||
| Income tax (benefit) expense | $ | ( | ) | $ | ||||
A reconciliation of income tax expense (benefit) computed at the U.S. federal statutory income tax rate to the Company’s actual income tax expense (benefit), in dollars and as a percentage of pre-tax income (loss), is as follows:
Schedule of Reconciliation of Income Tax Rate
| Year Ended March 31, 2026 | Year Ended March 31, 2025 | |||||||||||||||
| (in thousands, except percentages) | $ | % | $ | % | ||||||||||||
| Income (loss) before income taxes | $ | ( | ) | $ | ( | ) | ||||||||||
| Tax (benefit) expense at U.S. statutory rate | $ | ( | ) | % | $ | ( | ) | % | ||||||||
| Effect of: | ||||||||||||||||
| State and local income tax, net of federal benefit | % | ( | )% | |||||||||||||
| Foreign tax effects (Mexico) | ( | )% | ( | )% | ||||||||||||
| Effect of enacted tax law changes (OBBBA R&E election) | ( | ) | % | % | ||||||||||||
| Change in valuation allowance | ( | )% | ( | )% | ||||||||||||
| Other, net | % | ( | ) | % | ||||||||||||
| Total income tax (benefit) expense | $ | ( | ) | % | $ | ( | )% | |||||||||
| F-26 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
The Company’s effective tax rate differs from the U.S. federal statutory rate in both years primarily because the Company maintains a full valuation allowance against its deferred tax assets, which offsets substantially all of the statutory tax benefit generated by its pre-tax losses. In the year ended March 31, 2026, the effective rate was also affected by a discrete federal tax benefit from the Company’s election under the One Big Beautiful Bill Act to currently deduct research and experimentation expenditures (see above) and by foreign taxes on the Company’s Mexico operations, for which no U.S. tax benefit is currently recognized.
Deferred Taxes and Valuation Allowance
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities are as follows:
Schedule of Deferred Tax Assets and Liabilities
| (In thousands) | As of March 31, 2026 | As of March 31, 2025 | ||||||
| Deferred tax assets: | ||||||||
| Accrued vacation | $ | $ | ||||||
| Inventory reserve | ||||||||
| Capitalized research and development | ||||||||
| Interest expense limitation | ||||||||
| Lease liability | ||||||||
| Net operating loss carryforward | ||||||||
| Research and development tax credit | ||||||||
| Other | ||||||||
| Total gross deferred tax assets | ||||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax assets | ||||||||
| Deferred tax liabilities | ||||||||
| ROU Asset | ( | ) | ( | ) | ||||
| State taxes | ( | ) | ||||||
| Fixed assets | ( | ) | ( | ) | ||||
| Total deferred tax liabilities | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
The Company’s federal net operating loss carryforward generated in the current year, and the related valuation allowance, are excluded from the table above and are instead reflected net within unrecognized tax benefits (see Unrecognized Tax Benefits below), as realization of that carryforward is uncertain pending a formal Section 382 study.
Management
has concluded that it is not more likely than not that the Company’s deferred tax assets will be realized, based on a history of
cumulative losses and the absence of objectively verifiable evidence of future taxable income. Accordingly, the Company has maintained
a full valuation allowance against its net deferred tax assets, and net deferred tax assets were $ as of both March 31, 2026 and March
31, 2025. The valuation allowance was approximately $
Net Operating Loss and Tax Credit Carryforwards
The Company had the following carryforwards available to offset future taxable income as of the dates indicated:
| ● | Federal
net operating loss carryforwards of approximately $ |
| ● | California
net operating loss carryforwards of approximately $ |
| ● | Federal
research and development tax credit carryforwards of approximately $ |
| ● | Federal
Section 163(j) business interest expense carryforwards of approximately $ |
The
Company has unrecognized tax benefits as of March 31, 2026 and 2025 of $
Schedule of Unrecognized tax Benefits
| (In thousands) | As of March 31, 2026 | As of March 31, 2025 | ||||||
| Unrecognized tax benefits, beginning balance | $ | $ | ||||||
| Current year increases in unrecognized tax benefits due to tax positions taken in current period | ||||||||
| Recognized interest and penalties | ||||||||
| Unrecognized tax benefits, end balance | $ | $ | ||||||
| F-27 |
ZRCN Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2026 AND 2025
Unrecognized
tax benefits relate entirely to federal net operating losses acquired via the acquisition of Harmony Energy Technologies Corporation,
for which realization is uncertain absent a completed Section 382 limitation study; this acquired position, and the resulting uncertainty,
was unchanged during the year ended March 31, 2026. If recognized, these amounts would affect the Company’s effective tax rate.
Interest and penalties associated with uncertain tax positions are recognized as a component of income tax expense and are excluded from
the table above; the Company had accrued approximately $
Tax Jurisdictions and Open Years
The Company files a consolidated U.S. federal income tax return, a combined California franchise tax return, and a Chinese income tax return; its Chinese operations are limited and the related tax provision is de minimis. Affiliates of the Company file income tax returns in Mexico and the United Kingdom. As of March 31, 2026, the Company’s federal returns for tax years ended March 31, 2022 and later, and its California returns for tax years ended March 31, 2021 and later, remain open to examination. There were no ongoing federal or state income tax examinations as of the date of this report.
16. Subsequent Events
On June 22, 2026, the Company’s Board of Directors approved an amendment to the Company’s 2024 Omnibus Equity Incentive Plan, reducing the number of shares of common stock reserved for issuance under the plan from shares to shares. The amendment did not have a material impact on the Company’s consolidated financial statements as of or for the year ended March 31, 2026.
On June 24, 2026, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of Delaware, which became effective upon filing. The amendment reduced the number of authorized shares of the Company’s common stock from shares to shares. This event occurred subsequent to the balance sheet date and has not been reflected in the accompanying financial statements.
On
February 20, 2026, the U.S. Supreme Court invalidated tariffs imposed by the current administration under the International Emergency
Economic Powers Act as unconstitutional. No process or timeline was provided for recovery of illegally extracted tariffs. During the
periods June through August 2026, to meet critical Zircon obligations since the tariff recovery funds had only been partially remitted
at that time, the Stauss Family Administrative Trust (“SFAT”) loaned $
On September 9, 2026, the Lender notified the Company that the Company’s audited financial statements and related compliance certificate for the fiscal year ended March 31, 2026 had not been delivered to the Lender by June 30, 2026, the 90-calendar-day deadline required under Sections 9(b) and 9(d) of the Loan Agreement (Note 9), which constituted a default under the Loan Agreement. The Lender waived this default, and any Default or Event of Default arising from it, on a one-time basis limited solely to this default, and required the Company to deliver such audited financial statements and compliance certificate to the Lender on or before October 15, 2026, which the Company expects to satisfy in connection with the filing of this Annual Report on Form 10-K. The waiver letter states that it is not an agreement of forbearance, does not waive any other past, present or future default, and expressly reserves all of the Lender’s other rights, powers, privileges and remedies under the Loan Agreement and the other Loan Documents.
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.
| F-28 |
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our principal executive officer and principal accounting and financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal accounting and financial officer has concluded that as of March 31, 2026, our disclosure controls and procedures were not effective as of such date as a result of significant deficiencies in our internal control over financial reporting due to inadequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping. Under the direction of our principal executive officer and principal financial and accounting officer, we are developing a plan to remediate the significant deficiency.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
As of March 31, 2026, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of March 31, 2026, our internal control over financial reporting had significant deficiencies that lack adequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping and we are implementing plans to improve such internal control.
Changes in Internal Control Over Financial Reporting
During the year ended March 31, 2026, we initiated remediation actions in response to the significant deficiencies identified in our internal control over financial reporting. These actions include the hiring of a Corporate Controller, the implementation of enhanced review procedures over journal entries, and the development and documentation of key accounting policies and procedures. These changes are intended to strengthen our internal control environment.
Other than the foregoing, there has been no change in our internal control over financial reporting during the year ended March 31, 2026 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
No
officer or director of the Company
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
| 32 |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers, Directors and Key Employees
The following table sets forth the name, age and position of each of our executive officers, key employees and directors as of September 15, 2026. All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Officers serve at the discretion of the board.
| Name | Age | Position | ||
| John Stauss (1) | 69 | Chief Executive Officer, Chairman and Director | ||
| Jeff Parsons (2) | 67 | Chief Financial Officer | ||
| Robert Wyler (3) | 82 | Secretary, General Counsel and Director |
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Notes:
(1) On April 14, 2023, Mr. Stauss was appointed to serve as our Chief Executive Officer, Chairman, and a Director, effective immediately.
(2) On July 17, 2024, Mr. Parsons was appointed to serve as our Chief Financial Officer, effective immediately.
(3) On April 17, 2023, Mr. Wyler was appointed to serve as our General Counsel, effective immediately, and was appointed as a director on May 12, 2023.
John Stauss, age 69, was appointed on April 14, 2023, to serve as our Chief Executive Officer, Chairman and a Director, effective immediately. Mr. Stauss originally joined Zircon in 1984 as Operations Manager. In 1989, he was promoted to President where he served in that capacity until 2000. Mr. Stauss stepped down as President but remained a Director of the company from 2000 – 2006. In 2006, Mr. Stauss returned to Zircon as its Chairman and CEO, where he has continually sought to set broad performance objectives for Zircon to deliver excellence with a high degree of focus on consistent profitability, technical superiority, intellectual property development, industrial design and industry-leading vendor and end-user support. Mr. Stauss graduated from Homestead Highschool in 1975 and Cal Poly, San Luis Obispo with a Bachelors in Biochemistry in 1982 and a Master’s in Business Administration (MBA) in 1984.
Jeff Parsons, age 67, was appointed on July 17, 2024, to serve as our Chief Financial Officer, effective immediately. Mr. Parsons served as Interim Controller and Interim Chief Accounting Officer of Invitae Corporation, a genetic testing company, from March 2023 to November 2023. He served as Interim Controller at Imperfect Foods, a produce delivery company, from March 2022 to January 2023. Between September 2021 and March 2022 Mr. Parsons explored new opportunities. Prior to that, from May 2013 to September 2021 Mr. Parsons served as Corporate Controller at Adesto Technologies Corporation (“Adesto”), a provider of semiconductors and embedded systems. He also served as a financial consultant to Adesto from December 2012 to April 2013. Prior to 2012 Mr. Parsons worked in various senior financial positions for Gigoptix, Inc., a supplier of semiconductor components, Alliance Semiconductor Corporation, a semiconductor manufacturer, Lara Networks, Inc., a provider of network application processors and broadband switching solutions, Cirrus Logic, Inc., a fabless semiconductor supplier and Cypress Semiconductor Corporation, a semiconductor design and manufacturing company. Mr. Parsons has an M.S. in Industrial Administration from Carnegie-Mellon University and a B.A. in Economics from Vanderbilt University.
| 33 |
Robert Wyler, age 82, was appointed on April 14, 2023, to serve as our General Counsel and Secretary, effective immediately. Mr. Wyler was also appointed to serve as a Director of the Company on May 13, 2023. Mr. Wyler is a co-Founder of Zircon Corporation and is currently Vice President and Secretary, as well as the company’s General Counsel and a Director. Bob has served in various senior leadership and legal roles with domestic and international technology companies, including Varian Associates, a public company based in Palo Alto and Litronix, Inc. of Cupertino, CA., where he was responsible for supervision and management of all of the company’s legal matters both in the US and also across Litronix’s international operations in Europe, Malaysia, Singapore and Mauritius. Mr. Wyler received a Bachelor of Science in Mechanical Engineering from Stanford University in 1965, and a Juris Doctorate (JD) from Hastings College of Law in San Francisco in 1968.
Board of Directors
The Company has five directors on its Board. There was no change in the composition of our Board of Directors during the year ended March 31, 2026.
Joseph R. Bronson, age 78, has served as Chief Executive Officer and Principal of The Bronson Group, LLC., a business advisory group focused on operational and financial consulting since 2012. He also is an advisor and supervisory board member of Solayer, an equipment company based in Germany and China in the advanced optical applications area. He has been an adviser to AMEC, a semiconductor equipment company, based in Shanghai, China since 2008. From 2016 to 2021 Mr. Bronson was a Managing Director and Strategic Advisor to Cowen, a New York City based investment bank. From January 1998 to October 2021 Mr. Bronson served as the Chief Financial Officer of Applied Materials, a semiconductor equipment manufacturer in Santa Clara, CA.
Mr. Bronson currently serves on the board of PDF Solutions, Inc. (NASDAQ: PDFS), a leading provider of comprehensive data solutions for the semiconductor ecosystem, as the lead Director. Mr. Bronson currently serves as a Regent at Santa Clara University and Loyola Marymount University. He had been a member of the Board of Trustees of Fairfield University from 2009 until February 2021. He is a past Chair of the Board of Trustees of Bellarmine Preparatory School in San Jose, California and became an Emeritus Director in 2023 after 20 years of service. He is also the Chair of the Advisory Board of the Leavey School of Business at Santa Clara University. Mr. Bronson is a certified public accountant and holds a Bachelor of Science degree in accounting from Fairfield University and a Master of Business Administration from the University of Connecticut.
Brian Wong:, age 64, an experienced technology CEO and executive, currently serves on the Boards of Directors of, or is an executive in, a number of companies, including the following: a) Board member of Terraline Trucks, Inc. headquartered in Fremont California, which is dedicated to building a revolutionary electric battery, long-haul (500+ miles), Class-8 heavy truck that supports any driver, human or autonomous; b) President of Zelos Energy, headquartered in San Leandro, California, where he is overseeing development of low cost, long life, and eco-friendly rechargeable Zinc Batteries addressing renewable energy storage applications and providing advice on strategy, scale-up, strategic partnering and fundraising; c) President of Moso4 Advisory, Inc. headquartered in Rancho Palos Verdes, California, through which he provides strategic advisory and consulting for technology companies and Venture Capital investors; d) Board member of Lemurian Labs headquartered in Menlo Park, California, and Chairman of its Audit and Compensation Committee. Lemurian is developing an ultra-low power, high-performance AI software stack and new co-processor based on a proprietary log arithmetic, resulting in much higher efficiencies and lower latency for hyperscaler cloud and edge computing, and e) Managing Director of Pantek Securities headquartered in San Juan, Puerto Rico. Pantek Securities is an investment banking firm focused on energy, deep technology and hard technology sectors. Pantek Securities provides private placement, Merger and Acquisition services and Mr. Wong is FINRA Registered (CDR # 7630684).
In addition to the above cited positions, Mr. Wong has served as a Director on numerous for profit and Not-for-profit Boards since 1995. He received a BSEE (with honors) in 1983 from the University of California, Los Angeles, an MSEE in Electro-Physics in 1986 from the University of Southern California and in 1992 completed the Graduate Management Program (LEAP) at the UCLA Anderson School of Management. During his career he has participated in various Professional Societies and Activities, authored a technical textbook and other publications and received a number of awards including a data timing and recovery patent.
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Linda Graebner:, age 76, is an experienced entrepreneur, CEO and Director, who has successfully grown and transformed numerous consumer products companies. Ms. Graebner served as the Executive Chair of the Board of Directors of Chef’n Corporation, a global developer of highly innovative household gadgets and tools. She led the Board as well as directly managing company finance, marketing, sales and supply chain operations. She led a major channel and distribution expansion, doubling revenue and tripling EBITDA, culminating in a successful sale to Taylor Precision Products in December 2014. She remained a Director of Taylor through its transition to Filament Brands and ultimate sale to Lifetime Brands (public).
In her position as President & CEO for Tilia, Ms. Graebner created and executed the strategic growth plan that built an entirely new category in the housewares industry. She grew Tilia from $9 million revenue with significant losses to over $200 million with outstanding EBITDA and cash flow prior to its sale to Jarden Corp. (NYSE). She continued to lead the company’s growth and played a key role in several acquisitions that led Jarden to grow ten-fold within three years. For Tilia, she completed the acquisition of VillaWare, a $10 million specialty appliance company and successfully integrated it into Tilia’s business.
Ms. Graebner also served as Chair of the International Housewares Association and on the Boards of the Association for Corporate Growth, Pacific Community Ventures and Association of National Advertisers. She currently serves as Chair of a Women Presidents’ Organization chapter and she is a member of the Women Corporate Directors (WCD) organization, Committee of 200 (C200) and the International Women’s Forum (IWF).
Ms. Graebner founded and is the Managing Partner of LSG Associates, a consulting firm specializing in creating and implementing business growth plans for consumer, manufacturing and retail businesses. Her “hands-on” CEO experience coupled with a broad base of industry and marketing expertise provides a unique perspective to add value. Ms. Graebner’s extensive operating experience supports her ability to effectively work with management to ensure successful execution of operating plans.
At Dole Food Company ($3+ billion food producer), Ms. Graebner held various executive level positions in Sales, Marketing, New Business Development and R&D where she successfully launched new products globally, achieving significant new revenues as well as integrating new acquisitions to achieve double digit growth.
Ms. Graebner also held senior Marketing and Business Development as well as Strategic Planning positions at James River Corporation and held similar positions at Crown Zellerbach before its acquisition by James River. She was also a Senior Associate with the management consulting firm of Booz, Allen & Hamilton.
Term of Office
Our directors are appointed to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board, subject to their respective employment agreements.
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
Involvement in Certain Legal Proceedings
During the past 10 years, none of our current directors, nominees for directors or current executive officers have been involved in any legal proceeding identified in Item 401(f) of Regulation S-K.
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Director Independence
The Board of Directors is currently composed of five members, which include John Stauss and Robert Wyler. The Board has assessed director independence using the independence standards set forth in the NASDAQ Listing Rules as a governance benchmark and have determined that the three non-employee directors are independent based on that assessment,
Mr. Stauss and Mr. Wyler do not qualify as independent directors. The NASDAQ independence definition includes a series of objective tests, such as that the Director is not, and has not been for at least three years, one of Zircon’s employees and that neither the Director, nor any of his/her family members has engaged in various types of business dealings with us.
Audit Committee
Pursuant to Section 4.2 of the Bylaws, the Board may, by resolution passed by a majority of the entire Board, designate one or more committees. Pursuant to a Directors’ Resolution, Joe Bronson, Brian Wong, and Robert Wyler have each been appointed as members of the Audit Committee of the Company. Mr. Bronson is considered the financial expert on our Audit Committee.
Nominating and Compensation Committees
Our compensation committee is chaired by Ms. Graebner and includes Mr. Wong and Mr. Stauss Our Nominating and Governance Committee is chaired by Mr. Wong and includes Ms. Graebner and Mr. Stauss.
Code of Business Conduct and Ethics
We have not adopted a formal Code of Business Conduct and Ethics applicable to all Board members, officers and employees. We intend to adopt one during the fiscal year ending March 31, 2027.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents the compensation awarded to, earned by or paid to each of our named executive officers for the fiscal year ended March 31, 2026.
| Summary Compensation Table | ||||||||||||||||||||||||||||||||||||
| Name and Principal | Fiscal Year Ending | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All Other Compensation | Totals | |||||||||||||||||||||||||||
| Position | March 31, | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||
| John Stauss, | 2026 | 312,721 | — | — | — | — | — | — | 312,721 | |||||||||||||||||||||||||||
| Chairman & CEO | 2025 | 310,878 | — | — | 112,210 | — | — | — | 423,088 | |||||||||||||||||||||||||||
| Ronald Bourque, | 2026 | 94,976 | — | — | — | — | — | — | 94,976 | |||||||||||||||||||||||||||
| Former President & CFO | 2025 | 72,792 | — | — | 178,815 | — | — | — | 251,607 | |||||||||||||||||||||||||||
| Jeff Parsons | 2026 | 244,613 | — | — | — | — | — | — | 244,613 | |||||||||||||||||||||||||||
| Chief Financial Officer | 2025 | 250,000 | — | — | 36,400 | — | — | — | 286,400 | |||||||||||||||||||||||||||
| Robert Wyler, | 2026 | 201,560 | — | — | — | — | — | — | 201,560 | |||||||||||||||||||||||||||
| Corporate Counsel and Secretary | 2025 | 241,879 | — | — | 117,110 | — | — | — | 358,989 | |||||||||||||||||||||||||||
Narrative Disclosure to Summary Compensation Table
On October 1, 2012, Zircon Corporation (the” Company”) and John R. Stauss (the “Executive”) entered into an Employment Agreement (“Agreement”). The Agreement established an annual Base Salary of not less than $300,000 paid in periodic installments in accordance with the Company’s regular payroll practices. The Agreement also provides for a bonus equal to 20% of net income based on revenue and profitability targets as set forth in the Company’s Business Plan. The performance bonus is calculated and paid on a quarterly basis. The Agreement also entitles the Executive to participate in employee benefit plans of the Company consistent with the benefit plan requirements for all employees. The Executive is also entitled to prompt reimbursement by the Company for all reasonable ordinary and necessary travel, entertainment and other expenses incurred by the Executive during the employment period. The Agreement has been extended through March 31, 2027.
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Outstanding Equity Awards at March 31, 2026
| Name | Number of shares Granted Underlying Stock Options Held on March 31, 2026 | |||
| John Stauss | 458,000 | |||
| Ronald Bourque | 655,000 | |||
| Jeff Parsons | 100,000 | |||
| Robert Wyler | 478,000 | |||
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of March 31, 2026.
| Option Awards | ||||||||||||||||
| Name | Vesting Start Date | Underlying Unexercised Options (#) Exercisable | Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | |||||||||||
| John Stauss | 1/31/2025 | 240,000 | 218,000 | $ | 0.83 | 1/31/2030 | ||||||||||
| Ronald Bourque | 1/31/2025 | 262,000 | 393,000 | $ | 0.75 | 1/31/2030 | ||||||||||
| Jeff Parsons | 7/17/2024 | 20,000 | 80,000 | $ | 0.88 | 7/17/2029 | ||||||||||
| Robert Wyler | 1/31/2025 | 240,000 | 238,000 | $ | 0.83 | 1/31/2030 | ||||||||||
Clawback Policy
We are not required to maintain a compensation recovery policy.
Equity Award Timing Policies and Practices
We do not grant option awards in anticipation of the release of material nonpublic information and we do not time the release of material nonpublic information based on option award grant dates or for the purpose of affecting the value of executive compensation. In addition, we do not take material nonpublic information into account when determining the timing and terms of such awards. In fiscal year 2026, we did not grant option awards to our named executive officers during the time period outlined in Item 402(x) of Regulation S-K.
Insider Trading Compliance Policy
We maintain an insider trading compliance policy, as discussed in Part III. Item 10. Directors, Executive Officers and Corporate Governance—Insider Trading Compliance Policy.
Compensation of Directors
Our non-employee directors earned the following compensation during the year ended March 31, 2026.
| Director Compensation Table | ||||||||||||||||||||||||
| Name and | Fiscal Year Ending | Fees earned or paid in cash | Stock Awards | Option Awards | All Other Compensation | Totals | ||||||||||||||||||
| Principal Position | March 31, | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||
| Joseph Bronson (1) | 2026 | 28,800 | — | — | — | 28,800 | ||||||||||||||||||
| Linda Graebner (2) | 2026 | 28,800 | — | — | — | 28,800 | ||||||||||||||||||
| Brian Wong (3) | 2026 | 28,800 | — | — | — | 28,800 | ||||||||||||||||||
| (1) | Mr. Bronson began his term as a director on August 14, 2024. |
| (2) | Ms. Graebner began her term as a director on October 18, 2024. |
| (3) | Mr. Wong began his term as a director on October 7, 2024. |
Each person who served as a member of our board of directors during fiscal 2026 held the following aggregate number of shares of our common stock subject to outstanding stock options as of March 31, 2026.
| Name | Number of shares Underlying Stock Options Held on March 31, 2026 | |||
| Joseph Bronson | 48,000 | |||
| Linda Graebner | 48,000 | |||
| Brian Wong | 48,000 | |||
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2024 Equity Incentive Plan
On February 28, 2024, the Company’s board of directors adopted the ZRCN Inc. 2024 Equity Incentive Plan (the “Plan”) initially reserving 40,000,000 shares of the Company’s common stock for issuance thereunder, provided, that, the shares of Common Stock issued under the Plan with respect to any exempt awards shall not count against such share limit. Exempt awards include (i) any awards previously granted by a corporation or other entity acquired by the Company or any of its subsidiaries or with which the Company or any of its subsidiaries combines by merger or otherwise; (ii) an “employment inducement” award as described in the applicable stock exchange listing manual or rules; and (iii) any award that is purchased for fair market value (including awards to be received in lieu of fully vested compensation that is otherwise due). The number of shares of Common Stock available for grant under the 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 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 Plan became effective on February 28, 2024 upon approval of the Plan by the Company’s shareholders. Pursuant to the Plan, the Company can grant stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, annual or long-term performance awards or other stock-based awards. As of March 31, 2026, the Company has granted stock options for 3,176,500 shares of Company Common Stock.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information with respect to the beneficial ownership of the Company’s Common Stock on August 31, 2026:
| ● | each person, or group of affiliated persons, who is the beneficial owner of more than 5% of the outstanding common stock of the Company; | |
| ● | each executive officer and director of the Company; and | |
| ● | all of the Company’s executive officers and directors as a group. |
Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including securities that are exercisable or convertible, as the case may be, within 60 days of August 31, 2026. Shares of common stock issuable pursuant to such securities are deemed outstanding for computing the percentage of the person holding such securities and the percentage of any group of which the person is a member but are not deemed outstanding for computing the percentage of any other person. Except as indicated by the footnotes below, the combined Company believes, based on the information furnished to it, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Section 13(d) and 13(g) of the Securities Act.
The percentage of shares beneficially owned is based on 10,360,924 shares of Company Common Stock outstanding as of March 31, 2026.
Unless otherwise noted below, the address of the persons listed on the table is c/o ZRCN Inc., 1580 Dell Avenue, Campbell, CA 95008.
Beneficial ownership representing less than 1% is denoted with an asterisk (*).
| Beneficial Ownership | ||||||||
| Name of Beneficial Owner | Shares | % | ||||||
| Greater than 5% Stockholders: | ||||||||
| Stauss 2014 Revocable Trust (1) | 3,990,133 | 38.51 | % | |||||
| Kurt Stauss (2) | 1,773,393 | 17.12 | % | |||||
| Eric Stauss (3) | 1,773,393 | 17.12 | % | |||||
| Current Executive Officers and Directors: | ||||||||
| John Stauss (1) | 3,990,133 | 38.51 | % | |||||
| Jeffrey Parsons | 0 | * | ||||||
| Robert Wyler | 1,330,045 | 12.84 | % | |||||
| All current executive officers and directors as a group (3 persons) | 5,320,178 | 51.35 | % | |||||
| (1) | John Stauss, as a trustee of the Stauss 2014 Revocable Trust, has the voting power to vote and dispose of the shares held in such trust. |
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Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based on a review of the copies of such forms received, we believe that during fiscal 2026, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes information about our equity compensation plans as of March 31, 2026.
| Securities Authorized for Issuance Under Equity Compensation Plans | ||||||||||||
| Plan Category | Number of securities to be issued upon exercise outstanding options, warrants, and rights (a) | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) | |||||||||
| Equity Compensation Plans approved by security holders | 3,393,684 | $ | 0.79 | 36,823,500 | ||||||||
| Equity Compensation Plans not approved by security holders | - | - | - | |||||||||
| Total | 3,393,684 | $ | 0.79 | 36,823,500 | ||||||||
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The following includes a summary of transactions since March 31, 2024 to which we have been a party, including transactions in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described elsewhere in this Annual Report on Form 10-K. We are not otherwise a party to a current related party transaction, and no transaction is currently proposed, in which the amount of the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which a related person had or will have a direct or indirect material interest.
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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 the company operated as an unaffiliated entity.
Zircon has an exclusive manufacturing and technical assistance agreement with Zircon de Mexico S.A. de C.V. (the “contractor”), an entity which is owned by certain shareholders of Zircon.
Under the terms of the agreement, Zircon provides materials, technical assistance, and expertise to the contractor, and the contractor assembles certain of Zircon’s products. Zircon paid the contractor for costs incurred in manufacturing Zircon’s products, as defined in the contract, plus a profit percentage of approximately 5% of actual cost during the 12-month periods ended March 31, 2026, and 2025. Total expense incurred including the profit percentage amounted to $1,3 million and $1.3 million for the fiscal years ended March 31, 2026 and 2025, respectively. As of March 31, 2026 and March 31, 2025, the Company had net payables to the Contractor of $1.6 million and 1.1 million, respectively.
Zircon has a note payable to the contractor. The note was established for the purpose of reducing the payable balance and to satisfy the company’s lender’s requirements. During the period December 31, 2021, Zircon increased the borrowings by $0.4 million to reduce the payable balance and to control the timing of the expected cash payments. The outstanding loan balance on December 31, 2022, was at $0.8 million. The note bears interest at the current Federal funds rate not to exceed 5% and is limited to an increase of no more than 2% annually. The entire principal balance was due and payable in December 2024 and is subordinated to the line of credit agreement the company has with the Lender. On March 27, 2025, the maturity date for both notes was extended to December 31, 2027.
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 Zircon. The company pays certain administrative and selling expenses of the affiliate. During the 12-month periods ended March 31, 2026 and 2025, the company recorded sales to the affiliate of approximately $11,000 and $35,000, respectively. As of March 31, 2026 and 2025, the company had a receivable from the affiliate of approximately $0.1 million and $0.1 million, respectively.
Notes Payable
The Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of March 31, 2026, the principal balance of approximately $0.7 million is due and payable in December 2025. Interest accrues at 5.5% per annum, is paid quarterly and included in accrued expenses. The note is subordinated to the Credit Agreement and no payment is to be made on the note without prior approval from the lender. 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. There was no change to the principal amount or the annual interest rate. For the years ended March 31, 2026 and 2025 the interest expense on the notes payable to the Stauss Family Administrative Trust was $37,000 and $37,000, respectively.
Director Independence
Our board of directors undertook a review of the independence of our directors and considered whether any director has a relationship with us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities. Our board of directors has determined that Mr. Stauss and Mr. Wyler are not independent directors Our non-employee directors, Mr. Bronson, Ms. Graebner, and Mr. Wong, are all independent directors as that term is defined under the Nasdaq rules.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
Assurance Dimensions LP resigned as the Company’s independent registered public accounting firm on May 3, 2025. The Company engaged Kreston GTA LP as its new accounting firm on May 13, 2025.
The aggregate fees billed to us by Kreston GTA LP, our independent registered public accounting firm, for the indicated services for each of the last two fiscal years were as follows:
| 2026 | 2025 | |||||||
| Audit fees (1) | $ | 202,230 | $ | 217,600 | ||||
| Audit-related fees | — | — | ||||||
| Tax fees | — | — | ||||||
| All other fees | — | — | ||||||
| (1) | Audit fees consist of fees for professional services performed by Kreston GTA LP for fiscal 2026 and fiscal 2025 for the audit and review of our financial statements, preparation and filing of our registration statements, including issuance of comfort letters. |
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(1) Financial Statements
See “Index to Consolidated Financial Statements” on page F-1.
(2) Financial Statement Schedules
All financial statement schedules have been omitted, since the required information is not applicable or is not present in sufficient amounts to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this report.
(3) Exhibits
Exhibits not filed or furnished herewith are incorporated by reference to exhibits previously filed with the SEC, as reflected in the table below. We will furnish a copy of any exhibit to stockholders, without charge upon written request to the Company.
| + | Indicates a management contract or compensatory plan or arrangement. |
| † | Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. |
ITEM 16. FORM 10-K SUMMARY
None.
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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. | |
| /s/ John Stauss | |
| Chairman, Chief Executive Officer, and Director (Principal Executive Officer) |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Robert Wyler as his or her attorney-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| SIGNATURE | TITLE | DATE | ||
| /s/ John Stauss | Chairman and Chief Executive Officer | September 28, 2026 | ||
| John Stauss | (Principal Executive Officer) | |||
| /s/ Jeff Parsons | Chief Financial Officer | September 28, 2026 | ||
| Jeff Parsons | (Principal Financial and Accounting Officer) | |||
| /s/ Robert Wyler | General Counsel, Secretary and Director | September 28, 2026 | ||
| Robert Wyler | ||||
| /s/ Joseph Bronson | Director | September 28, 2026 | ||
| Joseph Bronson | ||||
| /s/ Linda Graebner | Director | September 28, 2026 | ||
| Linda Graebner | ||||
| /s/ Brian Wong | Director | September 28, 2026 | ||
| Brian Wong |
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Exhibit 4.1
DESCRIPTION OF REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12
OF THE SECURITIES EXCHANGE ACT OF 1934
ZRCN Inc., a Delaware corporation (the “Company,” “Corporation,” “we,” “us” or “our”), has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): our Common Stock (as defined below).
The following description briefly summarizes information about our capital stock, including our Common Stock. This information does not purport to be complete, and is subject to and qualified in its entirety by reference to: (i) the Company’s certificate of incorporation, as amended (as so amended, our “Certificate of Incorporation”); and (ii) the Company’s bylaws, as amended (as so amended, our “Bylaws”), copies of each of which are filed and incorporated by reference as exhibits to the Annual Report on Form 10-K of which this Exhibit is a part. We encourage you to read our Certificate of Incorporation, our Bylaws, and the relevant provisions of the General Corporation Law of the State of Delaware (the “DGCL”) – the general corporation law of the state in which we are incorporated – for additional information.
General
As of August 31, 2026, our authorized capital stock consists of 25,000,000 shares of common stock, par-value $0.0001 per share. As of August 31, 2026, there were 10,360,924 shares of our common stock issued and outstanding.
Common Stock
Our common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy. Holders of our common stock representing fifty percent (50%) of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger, or an amendment to our Articles of Incorporation. Our Articles of Incorporation do not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding series of preferred stock created by our board of directors from time to time, the holders of shares of our common stock will be entitled to such cash dividends as may be declared from time to time by our board of directors from funds available, therefore.
Subject to any preferential rights of any outstanding series of preferred stock created from time to time by our board of directors, upon liquidation, dissolution or winding up, the holders of shares of our common stock will be entitled to receive pro rata all assets available for distribution to such holders.
In the event of any merger or consolidation with or into another company in connection with which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Warrants
As of August 31, 2026, there are warrants outstanding for the purchase of 217,184 shares of ZRCN Common Stock.
Options
As of August 31, 2026, there are stock options for 3,176,500 shares of ZRCN Common Stock outstanding.
Convertible Securities
We have not issued and do not have outstanding any securities convertible into shares of our common stock or any rights convertible or exchangeable into shares of our common stock.
Anti-Takeover Effects of Certain Provisions of our Certificate of Incorporation, Bylaws and Delaware law
Certain provisions of our Certificate of Incorporation, as amended, and Bylaws, which are summarized in the following paragraphs, may have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our Certificate of Incorporation, as amended, and Bylaws and Delaware law, as applicable, among other things:
| ● | provide the board of directors with the ability to alter the bylaws without stockholder approval; | |
| ● | provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum. |
These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with its board. These provisions may delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock to decline.
Transfer Agent
The Company’s transfer agent is Computershare Trust Company, N.A. located at 250 Royall Street, Canton, MA 02021 with a phone number at 1 (781) 575-2000.
Exhibit 10.5
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (including all schedules, exhibits and a ppendices attached or otherwise identified therewith, as amended, modified or restated from time to time, this “Agreement”) dated as of MARCH 17, 2026 (the”Effective Date”), is between (a) ALTRIARCH HOLDINGS SPV, LLC, a Dela ware limited lia bility company (together with its successors and a ssigns, “Lender”) and (b) (i) ZIRCON CORPORATION, a Ca lifornia corporation (“Zircon”) and (ii) ZRCN INC. a Delaware corporation (“ZRCN” and together with Zircon, jointly and severally, “Debtor”).
RECITALS
WHEREAS, Obligor (a ) has determined that Obligor will benefit specifically and materially from the Credit Facility contemplated by this Agreement, and (b) has requested and bargained for the structure, termsand obligations set forth in the Loan Documents.
WHEREAS, Lender is willing to make the Credit Facility available upon and subject to the provisions, terms and conditions set forth in the Loan Documents.
NOW THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1. Definitions. As used in this Agreement, all exhibits, appendices and schedules hereto, and in any other Loan Documents made or delivered pursuant to this Agreement, the following terms will have the meanings given such terms in this Section 1 or in the provisions, sections or recitals herein:
“Advance” means any advance under the Credit Facility, which advance shall be part of the Loan.
“Affiliate” means, with respect to a specified Person, another Person that directly or indirectly through one or more intermedia ries, Controls or is Controlled by or is under common Control with the Person specified.
“Approved High Concentration Account Debtor” means Home Depot a nd Lowes and any other account debtor Lender approves in writing to be designated as an Approved High Concentration Account Debtor.
“Approved Warehouse” means (a) 1 Iturbide No. 424, Colonia Obrera, Ensenada, Baja, California, MX, CP 22830, (b) Avenue Rayon 437, Colonia Obrera, Ensenada, Baja, California, MX, CP 22830 and such other locations that Lender approves from time to time in its sole discretion.
“Authorizing Entity” means the board of directors, shareholders, members, managers, trustees, general partner or other Person authorized or empowered to act on behalf of a Person pursuant to the Organizational Documents of such Person.
“Borrowing Base” means, as of any date, a sum equal to: (a) NINETY PERCENT (90.00%) of theamount of Debtor’s Eligible Accounts, (b) the lesser of (i) EIGHTY-FIVE PERCENT (85.00%) of the net orderly liquidation value of Debtor’s Eligible Finished Goods (as specified in an appraisal received by Lender from an appraiser selected by Lender) and (ii) FIFTY PERCENT (50.00%) of Debtor’s Eligible Finished Goods valued at cost, and (c) the lesser of (i) EIGHTY-FIVE PERCENT (85.00%) of the net orderly liquidation value of Debtor’s Eligible Work-In-Process (as specified in an appraisal received by Lender from an appraiser selected by Lender) and (ii) FIFTY PERCENT (50.00%) of Debtor’s Eligible Work-In-Process; provided, however, Lender shall have the right to create and adjust eligibility standards and rela ted reservesfrom time to time in its sole discretion with respect to Debtor’s Eligible Accounts, Eligible Finished Goods, and Eligible Work-In-Process.
“Borrowing Base Certificate” means, as of any date of preparation, a certificate, substantially the form of Exhibit A, prepared by and certified by a Responsible Officer.
“Business Day” means any day other than a Saturday, Sunday or any other day on which the Federal Reserve Bank of New York, New York, is closed.
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| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
“Collateral” means:
(a) All present and future accounts, chattel paper (including electronic chattel paper), commercial tort claims, commodity accounts, commodity contracts, deposit accounts, documents, financial assets, general intangibles, health care insurance receivables, instruments, investment property, letters of credit, letter of credit rights, payment intangibles, securities, security accounts and security entitlements now or hereafter owned, held or acquired.
(b) All present and hereafter acquired inventory and goods (including without limitation, a l raw materials, work in process and finished goods) held, possessed, owned, held on consignment or held for sale, lease, return or to be furnished under contracts of services, in whole or in part, wherever located.
(c) All equipment and fixtures of whatsoever kind and character now or hereafter possessed, held, acquired, leased or owned, together with all replacements, accessories, additions, substitutions and accessions to all of the foregoing, and all records relating in any way to the foregoing.
(d) All present and future Pledged Equity Interests.
(e) All books, records, data, plans, manuals, computer software, computer tapes, computer systems, computer disks, computer programs, source codes and object codes containing any information pertaining directly or indirectly to the Collateral and all rights to retrieve data and other information pertaining directly or indirectly to the Collateral from third parties.
The term “Collateral,” as used herein, shall also include (a) any other property or assets, real or personal, tangible or intangible, now existing or hereafter acquired, of Obligor that may at any time be or become subject to a security interest or Lien in favor of Lender as security for the Indebtedness; and (b) a ll SUPPORTING OBLIGATIONS, PRODUCTS and PROCEEDS of all of the foregoing (including without limitation, insurance payable by reason of loss or damage to the foregoing property) and any property, assets securities, guaranties or monies of Debtor which may at any time come into the possession of Lender. The designation of proceeds does not authorize Debtor to sell, transfer or otherwise convey any of the foregoing property except in the ordinary course of Debtor’s business or as otherwise provided herein. Notwithstanding the foregoing, the term “Colla teral” shall not include any Intellectual Property of the Debtor.
“Compliance Certificate” means a certificate, substantially in the form of Exhibit B, prepared by and certified by a Responsible Officer.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Credit Facility” means (individually and collectively) the Revolving Credit Facility and any other credit facility extended by Lender to Debtor from time to time.
“Debt” means, of any Person as of any date of determination (without duplication): (a) a ll obliga tions of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments; (c) a ll obliga tions of such Person to pay the deferred purchase price of property, assets or services, except trade accounts payable of such Person arising in the ordinary course of business that are not past due by more than NINETY (90) days; (d) a ll capitalized lea se obliga tions of such Person; (e) a ll debt or other obligations of others guaranteed by such Person; (f) a ll obliga tions secured by a Lien existing on property or a ssets owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person; (g) any other obligation for borrowed money or other financial accommodations which in accordance with GAAP would be shown asa liability on the balance sheet of such Person; (h) any repurchase obligation or lia bility of a Person with respect to accounts, chattel paper or notes receivable sold by such Person; (i) any lia bility under a sale and leaseback transaction that is not a capitalized lease obliga tion; (j) any obligation under any so-called “synthetic leases;” (k) any obliga tion arising with respect to any other transaction that is the functional equivalent of borrowing but which does not constitute a liability on the balance sheets of a Person; (l) a ll payment and reimbursement obliga tions of such Person (whether contingent or otherwise) in respect of letters of credit, bankers’ acceptances, surety or other bonds and similar instruments; (m) a ll lia bilities of such Person in respect of unfunded vested benefits under any “Plan” (within the meaning of Section 3(3) of ERISA); and (n) a ll obliga tions of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any equity interests in such Person or any other Person, valued, in the case of redeemable preferred stock interests, at the greater of its voluntary or involuntary liquidation preference plus all accrued and unpaid dividends.
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“Default” means a ny Event of Default or event which with notice and/or the passage of time would be an Event of Default.
“Deposit Account Control Agreement” means an agreement reasonably acceptable to Lender between a financial institution holding a deposit account of Debtor that perfects Lender’s interest in such deposit account by control and pursuant to which upon the occurrence of an Event of Default, such financial institution shall have agreed to comply with instructions originated by Lender directing disposition of the funds in such deposit account without further consent by Debtor.
“Dollars” and “$” mean lawful money of the United States of America.
“Domestic Subsidiary” means a Subsidiary organized under the laws of a jurisdiction located in the United States of America.
“Eligible Accounts” means, as of any date of determination thereof, all accounts receivable of Debtor (net of service charges, interest and finance fees) created in the ordinary course of business that are acceptable to Lender in its sole discretion in which Lender has a perfected, FIRST (1st) priority Lien and satisfy the following conditions:
(a) The account does not represent a progress billing;
(b) The account complies with all applicable laws, rules, and regulations;
(c) (i) For an account in which the account debtor is Lowes, the account has not been outstanding for more than ONE HUNDRED TEN (110) days past the original date of invoice unless otherwise approved by Lender in its sole discretion, and (ii) for any account debtor (other than Lowes), the account has not been outstandingfor more than NINETY (90) days past the original date of invoice unless otherwise approved by Lender in its sole discretion;
(d) The account does not represent a commission and the account was created in connection with (i) the sale of goods by Debtor in the ordinary course of business and such sale has been consummated and such goods have been shipped and delivered and received by the account debtor, or (ii) the performance of services by Debtor in the ordinary course of business and such services have been completed and accepted by the account debtor;
(e) The account arises from an enforceable contract, the performance of which has been completed by Debtor;
(f) The account does not arise from the sale of any good that is from a bonded contract or is on a bill-and-hold, bartered, advance, pre-bill, guaranteed sale, sale-or-return, sale on approval, consignment, or any other repurchase or return basis;
(g) Debtor has good and indefeasible title to the account and the account is not subject to any Lien except Liens in favor of Lender;
(h) The account does not arise out of a contract with or order from, an account debtor that, by its terms, prohibits or makes void or unenforceable the grant of a security interest by Debtor to Lender in and to such account;
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| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
(i) The account is not subject to any retainage, setoff, counterclaim, defense, dispute, recoupment, or adjustment other than normal discounts for prompt payment;
(j) The account debtor is not insolvent or the subject of any bankruptcy or insolvency proceeding and has not made an assignment for the benefit of creditors, suspended normal business operations, dissolved, liquidated, terminated its existence, ceased to pay its debts as they become due, or suffered a receiver or trustee to be appointed for any of its assets or affairs;
(k) The account is not evidenced by chattel paper or an instrument;
(l) No default exists under the account by any party thereto;
(m) The account debtor has not returned or refused to retain, or otherwise notified Debtor of any dispute concerning, or claimed nonconformity of, any of the goods from the sale of which the account a rose;
(n) The account is not owed by an Affiliate, employee, officer, director or shareholder of Debtor or any of its Subsidiaries;
(o) The account is payable in Dollars by the account debtor unless approved by Lender in its sole discretion;
(p) the account debtor is domiciled in the United States of America;
(q) No more than TWENTY-FIVE PERCENT (25.00%) of the a ggrega te balances then outstanding on all accounts owed by such account debtor and its Affiliates to Debtor and its Subsidiaries are more than NINETY (90) days past the dates of their original invoices;
(r) If the account debtor is the United States of America or any department, agency, or instrumentality thereof, the Federal Assignment of Claims Act of 1940, shall have been complied with;; and
(s) The a ggrega te of all accounts owed by (i) an Approved High Concentration Account Debtor and its Affiliates does not exceed FIFTY PERCENT (50.00%) of all accounts owed by a l of Debtor’s and its Subsidiaries’ account debtors (or such larger amount with an accounts receivable insurance policy acceptable to Lender in its Permitted Discretion is in place with respect to such accounts and Lender is named as an additional insured), or (ii) the account debtor (other than any Approved High Concentration Account Debtor) and its Affiliates to which the account relates does not exceed TWENTY PERCENT (20.00%) of all accounts owed by all of Debtor’s and its Subsidiaries’ account debtors (provided, however, that if such aggregate exceeds such percentage of all Accounts, only such excess shall be ineligible); and
(t) The account is otherwise acceptable in the Permitted Discretion of Lender.
The amount of the Eligible Accounts owed by an account debtor to Debtor shall be reduced by the amount of a l “contra accounts” and other obligations owed by Debtor to such account debtor. In the event that Lender, at any time in its Permitted Discretion, determines that the Dolla r amount of Eligible Accounts collectable by Debtor is reduced or diluted, Lender may establish appropriate reserves with respect thereto.
“Eligible Finished Goods” means, Eligible Inventory constituting finished goods, excluding Eligible Work-in-Process.
“Eligible Work-In-Process” means, Eligible Inventory constituting work-in-process, excluding Eligible Finished Goods.
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“Eligible Inventory” means, as of any date of determination thereof, all inventory of work-in-process and finished goods then owned by (and in the possession or under the control of) Debtor and held for sale or disposition in the ordinary course of Debtor’s business, and in which Lender has a perfected, FIRST (1st) priority Lien; provided, however, that Eligible Inventory shall not include (a) inventory that has been shipped or delivered to a customer on consignment, a sale-or-return basis, or on the basis of any similar understanding, (b) inventory with respect to which a cla im exists disputing Debtor’s title to or right to possession of such inventory, (c) inventory that is not in good condition or does not comply with any applicable law, rule, or regulation or any standard imposed by any Governmental Authority with respect to its manufacture, use, or sa le, (d) inventory that is damaged, obsolete or otherwise not readily saleable, (e) inventory covered by negotiable warehouse or other document of title (unless the sa me is in the possession of Lender), (f) inventory held for rental or lease, and (g) inventory that Lender, in its sole discretion, has determined to be unmarketable, (h) inventory subject to third-party intellectual property agreements, (i) inventory that requires consent of a third-party for manufacture or sale, (j) inventory which is not located in the United States of America except for inventory located at an Approved Warehouse and (i) inventory that is in transit. Eligible Inventory expressly excludes inventory constituting raw materials.
“Equity Interests” means, with respect to any Person, all of the shares of capital stock, limited liability company interests, membership interests or partnership interests of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock, limited lia bility company interests, membership interests or partnership interests of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock, limited liability company interests, membership interests or partnership interests of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
“Event of Default” has the meaning set forth in Section 11.
“Foreign Subsidiary” means a Subsidiary organized under the laws of a jurisdiction located outside the United States of America.
“GAAP” means (a ) generally accepted accounting principles, applied on a consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the relevant date, or (b) such other generally accepted accounting principles, applied on a consistent basis, as disclosed in writing and acceptable to Lender in its Permitted Discretion and which are applicable in the circumstances as of the relevant date. Accounting principles are applied on a “consistent basis” when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in the preceding period.
“Governmental Authority” means the government of the United States of America, any other nation or any politica l subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legisla tive, judicial, taxing, regula tory or administrative powers or functions of or pertaining to government.
“Guarantor” means any Person, whether one or more, who from time to time guarantees all or any part of the Indebtedness.
“Guaranty” means a GUARANTY AGREEMENT, whether one or more, executed by Guarantor (as the same may be amended, restated or modified from time to time).
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“Indebtedness” means (a) all indebtedness, obligations and liabilities of Debtor to Lender of any kind or character, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, and regardless of whether such indebtedness, obligationsand liabilities may, prior to their acquisition by Lender, be or have been payable to or in favor of a third party and subsequently acquired by Lender (it being contemplated that Lender may make such acquisitions from third parties), including without limitation, the Loan and all indebtedness, obligations and liabilities of Debtor to Lender now existing or hereafter arising under the Note, this Agreement, a nd any of the other Loan Documents or any draft, acceptance, guaranty, endorsement, letter of credit, assignment, purchase, overdraft, discount or indemnity agreement; (b) a ll accrued but unpaid interest on any of the indebtedness described in (a) a bove; (c) a ll other obliga tions of Debtor to Lender under the Loan Documents; (d) a ll obliga tions of Obligor (other than Debtor) to Lender under the Loan Documents; (e) all costs and expenses incurred by Lender in connection with the collection and administration of a l or any part of the indebtednessand obligations described in (a), (b), (c), and (d) above or the protection or preservation of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, including without limita tion a ll reasonable a ttorneys’ fees; and (f) a ll renewals, extensions, modifications and rearrangements of a ll or any part of the indebtedness and obligations described in (a), (b), (c), (d), and (e) above.
“Indefeasibly Paid” means (a) with respect to the making of any payment on or in respect of the Indebtedness, that such payment of such Indebtedness has been paid in full in cash (or that such payment of such Indebtedness has been otherwise satisfied in a manner acceptable to Lender in its Permitted Discretion), and (b) that any and a l commitments by Lender to make any loan or advance or extend any other credit that would, if made or extended, constitute Indebtedness have been irrevocably terminated.
“Intellectual Property” means the copyrights, copyright licenses, patents, patent licenses, trademarks and trademark licenses now owned or hereafter acquired by Debtor.
“Lender’s Counsel” is defined on the signature pages hereto.
“Lien” means any lien, mortgage, security interest, tax lien, pledge, charge, hypothecation, assignment, preference, priority, or other encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or title retention agreement), whether arising by contract, operation of law, or otherwise.
“Loan” means a ll Advances (whether one or more) under the Credit Facility as established pursuant to the Loan Documents from time to time.
“Loan Documents” means this Agreement, the Note, the Pledge Agreement, the Stauss Revocable Trust Note Subordination Agreement, and the other a greements, instruments and documents evidencing, securing, governing, guaranteeing or pertaining to the Loan.
“Material Adverse Effect” means any act, event, condition, or circumstance (whether known or unknown, foreseeable or unforeseeable) which would materially and adversely affect: (a) the ability of Obligor to perform its obligations under any Loan Document to which it is a party; or (b) the legality, validity, binding effect or enforceability against Obligor of any Loan Document to which it is a party.
“Note” means, collectively, any promissory note evidencing all or part of the Indebtedness from time to time (as any such promissory note may be amended, modified or restated from time to time).
“Obligor” means (individually and collectively) Debtor, Guarantor or any other Person who guaranteed or is otherwise obligated to pay or perform all or any portion of the Indebtedness.
“Organizational Documents” means (a) in the case of a corporation, its articles or certificate of incorporation and bylaws; (b) in the case of a general partnership, its partnership agreement; (c) in the case of a limited partnership, its certificate of limited partnership and partnership agreement; (d) in the case of a trust, its trust agreement; (e) in the case of a joint venture, its joint venture agreement; (f) in the case of a limited lia bility company, its articles of organization or certificate of formation and limited lia bility company agreement, operating agreement or regulations; and (g) in the case of any other entity, its organizational and governance documents and agreements.
“Permitted Discretion” means, with respect to Lender, a determination made in the exercise of Lender’s commercially reasonable (from the perspective of a secured lender) business judgment.
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“Permitted Encumbrances” means the following encumbrances: (a) Liens in respect of property of a Person imposed by law which were incurred in the ordinary course of business and which have not arisen to secure Debt for borrowed money, such as carriers’, materia lmen’s, warehousemen’s and mechanics’ Liens, statutory and commonlaw landlord’s Liens, and other similar Liens arising in the ordinary course of business, and which either (i) do not in the aggregate materially detract from the value of such property or materially impair the use thereof in the operation of the business of a Person, or (ii) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject to such Lien; (b) Liens created by or pursuant to the Loan Documents; (c) Liens in existence on the Effective Date which are listed, and the property subject thereto described, in Schedule II, without giving effect to any extensions or renewals thereof; (d) Liens arising from judgments, decrees, awards or attachments in circumstances not constituting an Event of Default; (e) Liens (i) incurred or deposits made in the ordinary course of business in connection with general insurance maintained by a Person, (ii) incurred or deposits made in the ordinary course of businessof a Person in connection with workers’ compensation, unemployment insurance and social security, (iii) to secure the performance by any Person of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) to the extent incurred in the ordinary course of business, and (iv) to secure the performance by a Person of leases of real property, to the extent incurred or made in the ordinary course of business consistent with past practices; (f) licenses, sublicenses, leases or subleases granted to third Persons in the ordinary course of business not interfering in any material respect with the business of a Person; a nd (g) Liens in equipment and fixtures arising pursuant to purchase money security interests securing Debt representing the purchase price of assets acquired after the Effective Date; provided that (i) any such Liens attach only to the assets so purchased, upgrades thereon and, if the asset so purchased is an upgrade, the original asset itself (and such other assets financed by the same financing source), (ii) the Debt secured by any such Lien does not exceed the purchase price of the property being purchased at the time of the incurrence of such Debt, and (iii) the Debt secured thereby is permitted to be incurred pursuant to this Agreement.
“Permitted Holders” means collectively, (a) Stauss 2014 Revocable Trust (but so long as John Stauss remains the trustee), (b) Kurt Stauss, (c) Eric Stauss, (d) Robert Wyler, and (e) John Stauss.
“Permitted Tax Distributions” means, with respect to any Person, any dividend or distribution to any holder of such Person’s stock or other equity interests to permit such holders to pay federal income taxes and all relevant state and local income taxes at a rate equal to the highest marginal applicable tax rate for the applicable tax year, however denominated (together with any interest, penalties, additions to tax, or additional amounts with respect thereto) imposed as a result of taxable income attributed to such holder as a partner of such Person under federal, state, and local income tax laws, determined on a basis that combines those liabilities arising out of the net effect of the income, gains, deductions, losses, and credits of such Person and attributable to it in proportion a nd to the extent in which such holders hold stock or other equity interests of such Person.
“Pledge Agreement” means the Limited Recourse Pledge Agreement dated as of Effective Date executed by Stauss 2014 Revocable Trust, Eric Stauss, Kurt Stauss, Robert Wyler and John Stauss in favor of Lender.
“Pledged Equity Interests” means all Pledged Stock, Pledged LLC Interests and Pledged Partnership Interests.
“Pledged LLC Interests” means all membership interests owned by Debtor in any limited lia bility company, including a ll membership interests listed on Schedule I and the certificates, if any, representing such membership interests as such interest may be increased or otherwise adjusted from time to time, including (a) all of Debtor’s right, title, and interest in any and all distributions, issues, profits, and shares (including rights in the nature of warrants, purchase options, or options to acquire any property or further interest in such limited liability company) payable or distributable by such limited liability company, whether in cash or otherwise, whether for capital or income or surplus or otherwise, including distributions upon liquidation, dissolution, revision, reclassification, split-up, or other change or tra nsaction affecting such limited lia bility company, or as a sa le, refinancing, or other capital transaction affecting any assets or property of such limited liability company; (b) a ll of Debtor’s right, title, and interest as a member with respect to such limited lia bility company and the Organizational Documents rela ting thereto; (c) a ll of Debtor’s rights under the Organizational Documents rela ting to such limited lia bility company; (d) all of Debtor’s right to vote upon, approve, or consent to (or withhold consent or approval to) any matter pursuant to the Orga nizational Documents rela ting to such limited lia bility company, or otherwise to control, manage, or direct the affairs of such limited lia bility company; and (e) all of Debtor’s right to terminate, amend, supplement, modify or waive performance under, the Organiza tional Documents relating to such limited liability company, or perform thereunder, and to compel performance and otherwise to exercise all remedies thereunder.
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“Pledged Partnership Interests” means all partnership interests owned by Debtor in any general partnership, limited partnership, limited lia bility partnership or other partnership, including a ll partnership interests listed on Schedule I and the certificates, if any, representing such partnership interests as such interest may be increased or otherwise adjusted from time to time, including (a) a ll of Debtor’s right, title, and interest in any and all distributions, issues, profits, and shares (including rights in the nature of warrants, purchase options, or options to acquire any property or further interest in such partnership) payable or distributable by such partnership, whether in cash or otherwise, whether for capital or income or surplus or otherwise, including distributions upon liquidation, dissolution, revision, recla ssification, split-up, or other change or transaction affecting such partnership, or as a sale, refinancing, or other capital transaction affecting any assets or property of such partnership; (b) a ll of Debtor’s right, title, and interest as a partner with respect to such partnership and the Organizational Documents relating to such partnership; (c) all of Debtor’s rights under the Constituent Documents relating to such partnership; (d) all of Debtor’s right to vote upon, approve, or consent to (or withhold consent or approval to) any matter pursuant to the partnership, or otherwise to control, manage, or direct the affairs of such partnership; and (e) all of Debtor’s right to terminate, amend, supplement, modify or waive performance under, the Organizational Documents relating to such partnership, or perform thereunder, and to compel performance and otherwise to exercise all remedies thereunder.
“Pledged Stock” means a ll shares of capital stock owned by Debtor, including a ll shares of capital stock described on Schedule I, and the certificates, if any, representing such shares and any interest of such Debtor in the entries on the books of the issuer of such shares or on the books of any securities intermediary pertaining to such shares, including all voting rights with respect to such Pledged Stock and all dividends, distributions, cash, warrants, rights, options, Instruments, securities, and other property or Proceeds from time to time received, receivable, or otherwise distributed in respect of or in exchange for any or all of such shares.
“Person” means any individual, corporation, limited liability company, trust (business or otherwise), association, company, partnership (general or limited), joint venture, Governmental Authority, or other entity, and shall include such Person’s heirs, administrators, personal representatives, executors, successors and assigns.
“Responsible Officer” means the Person designated by any Person to act on behalf of such Person. Any document delivered hereunder that is signed by a Responsible Officer of such Person shall be conclusively presumed to have been authorized by all necessary corporate, limited lia bility company, partnership a nd/or other action on the part of Person and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Person.
“Stauss Family Administrative Trust Note 1” means that certain Promissory Note dated December 31, 2011 executed by Zircon to Stauss Family Administrative Trust in the original principal balance of THREE HUNDRED NINETY SIX THOUSAND FOUR HUNDRED NINETY ONE AND 00/100 DOLLARS ($396,491.00) as amended, modified, addended or restated.
“Stauss Family Administrative Trust Note 2” means that certain Promissory Note dated December 31, 2011 executed by Zircon to Stauss Family Administrative Trust in the original principal balance of SIX HUNDRED FIFTY EIGHT THOUSAND SIX HUNDRED TWENTY EIGHT AND 70/100 DOLLARS ($658,628.70) as amended,
modified, addended or restated.
“Stauss Family Administrative Trust Note Subordination Agreement” means that certain Subordination Agreement dated as of the Effective Date by Stauss Family Administra tive Trust in favor of Lender.
“Subsidiary” means any entity (a) of which at least a majority of the ownership, equity or voting interest is at the time directly or indirectly owned or controlled by a Person and/or its Subsidiaries, and (b) which is treated as a subsidiary in accordance with GAAP.
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“UCC” means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Dela ware; provided, that to the extent that the UCC is used to define any term herein or in any Loan Document and such term is defineddifferently in different articles or divisions of the UCC, the definition of such term contained in Article 9 shall govern; provided further, that in the event that, by reason of mandatory provisionsof law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Delaware, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisionsthereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.
“Zircon Mexico” means Zircon de Mexico, S.A. de C.V.
“Zircon Mexico Note 1” means that certain Promissory Note dated June 16, 2008 executed by Zircon to Zircon Mexico in the origina l principal balance of FOUR HUNDRED THOUSAND AND 00/100 DOLLARS ($400,000.00) as amended, modified, addended or restated.
“Zircon Mexico Note 2” means that certain Promissory Note Number 2 dated July 26, 2021 executed by Zircon to Zircon Mexico in the origina l principal balance of FOUR HUNDRED THOUSAND AND 00/100 DOLLARS ($400,000.00) as amended, modified, addended or restated.
All words and phrases used herein shall have the meaning specified in the UCC except to the extent such meaning is inconsistent with this Agreement. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Any accounting term used in the Loan Documents shall have, unless otherwise specifically provided therein, the meaning customarily given such term in accordance with GAAP, a nd all financial computations thereunder shall be computed, unless otherwise specifically provided therein, in accordance with GAAP consistently applied; provided, that all financial covenantsand calculations in the Loan Documents shall be made in accordance with GAAP as in effect on the Effective Date unless Debtor and Lender shall otherwise specifically agree in writing. That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing.
2. Credit Facility.
(a) Revolving Credit Facility. Subject to the terms and conditionsset forth in this Agreement and the other Loan Documents, Lender hereby a grees to make Advances to Debtor under a credit facility (the “Revolving Credit Facility”) in an a ggregate sum not to exceed the LESSER of (i) an amount equal to the Borrowing Base, or (ii) TWELVE MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($12,500,000.00) as it may be increased in accordance with Section 2(f) (the “Maximum Amount”), on a revolving basis from time to time during the period commencing on the Effective Date and continuing until the EARLIER of: (i) MARCH 17, 2029 (the “Stated Maturity Date”), and (ii) the acceleration of the Indebtedness pursuant to the terms of the Loan Documents (the EARLIER of such dates being the “Revolving Credit Maturity Date”). If at any time the sum of the aggregate principal amount of Advances outstanding under the Revolving Credit Facility exceeds the lesser of the Maximum Amount or the Borrowing Base, such excess amount shall be deemed an “Overadvance.” Debtor sha ll immediately repay the amount of such Overadvance plus all accrued and unpaid interest thereon upon written demand from Lender, and any such failure to immediately repay such Overadvance shall constitute an Event of Default. Notwithstanding a nything contained herein to the contrary, an Overadvance shall be considered part of the Loan and shall bear interest at the interest rates set forth in the Note evidencing the Revolving Credit Facility and be secured by the Loan Documents. Subject to the terms and conditions hereof, Debtor may borrow, repay and reborrow funds under the Revolving Credit Facility.
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(b) Funding. Lender reserves the right to require not less than ONE (1) Business Day prior notice of each Advance under the Revolving Credit Facility, specifying the aggregate amount of such Advancetogether with any documentation relating thereto as Lender may request in its Permitted Discretion; including, but not limited to, a Borrowing Base Certificate. Debtor shall give Lender notice of each Advance under the Revolving Credit Facility by no later than 1:00 p.m. (New York, New York time). Lender may accept telephonic requests for such Advance, provided that such acceptance shall not constitute a wa iver of Lender’s right to require delivery of a written request in connection with subsequent Advances. Lender sha l have no liability to Debtor for any loss or damage suffered by Debtor as a result of Lender’s honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically, by facsimile or electronically and purporting to have been sent to Lender by Debtor and Lender shall have no duty to verify the origin of any such communication or the identity or authority of the Person sending it. Subject to the terms and conditions of this Agreement, each Advance under this section shall be made available to Debtor by depositing the same, in immediately available funds, in an account of Debtor designated by Debtor or by paying the proceeds of such Advance to a third party designated by Debtor.
(c) Use of Proceeds. The Advances under the Revolving Credit Facility shall be used by Debtor for working capital in the ordinary course of business (including tra de payables to a party in China in the amount of $122,000) and refinancing existing debt of Debtor pursuant to its REVOLVING CREDIT, SECURITY AND GUARANTY AGREEMENT with FGI WORLDWIDE LLC.
(d) Fees. Debtor agrees to pay to Lender:
(i) Origination Fee. An origination fee (the “Origination Fee”) equal to ONE HUNDRED TWENTY-FIVE THOUSAND AND 00/100 DOLLARS ($125,000.00) for the establishment of the Revolving Credit Facility. The Origina tion Fee shall be due and payable on the Effective Date and shall be deemed fully earned as of the Effective Date.
Each fee due hereunder shall compensate Lender for its costs and expenses in the structuring of the Credit Facility and (to the maximum extent permitted by applicable law) shall not be deemed interest.
(e) Uncommitted Extension Option. Debtor may request to extend the Maturity Date to MARCH 17, 2030, which extension shall not be effective unless Lender have consented in writing to such extension in their sole and absolute discretion.
(f) Uncommitted Increase in Maximum Amount.
(i) So long as no Default or Event of Default has occurred and is continuing, upon notice to Lender, Debtor may, request increases in the Maximum Amount (each, a “Commitment Increase”) by an amount not exceeding FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) in the aggregate; provided that (i) Debtor may make a maximum of TWO (2) such requests and (ii) Lender may gra nt or deny all or any portion of such Commitment Increase in its sole discretion.
(ii) If the Commitment is increased in accordance with this Section 2(f), Lender and Debtor shall determine the effective date (the “Commitment Increase Effective Date”) of such increase. Lender shall promptly notify Debtor of each Commitment Increase Effective Date.
(iii) As conditions precedent to such increases, Debtor shall deliver to Lender (1) the Commitment Increase Fee for such Commitment Increase, and (2) a certificate of each Obligor dated as of the Commitment Increase Effective Date signed by an authorized Person on behalf of Obligor, in each case in form and substance satisfactory to Lender, (i) certifying and attaching the resolutions adopted by Obligor approving or consenting to such increase, and (ii) certifying that, before and after giving effect to such increase, (A) the representationsand warranties contained in the Loan Documents are true and correct on and as of the Commitment Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and (B) no Default exists, and (3) such documentation as reasonably required by Lender. “Commitment Increase Fee” mea ns an amount equal to the product of (i) the amount of such Commitment Increase multiplied by (ii) ONE HALF OF ONE PERCENT (0.50%).
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(iv) For the avoidance of doubt and except as otherwise specifically provided herein, any Commitment Increase will be on the same terms as contained herein with respect to the Credit Facility; provided that the outstanding balance of the Note shall impact the applicable interest rate as provided in the Note. Lender will not be required to commit to provide any Commitment Increase.
(g) Termination of the Credit Facility. If the Credit Facility is terminated by Debtor prior to the FIRST (1st) anniversary of the Effective Date (including without limitation as a result of acceleration of the outstanding balance of the Credit Facility 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%) of the Ma ximum Amount. If the Credit Facility is terminated on or after the FIRST (1st) anniversary of the Effective Date, but prior to the SECOND (2nd) anniversary of the Effective Date (including without limitation as a result of acceleration of the outstanding balance of the Credit Facility as a result of the occurrence of an Event of Default), Debtor will pay as a Prepayment Premium an amount equal to ONE PERCENT (1.00%) of the Maximum Amount. If the Credit Facility is terminated on or after the SECOND (2nd) anniversary of the Effective Date, but prior to the THIRD (3rd) anniversary of the Effective Date (including without limitation as a result of acceleration of the outstanding balance of the Credit Facility as a result of the occurrence of an Event of Default), and Debtor fa ils to provide at least NINETY (90) days’ written notice to Lender of such termination, Debtor will pay as a Prepayment Premium an amount equal to ONE HALF PERCENT (0.50%) of the Maximum Amount; provided that the termination fee will be wa ived if the Credit Facility is terminated on or a fter the SECOND (2nd) anniversary of the Effective Date (including without limita tion as a result of acceleration of the outstanding balance of the Credit Facility as a result of the occurrence of an Event of Default) and the Credit Facility is contemporaneously refinanced by an Federal Deposit Insurance Corporation insured financial institution.
(h) Right of First Refusal. If, at any time prior to the Stated Maturity Date, Debtor or any Affiliate of such Person (each a “ROFR Party”) shall receive a bona fide loan offer from any third Person which such ROFR Party intends to accept for Debt secured by Intellectual Property, such ROFR Party sha l provide Lender a written notice (the “Loan Notice”) of the terms of the offer from such third Person (along with a copy of each writing evidencing such offer). Lender shall have the right, for a period of NINETY (90) days following the date on which Lender receives the Loan Notice, to make the loan on the terms specified in the Loan Notice. If Lender shall fail to deliver to Debtor written notice of Lender’s election to make such loan within THIRTY (30) days following the date Lender receives the Loan Notice, the ROFR Party shall be permitted to accept the loan from such third Person, so long as the loan is on substantially the terms and conditions set forth in the Loan Notice.
3. Note, Rate and Computation of Interest. Each Credit Facility (whether one or more) established pursuant to the Loan Documents shall be evidenced by a Note duly executed by Debtor and payable to the order of Lender, in form and substance acceptable to Lender. Interest on such Note shall accrue at the rates set forth therein. The principal of and interest on such Note shall be due and payable in accordance with the terms and conditions set forth in such Note and in this Agreement. All payments under this Agreement and the other Loan Documents sha l be made to Lender at Lender’s offices as set forth herein in Dolla rs and immediately availa ble funds, without setoff, deduction or counterclaim, and free and clear of all taxes, at the time and in the manner provided in such Note.
4. Collateral.
(a) Grant of Security Interest. As colla teral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Indebtedness, Debtor hereby pledges to and grants Lender, a security interest in, all of Debtor’s right, title and interest in the Collateral, whether now owned by Debtor or hereafter acquired and whether now existing or hereafter coming into existence. If Debtor at any time holds or acquires a commercial tort cla im, Debtor shall notify Lender in writing within FIVE (5) Business Days of such occurrence with the details thereof and grant to Lender a security interest therein or Lien thereon and in the proceeds thereof, in form and substance satisfactory to Lender. If the security interest granted hereby in any rights of Debtor under any contract or other agreement included in the Collateral is expressly prohibited by such contract, then the security interest hereby granted therein nonetheless remains effective to the extent allowed by Article 9 of the UCC or other a pplicable law, but is otherwise limited by that prohibition.
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(b) Debtor Remains Liable. Notwithstanding anything to the contrary contained herein, (i) Debtor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of Debtor’s respective duties and obligations thereunder to the same extent as if this Agreement had not been executed; (ii) the exercise by Lender of any of its rights hereunder sha l not release Debtor from any of its duties or obligations under the contracts and agreements included in the Colla teral and (iii) Lender shall not have any obligation or lia bility under any of the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce a ny claim for payment assigned hereunder.
(c) Intellectual Property. All Intellectual Property owned or used by Debtor (if any) is listed, together with application or registration numbers, where applicable, in Schedule I. Debtor owns, or is licensed to use, all Intellectual Property necessary to conduct its business as currently conducted except for such Intellectual Property the failure of which to own or license would not reasonably be expected to have a Material Adverse Effect. Debtor will ma intain the patenting and registra tion of a ll Intellectual Property necessary to conduct its business with the United States Patent and Trademark Office, the United States Copyright Office, or other appropriate Governmental Authority, and Debtor will use commercia ly reasonable efforts to patent or register, as the case may be, all new Intellectual Property and notify Lender in writing FIVE (5) Business Days prior to filing any such new patent or registration.
(d) Additional Documents; Errors and Omissions. TO SECURE FULL AND COMPLETE PAYMENT AND PERFORMANCE OF THE INDEBTEDNESS, OBLIGOR SHALL EXECUTE AND DELIVER OR CAUSE TO BE EXECUTED AND DELIVERED ALL OF THE LOAN DOCUMENTS REQUIRED BY LENDER IN THE EXERCISE OF ITS PERMITTED DISCRETION TO CARRY OUT THE PROVISIONS AND PURPOSES OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND TO CREATE, PRESERVE, AND PERFECT THE LIENS OF LENDER IN THE COLLATERAL. IN THE EVENT ANY OF THE LOAN DOCUMENTS EVIDENCING OR SECURING THE INDEBTEDNESS MISREPRESENTS OR INACCURATELY REFLECTS THE CORRECT TERMS AND/OR PROVISIONS OF THE INDEBTEDNESS, OBLIGOR SHALL UPON REQUEST BY LENDER AND IN ORDER TO CORRECT SUCH MISTAKE, EXECUTE SUCH NEW DOCUMENTS OR INITIAL CORRECTED, ORIGINAL DOCUMENTS AS LENDER MAY DEEM NECESSARY IN ITS PERMITTED DISCRETION TO REMEDY SAID ERRORS OR MISTAKES. OBLIGOR SHALL EXECUTE SUCH OTHER DOCUMENTS AS LENDER SHALL DEEM NECESSARY IN ITS PERMITTED DISCRETION TO CORRECT ANY DEFECTS OR DEFICIENCIES IN THE LOAN DOCUMENTS. OBLIGOR’S FAILURE TO EXECUTE SUCH DOCUMENTS AS REASONABLY REQUESTED BY LENDER IN ITS PERMITTED DISCRETION SHALL CONSTITUTE AN EVENT OF DEFAULT UNDER THIS AGREEMENT.
(e) Setoff. As further security for the Indebtedness, Debtor gra nts to Lender a FIRST (1st) Lien and contractual right of set-off in and to all Colla teral of Debtor now or at any time hereafter coming within the custody or control of Lender, including (without limitation) all deposit accounts, whether such deposit accounts have matured or not, and whether the exercise of such right of set-off results in loss of interest or other penalty under the terms of the deposit account agreement. It is further agreed that Lender shall have a FIRST (1st) Lien on all deposits and other sums at any time credited by or due from Lender to Debtor as security for the payment of the Indebtedness, and Lender, at its option after the occurrence of a Default may without notice and without any lia bility, hold a ll or any part of any such deposits or other sums until all amounts owing under the Loan Documents have been paid in full, and/or Lender may apply or set-off all or any part of any such deposits or other sums credited by or due from Lender to or a ga inst any sums due under the Loan Documents in any manner and in any order of preference which Lender, in its sole discretion, chooses. The rights and remedies of Lender hereunder are in addition to a ny other rights and remedies (including, without limitation, other rights of setoff) which Lender may have.
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(f) Satisfaction of Indebtedness. Until the Indebtedness has been Indefeasibly Paid and fully satisfied (other than contingent indemnification obligations to the extent no unsatisfied claim has been asserted) and the commitments of Lender under the Credit Facility have been terminated, Lender sha l be entitled to retain the security interests in the Colla teral granted under the Loan Documents and the ability to exercise all rights and remedies available to Lender under the Loan Documents and applicable laws.
5. Conditions Precedent.
(a) Initial Advance. The obligation of Lender to make the initia l Advance under the Credit Facility is subject to the condition precedent that Lender shall have received, or such condition sha l be otherwise satisfied, as of the Effective Date, to Lender’s satisfaction in the exercise of its Permitted Discretion:
(i) Closing Certificate. A CLOSING CERTIFICATE executed by a Responsible Officer of Obligor (if Obligor is not a natural Person), or a Responsible Officer of the Authorizing Entity of Obligor, which certifies: (1) the resolutions of such Person as a dopted by such Person’s Authorizing Entity authorizing the execution, delivery, and performance of the Loan Documents that Obligor is a party to; (2) certificates of the appropriate government officials of the state of organization of Obligor and any Authorizing Entityof Obligor, and any state any such Person is currently doing business as to the existence, qualification and good standing of such Person, dated no more than TEN (10) calendar days prior to the Effective Date; (3) the true and correct Organizational Documents of Obligor and a ny Authorizing Entity of Obligor and (4) the names of the Responsible Officer authorized to sign the Loan Documents that Obligor is a party to, together with specimen signatures of such Persons.
(ii) Loan Documents. The Loan Documents executed by Obligor party thereto.
(iii) Lien Search. The results of a UCC search showing all financing statements and other documents or instruments on file a gainst Debtor in such locations as Lender may request in its Permitted Discretion, dated no more than TEN (10) days prior to the Effective Date.
(iv) Financing Statements. UCC fina ncing statements covering the Colla teral sha l have been filed with such filing offices as Lender may request.
(v) Insurance Matters. Copies of insurance certificates describing all insurance policies as may be required by Lender, together with loss payee a nd lender endorsements in favor of Lender with respect to all insurance policies covering the Collateral.
(vi) Fees and Expenses. Evidence that the costs and expenses of Lender (including reasonable attorneys’ fees) and all fees owing to Lender, shall have been paid in full by Debtor.
(vii) Zircon Mexico Note Addenda. An addendum to the Zircon Mexico Note 1 and an addendum to Zircon Mexico Note 2, in each case that (1) deletes the reference to “FGI Worldwide LLC upon the closing the Credit Agreement between FGI Worldwide LLC and Zircon Corporation and to replace and insert for such deletion “Altriarch Holdings SPV, LLC upon the closing of the Loan and Security Agreement among Altriarch Holdings SPV, LLC, Zircon Corporation and ZRCN Inc” and (2) extends the maturity thereof from December 31, 2027 until April 1, 2029.
(viii) Stauss Family Administrative Trust Note Addendum. An addendum to the Stauss Family Administrative Trust Note 1 and Stauss Family Administrative Trust Note 2 that (1) deletes the reference to “FGI Worldwide LLC upon the closing the Credit Agreement between FGI Worldwide LLC and Zircon Corporation and to replace and insert for such deletion “Altriarch Holdings SPV, LLC upon the closing of the Loan and Security Agreement among Altriarch Holdings SPV, LLC, Zircon Corporation and ZRCN Inc” and (2) extends the maturity thereof from December 31, 2027 until April 1, 2029.
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(ix) Opinion. The opinion of Obligor’s counsel as to matters requested by Lender and its counsel in the exercise of Lender’s Permitted Discretion.
(x) Other Matters. Such other documents a nd agreements as may be required by Lender in its Permitted Discretion.
(b) All Advances. The obligation of Lender to make any Advance shall be subject to the following additional conditions precedent:
(i) Borrowing Base Certificate. Lender shall have received in accordance with this Agreement, a Borrowing Base Certifica te executed by a Responsible Officer of Debtor.
(ii) No Default, Etc. No Default or event which would reasonably be expected to have a Material Adverse Effect shall have occurred and be continuing, or would result from or after giving effect to such Advance.
(iii) Additional Documentation. Lender shall have received such additional approvals, opinions, or documents as Lender or its legal counsel may request in the exercise of Lender’s Permitted Discretion.
(iv) Representations and Warranties. All of the representations and warranties contained in the Loan Documents shall be true and correct in material respects on and as of the date of such Advance with the same force and effect as if such representations and warranties had been made on and as of such date.
Each Advance hereunder shall be deemed to be a representation and warranty by Debtor that the conditions specified in this Section have been satisfied on and as of the date of the applicable Advance.
6. Representations and Warranties. Upon each Advance hereunder, Obligor hereby represents and wa rra nts to Lender as follows:
(a) Existence; Location. Obligor (if not a natural person) (i) is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; (ii) has a ll requisite power and authority to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qua lified to do business in a ll jurisdictions in which the nature of its business makes such qualification necessary and where failure to so qualify would have a Material Adverse Effect. Obligor has the power and authority to execute, deliver, and perform its obligations under the Loan Documents to which it is or may become a party. Debtor’s exact lega l name, jurisdiction of organization, type of entity, a nd the location of its principal place of business, or chief executive office (or the principal residence if Debtor is a na tural person) and of the books and records relating to Debtor, are disclosed as set forth in this Agreement. Debtor has no places of business except those disclosed in writing to Lender. Except as set forth on Schedule 6(a), Debtor has not changed its name, jurisdiction of organization, principal place of business, or chief executive office (or principal residence if such Debtor is a natural person) or its corporate structure in any way (e.g., by merger, consolidation, change in corporate form or otherwise) within the past FIVE (5) yea rs.
(b) Binding Obligations. The execution, delivery, and performance of the Loan Documents by Obligor has been duly authorized by all necessary action by Obligor, and constitute legal, valid and binding obligations of Obligor, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors’ rights and except to the extent specific remedies may generally be limited by equitable principles.
(c) No Consent. The execution, delivery a nd performance of the Loan Documents, and the consummation of the transactions contemplated thereby, do not (i) conflict with, result in a violation of, or constitute a default under (1) any provision of the Organizational Documents (if any) or other instrument binding upon Obligor, (2) any law, governmental regulation, court decree or order applicable to Obligor, or (3) any contractual obligation, a greement, judgment, license, order or permit applicable to or binding upon Obligor, (ii) require the consent, approval or authorization of any third party, or (iii) result in or require the creation of any Lien, charge or encumbrance upon any property or asset of Obligor except as may be expressly contemplated in the Loan Documents. No consent is required for the exercise by Lender of the rights provided for in the Loan Documents or the remedies in respect of the Collateral pursuant to the Loan Documents (except as may be required in connection with the disposition of certain Collateral by applicable law, regulation or judicial decision).
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(d) Financial Condition. Each financial statement of Obligor supplied to Lender accurately discloses and fairly presents such Person’s financial condition as of the date of each such statement. There has been no material adverse change in such financial condition or results of operations of Obligor subsequent to the date of the most recent financial statement supplied to Lender. All projections delivered by Debtor to Lender have been prepared in good faith, with care and diligence and use assumptions that are reasonable under the circumstances at the time such projections were prepared and delivered to Lender and all such assumptions are disclosed in the projections.
(e) Operation of Business. Debtor possesses all contracts, licenses, permits, franchises, patents, copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct its businesses substantially as now conducted and as presently proposed to be conducted, and Debtor is not in viola tion of any valid rights of others with respect to any of the foregoing, except any violations that would not reasonably be expected to have a Material Adverse Effect.
(f) Litigation and Judgments. There is no action, suit, investigation, or proceeding before or by any Governmental Authority or arbitrator pending, or to the knowledge of Obligor, threatened against or affecting Obligor that would, if adversely determined, have a Material Adverse Effect. There are no outstanding judgments against Obligor.
(g) Debt. Debtor has no Debt other than the Permitted Debt (as defined below).
(h) Disclosure. No statement, information, report, representation, or warra nty made by Obligor in the Loan Documents or furnished to Lender in connection with the Loan Documents or any of the transactions contemplated hereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading. There is no fact known to Obligor which would reasonably be expected to have a Material Adverse Effect that has not been disclosed in writing to Lender.
(i) Subsidiaries, Ventures, Etc. Debtor has no Subsidiaries or joint venturesor partnerships other than those listed in Schedule I and such Schedule sets forth the jurisdiction of organization of each such Person and the percentage of Debtor’s ownership interest in such Person.
(j) Agreements. Debtor is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate or other organizational restriction which would reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 6(j), Debtor is not in default in any material respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business.
(k) Compliance with Laws. Obligor is not in violation of any law, rule, regulation, order, or decree of any Governmental Authority or arbitrator, the violation of which would reasonably be expected to have a Material Adverse Effect.
(l) Taxes; Governmental Charges. Obligor has filed a ll federal, state and local tax reports and returns required by any law or regulation to be filed by it and has either duly paid all taxes, duties and charges indicated due on the basis of such returns and reports, or made adequate provision for the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected. Obligor has no knowledge of any pending investigation of Obligor by any taxing authority or any pending but unassessed tax liability.
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(m) Use of Proceeds; Margin Securities. Debtor is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of regulations of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock.
(n) ERISA. Debtor is in complia nce in a ll ma terial respects with a ll applicable provisions of the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereunder (“ERISA”). Neither a reportable event nor a prohibited transaction has occurred and is continuing with respect to any plan. No notice of intent to terminate a plan has been filed, nor has any plan been terminated. No circumstances exist which constitute grounds entitling the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA (the “PBGC”) to institute proceedings to terminate, or appoint a trustee to administer, a plan, nor has the PBGC instituted any such proceedings. Neither Debtor nor any ERISA Affiliate (as defined below) has completely or partially withdrawn from a multiemployer plan. Debtor and each ERISA Affilia te have met their minimum funding requirements under ERISA with respect to all of their plans, and the present value of all vested benefits under each plan do not exceed the fair market value of all plan assets allocable to such benefits, as determined on the most recent valuation date of the plan and in accordance with ERISA. Neither Debtor nor any ERISA Affilia te has incurred any lia bility to the PBGC under ERISA. “ERISA Affiliate” means each trade or business (whether or not incorporated) which together with Debtor would be deemed to be a “single employer” within the meaning of section 4001(b)(1) of ERISAor subsections (b), (c), (m) or (o) of section 414 of the Internal Revenue Code of 1986.
(o) Regulated Entities. Debtor is not (i) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940 or (ii) subject to regulation under the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other federal or state statute, rule or regula tion limiting its ability to incur Debt, pledge its assets or perform its obligations under the Loan Documents.
(p) Customer Identification – USA Patriot Act Notice; OFAC. Lender hereby notifies Debtor that pursuant to the requirements of the Patriot Act and Lender’s policies and practices, Lender is required to obtain, verify and record certain information and documentation that identifies Debtor, which information includes the name and address of Debtor and such other information that will a llow Lender to identify Debtor in accordance with the Patriot Act. Debtor represents and covenants that it is not and will not become a Person (individually, a “Prohibited Person”) listed on the OFAC List or otherwise subject to any other prohibitions or restriction imposed by any laws, rules or regulations administered by OFAC (collectively the “OFACRules”). Debtor represents and covenants that it also (i) is not and will not become owned or controlled by a Prohibited Person, (ii) is not acting and will not act for or on behalf of a Prohibited Person, (iii) is not otherwise associated with and will not become associa ted with a Prohibited Person, (iv) is not providing and will not provide any material, financial or technological support for or financial or other service to or in support of acts of terrorism for a Prohibited Person. Debtor will not permit the transfer any interest in Debtor to a Prohibited Person. Debtor shall notify Lender if Debtor has knowledge that Obligor or any member or beneficial owner of Obligor is or becomes a Prohibited Person or is indicted on or arraigned and held over on chargesinvolving money laundering or predicate crimesto money laundering. Debtor will not enter into any transaction or undertake any activities related to the Loan in violation any anti-money laundering laws (the “Anti-Money Laundering Laws”). Debtor shall (i) not use or permit the use of any proceeds of the Loan in any way that will violate either the OFAC Rules or Anti-Money Laundering Laws, (ii) comply and cause all of its subsidiaries to comply with applicable OFAC Rules and Anti-Money Laundering Laws, (iii) provide information as Lender may require from time to time to permit Lender to satisfy its obligations under the OFAC Rules and/or the Anti-Money Laundering Laws, and (iv) not engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the foregoing. Debtor shall immediately notify Lender a fter Debtor obtains actual knowledge that Obligor is a Prohibited Person or (i) is convicted of, (ii) pleadsnolo contendere to, (iii) is indicted on, or (iv) is arraigned and held over on charges involving money laundering or predicate crimes to money laundering.
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(q) Solvency. On the Effective Date and on the date of each Advance, Debtor will be and after giving effect to the requested Advance, will be, solvent.
(r) Representations and Warranties Relating to the Collateral.
(i) Information. All information supplied by Debtor to Lender with respect to the Collateral is true, correct, and complete in a ll materia l respects.
(ii) Security Interest. Debtor has and will have at all times (1) good and valid rights in and title to the Collateral with respect to which it has purported to grant a security interest hereunder, (2) full right, power and authority to grant a security interest in the Collateral to Lender in the manner provided herein, free and clear of any Lien, security interest or other charge or encumbrance other than for the Permitted Encumbrances. The Loan Documents createa lega l, valid and binding security interest in favor of Lender in all now owned and hereafter acquired Collateral securing the Indebtedness; and (1) upon the filing of a ll UCC fina ncing statements naming Debtor as “debtor” and Lender as “secured party” and describing the Colla teral in the filing offices in the jurisdiction in which Debtor is organized, (2) upon execution of a control agreement establishing Lender’s Control with respect to any deposit account, securities account, or commodity account (to the extent that such account is not with Lender), (3) upon delivery of all instruments, chattel paper, certificated pledged equity interests, (4) upon sufficient identification of commercial tort claims, and (5) upon consent of the issuer or any nominated person with respect to letter of credit rights, the security interests granted to Lender thereunder constitute valid and perfected FIRST (1st) priority Lien.
(iii) Property Locations. All tangible personal property of Debtor is loca ted at the locations described on Schedule I. All of such locations are owned by Debtor except for locations (1) which are leased by Debtor as lessee and designated in Schedule I (and for which Debtor has delivered a wa iver of the landlord’s Lien acceptable to Lender, if requested), and (2) at which inventory is held in a public warehouse or is otherwise held by a bailee or on consignment, with respect to which inventory Debtor has delivered bailment agreements, warehouse receipts, financing statements or other Documents satisfactory to Lender to protect Lender’s security interest in such inventory.
(iv) No Financing Statements or Control Agreements. Other than the financing statements and control agreements with respect to this Agreement, there are no other financing statements or control agreements covering any Collateral, other than those evidencing Permitted Encumbrances.
(v) Maintenance of Collateral. All tangible Colla teral which is materia l to Debtor’s business is in good repair and condition, ordinary wear and tear excepted.
(vi) Inventory. All inventory of Debtor (if any) has been and will hereafter be produced in compliance with a ll applica ble la ws, rules, regula tions, and governmental standards, including, without limitation, the minimum wage and overtime provisions of the Fair Labor Standards Act (29 U.S.C. §§ 201-219).
(vii) Intellectual Property. All material Intellectual Property owned or used by Debtor is listed, together with application or registration numbers, where applicable, in Schedule I. Debtor is the sole and exclusive owner of the entire and unencumbered right, title, and interest in and to the material Intellectual Property purported to be owned by Debtor free and clear of any Liens, including any pledges, a ssignments, licenses, user agreements, and covenants by Debtor not to sue third persons, other than Permitted Encumbrances. To the best of Debtor’s knowledge, no third party is infringing, or in Debtor’s reasonable business judgment, may be infringing, any of such Debtor rights under any material Intellectual Property. To the best of Debtor’s knowledge, no claims with respect to the Intellectual Property have been asserted and are pending (1) to the effect that the sale, licensing, pledge, or use of any of the products of Debtor’s business infringes any other party’s valid copyright, trademark, service mark, trade secret, or other intellectual property right, (2) against the use by Debtor of any Intellectual Property used in such Debtor’s business as currently conducted, or (3) challenging the ownership or use by Debtor of any of the Intellectual Property that such Debtor purports to own or use.
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(viii) Deposit, Commodity, and Securities Accounts. Schedule I correctly identifies all deposit accounts, commodity accounts, and securities accounts in which Debtor has an interest and the institutions holding such accounts (if other than Lender). Debtor is the sole account holder of each such account, a nd Debtor has not consented to, and is not otherwise aware of, any person (other than Lender) having Control over, or any other interest in, any such account or the property credited thereto.
(ix) Letter of Credit Rights. All letters of credit to which Debtor has rights is listed on Schedule I, and Debtor has obtained the consent of each issuer or the nominated person of any letter of credit to the assignment of the Proceeds of the letter of credit to Lender.
(x) Pledged Equity Interests.
(1) Schedule I sets forth all of the Pledged Stock, Pledged LLC Interests, and Pledged Partnership Interests owned by Debtor and such Pledged Equity Interests constitute the percentage of issued and outstanding shares of stock, percentage of membership interests, percentage of partnership interests or percentage of beneficial interest of the respective issuers thereof indicated on such Schedule.
(2) Debtor is the record a nd beneficial owner of the Pledged Equity Interests owned by it free of all Liens, rights or claims of other persons other than Permitted Encumbrances, and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any Pledged Equity Interests.
(3) No consent of any person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or desirable in connection with the creation, perfection or first priority status of the security interest of Lender in any Pledged Equity Interests or the exercise by Lender of the voting or other rights provided for in this Agreement or the exercise of remedies in respect thereof.
(4) None of the Pledged Equity Interests are or represent interests in issuers that (A) are registered as investment companies or (B) are dealt in or traded on securities exchanges or ma rkets.
(5) Except as otherwise set forth on Schedule I, all of the Pledged LLC Interests and Pledged Partnership Interests are or represent interests in issuers that have not opted to be treated as securities under the UCC of any jurisdiction.
(xi) (A) Debtor has delivered to Lender all stock certificates, or other instruments or documents representing or evidencing the Pledged Equity Interests, together with corresponding assignment or transfer powers duly executed in blank by Debtor, and such powers have been duly and validly executed and are binding and enforceable against Debtor in accordance with their terms and (B) to the extent such Pledged Equity Interests are uncertificated, Debtor has taken all actions necessary or desirable to establish Lender’s Control over such Pledged Equity Interests.
The foregoing representations and warranties will be true and correct in all respects with respect to any additional Colla teral or additional specific descriptions of certain Colla teral delivered to Lender in the future by Debtor. The failure of any of these representations or warranties or any description of Collateral therein to be accurate or complete shall not impair the security interest in any such Collateral.
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7. Covenants. Until a ll Indebtedness is Indefeasibly Paid or performed, and Lender has no further commitment to lend under the Credit Facility, Obligor agrees and covenants as follows:
(a) Compliance. OBLIGOR SHALL (i) COMPLY WITH, PERFORM, AND BE BOUND BY ALL COVENANTS AND AGREEMENTS IN THE LOAN DOCUMENTS THAT ARE APPLICABLE TO OBLIGOR, ITS ASSETS, OR ITS OPERATIONS, EACH OF WHICH IS HEREBY RATIFIED AND CONFIRMED INCLUDING THE INDEMNIFICATION AND RELATED PROVISIONS OF ANY LOAN DOCUMENT; AND (ii) CONSENT TO AND APPROVE OF THE VENUE, SERVICE OF PROCESS, AND WAIVER OF JURY TRIAL PROVISIONS IN THIS AGREEMENT.
(b) Maintenance of Existence; Conduct of Business. Debtor shall preserve and maintain its existence and all of its leases, privileges, licenses, permits, franchises, qualifications, and rights that are necessary or desirable in the ordinary conduct of its business. Debtor shall conduct its business in accordance with existing business practices.
(c) Maintenance of Properties. Debtor shall maintain, keep, and preserve all of its properties and assets (tangible and intangible) material to the proper conduct of its business in good working order and condition.
(d) Taxes and Claims. Debtor shall pay or discharge at or before maturity or before becoming delinquent (i) all taxes, levies, assessments, and governmental chargesimposed on it or its income or profits or any of its property or assets, and (ii) a ll la wful cla ims for la bor, material, and supplies, which, if unpaid, might become a Lien upon any of its property or assets; provided, however, that such Person shall not be required to pay or discharge any tax, levy, assessment, or governmental charge which is being contested in good faith by appropriate proceedings diligently pursued, and for which adequate reserves in accordance with GAAP have been established.
(e) Ownership and Liens; Impairment of Collateral. Debtor will ma intain good and indefeasible title to the Collateral free and clear of all Liens, security interests, encumbrances or adverse claims, except for Permitted Encumbrances. Debtor will cause any financing statement or other security instrument with respect to the Collateral to be terminated, except for Permitted Encumbrances. Debtor will defend at its expense Lender’s right, title and security interest in and to the Colla teral against the claims of any third party. Debtor will not take any action that would in any manner impair the enforceability of Lender’s security interest in any Collateral. Debtor will not adjust, settle, compromise, amend or modify any Collateral, except an adjustment, settlement, compromise, amendment or modification in good faith and in the ordinary course of business; provided, however, this exception shall terminate following written notice from Lender upon the occurrence and during the continuation of an Event of Default. Debtor shall provide to Lender such information concerning (i) any adjustment, settlement, compromise, amendment or modification of any Colla teral, and (ii) any claim asserted by any account debtor for credit, allowance, adjustment, dispute, setoff or counterclaim, as Lender may request from time to time in its Permitted Discretion.
(f) Inspection Rights. At any reasonable time and from time to time, Debtor shall permit representatives of Lender: (i) to examine, inspect, review, evaluate and make physical verifications and appraisals of (1) the Colla teral, or (2) other property and assets of Debtor in any manner and through any medium that Lender considers advisable;(ii) to examine, copy, and make extracts from its books and records; (iii) to visit and inspect its properties and assets; and (iv) to discuss its business, operations, and financial condition with its officers, employees, and independent certified public accountants, in each instance, at the Debtor’s expense. The Debtor will pay the Lender the reasonable out-of-pocket costs and expenses of any audit or inspection of the Collateral promptly after receiving the invoice; provided that the Debtor sha l not be required to reimburse the Lender for the foregoing expensesrelating to more than two such inspections or audits in any calendar year unless an Event of Default has occurred and is continuing, in which event the Debtor shall be required to reimburse the Lender for a ny and all of the foregoing expenses. The inspections described in this subsection (f) shall occur during business hours and with reasonable prior notice; unless an Event of Default has occurred and is continuing, in which event such limitations shall not apply.
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(g) Keeping Books and Records. Debtor shall maintain proper books of record and account in which full, true, and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities.
(h) Compliance with Laws. Debtor shall, and shall cause each of its Subsidiaries to, comply in a ll ma terial respects with a ll applicable la ws, rules, regulations, orders, and decrees of any Governmental Authority or a rbitrator, where the failure to comply would reasonably be expected to have a Material Adverse Effect.
(i) Compliance with Agreements. Obligor sha ll comply in a ll ma terial respects with a l agreements, contracts, and instruments binding on it or affecting its properties or business, where the failure to comply would reasonably be expected to have a Material Adverse Effect.
(j) ERISA. Debtor shall, and shall cause each of its Subsidiaries to, comply with all minimum funding requirements, and all other material requirements, of ERISA, if applicable, so as not to give rise to any liability thereunder.
(k) Reserved.
(l) Additional Obligors. Debtor shall notify Lender at the time that any Person becomes a Subsidiary, and promptly thereafter (and any event within TEN (10) days), subject to requirements of applicable la w, (i) cause each Domestic Subsidiary to (i) execute and deliver to Lender a joinder in agreement in form and substance satisfactory to Lender, (ii) execute and deliver all Loan Documents requested by Lender, and (iii) cause (A) ONE HUNDRED PERCENT (100.00%) of the issued and outstanding Pledged Equity Interests of each Obligor’s Domestic Subsidiaries and (B) SIXTY-FIVE PERCENT (65.00%) of the issued and outstanding Pledged Equity Interests of each Obligor’s Foreign Subsidiaries entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) to be subject at all times to a first priority, perfected Lien in favor of the Lender, pursuant to the terms and conditions of the Loan Documents or other security documents as the Lender shall request.
(m) Debt. Debtor shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, incur, create, assume, or permit to exist any Debt, exceptthe following (each of (i) – (v) below, collectively the “Permitted Debt”):
(i) Debt to Lender;
(ii) Existing Debt described on the Schedule III;
(iii) Debt which is subordinated to Lender on terms and conditions acceptable to Lender in its sole discretion as set forth on Schedule III (the “Subordinate Indebtedness”);a nd
(iv) Trade payables incurred in the ordinary course of business; and
(v) Debt not to exceed THREE HUNDRED THOUSAND AND 00/100 DOLLARS ($300,000.00) in the aggregate at any time outstanding without the consent of Lender, which consent shall not be unreasonably delayed, withheld, or conditioned, and which Debt is subordinated to Lender on terms and conditions acceptable to Lender, including, without limitation, the execution of a subordination agreement in form and substance acceptable to Lender.
(n) Other Changes. DEBTOR WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER, (i) CREATE, INCUR OR ASSUME INDEBTEDNESS FOR BORROWED MONEY, INCLUDING CAPITAL LEASES, OTHER THAN INDEBTEDNESS EXPRESSLY PERMITTED BY THE LOAN DOCUMENTS, (ii) SELL, TRANSFER, MORTGAGE, ASSIGN, PLEDGE, LEASE (OTHER THAN IN THE ORDINARY COURSE OF BUSINESS), GRANT A SECURITY INTEREST IN OR ENCUMBER ANY OF DEBTOR’S ASSETS (EXCEPT AS EXPRESSLY PERMITTED BY THE LOAN DOCUMENTS), OR (iii) SELL ANY OF DEBTOR’S ACCOUNTS, EXCEPT TO LENDER.
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(o) Dividends or Distributions. Debtor shall not (if any Default hasoccurred or would occur by reason of any action hereunder), directly or indirectly, declare or pay any dividends or make any other payment or distribution (in cash, property, or obligations) on account of its equity interests, or redeem, purchase, retire, call, or otherwise acquire any of its equity interests, or permit any of its Subsidiaries to purchase or otherwise acquire any equity interest of Debtor or another Subsidiary of Debtor, or set apart any money for a sinking or other analogous fund for any dividend or other distribution on its equity interests or for any redemption, purchase, retirement, or other acquisition of any of its equity interests, or incur any obligation (contingent or otherwise) to do any of the foregoing.
(p) Fundamental Change. Debtor will not, without the Lender’s prior written consent (i) make any material change in the nature of its business as carried on as of the Effective Date, (ii) amend or permit the amendment of any of its Organizational Documents, (iii) liquida te, merge or consolidate with or into any other Person, (iv) make a change in organizational structure or the jurisdiction in which it is organized, or (v) permit ANY change in Debtor’s legal name or the state of Debtor’s organization. Debtor sha ll execute and deliver a ll such additional documents and perform all additional acts as Lender, in its sole discretion, may request in order to continue or maintain the existence and priority of its security interest in a ll of the Colla tera l.
(q) Loans. Debtor will not make loans or guarantee any obligation of a ny other Person or entity other than (i) loans or advances to employees of Debtor not to exceed FIVE THOUSAND AND 00/100 DOLLARS ($5,000.00) in the a ggregate outstanding at any time, including such loans and advances outstanding on the Effective Date, and (ii) accounts receivable for sales of inventory and other products and services provided by Debtor to its respective customers in the ordinary course of business of Debtor.
(r) Transactions with Affiliates. Debtor will not enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any Affiliate of Debtor, except in the ordinary course of businessand pursuant to the reasonable requirements of Debtor’s business (upon prior written notice to Lender) and upon fair and reasonable terms no less favorable to Debtor than would be obtained in a comparable a rm’s-length transaction with a Person or entity not an Affilia te of Debtor.
(s) Waivers and Consents Relating to Real Property Interests. Debtor shall cause each mortgagee of real property owned by Debtor and each la ndlord of real property leased by Debtor in the United States to execute and deliver agreements satisfactory in form and substance to Lender by which such mortgagee or landlord (i) waives or subordinates any rights it may have in the Collateral, or (ii) consents to the mortgage or other encumbrance of Debtor’s interest in such real property; provided that the forgoing requirement does not apply to the real property located at 1580 Dell Avenue,Campbell, CA 95008. Debtor shall not keep any tangible personal property Collateral at any location other than as set forth on Schedule I hereto.
(t) Change in Control. Debtor sha ll not permit any Change of Control of Debtor. For purposes of this section, “Change of Control” shall mean any of the following:
(i) the Debtor, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Debtor with or into another Person;
(ii) any Debtor, directly or indirectly, effects any sale, assignment, tra nsfer, conveyance or other disposition of a ll or substantially all of its assets in one or a series of related transactions;
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(iii) the occurrence of any event (whether in one or a series of transactions) which results in Permitted Holders ceasing to own and control, directly, at least 51% of the outstanding voting Equity Interests of ZRCN (on a fully diluted basis); or
(iv) the occurrence of any event (whether in one or a series of transactions) which results in ZRCNfailing to own all of the Equity Interests of Zircon (on a fully diluted basis);
(u) Investments. Debtor will not purchase any stock, equity interests or debt obligations (except obligations of the U.S. government) in any Person other than as set forth in Schedule I.
(v) Disposition of Assets. Debtor shall not directly or indirectly, sell, lease, assign, transfer, or otherwise dispose of any of its assets, except (i) dispositions of inventory in the ordinary course of business or (ii) dispositions, for fair value, of worn-out and obsolete equipment not necessary or useful to the conduct of business. Debtor shall not, directly or indirectly, enter into any arrangement with any Person pursuant to which it leases from such Person real or personal property that has been or is to be sold or transferred, directly or indirectly, by it to such Person without the prior written consent of Lender (such consent not to be unreasonably withheld, conditioned or delayed).
(w) Prepayment of Debt. Debtor shall not, directly or indirectly, make any optional or voluntary payment, prepayment, repurchase or redemption of any Debt for borrowed money, except the Indebtedness.
(x) Environmental Protection. Debtor shall not conduct any activity or use any of its properties or assets in any manner that is likely to violate any Environmental Law or create any Environmental Liabilities for which Debtor would be responsible.
(y) Accounting. Debtor shall not change its fiscal year or make any change (i) in accounting treatment or reporting practices, except as required by GAAP and disclosed to Lender, or (ii) in tax reporting treatment, except as required by law and disclosed to Lender.
(z) Insurance. Debtor will ma intain insurance, including but not limited to, fire insurance, comprehensive property damage, public liability, worker’s compensation, business interruption and other insurance deemed necessary by Lender in the exercise of its Permitted Discretion. Debtor will, at its own expense, maintain insurance with respect to all Collateral in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to Lender from time to time. Each policy of insurance maintained by Debtor shall (i) name Debtor and Lender as insured parties thereunder (without any representation or warranty by or obligation upon Lender) as their interests may appear, (ii) contain the agreement by the insurer that any loss thereunder shall be payable to Lender notwithstanding any action, inaction or breach of representation or warranty by Debtor, and (iii) provide prior written notice of cancellation or of lapse shall be given to Lender by the insurer in accordance with the insurer’s commercial practices as adopted from time to time. Debtor will deliver to Lender original or duplicate policies of such insurance. Debtor will also, at the request of Lender, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurers to acknowledge notice of such assignment. All insurance payments in respect of loss of or damage to a ny Collateral shall be paid to Lender and a pplied by Lender in accordance with the Loan Documents, provided, however, that so long as no Default exists, Debtor may use such insurance payments for the repair or replacement of such lost or damaged property.
(aa) Notices of Material Events. Debtor will furnish to Lender prompt written notice of the following:
(i) the occurrence of any Default;
(ii) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against Obligor that, if adversely determined, would reasonably be expected to result in a Material Adverse Effect; and
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| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
(iii) any and all material adverse changes in Obligor’s fina ncial condition and a l claims made against Obligor that would materially affect the financial condition of Obligor.
Each notice delivered under this Section shall be accompanied by a statement of a Responsible Officer of Debtor setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
(bb) Accounts and General Intangibles. Debtor will, except as otherwise provided herein, collect, at Debtor’s own expense, all amounts due or to become due under each of the accounts and general intangibles. In connection with such collections, Debtor may and, at Lender’s direction, will take such action not otherwise forbidden herein as Debtor or Lender may deem reasonably necessary or advisable to enforce collection or performance of each of the accounts and general intangibles. Debtor will also duly perform and cause to be performed all of its material obligations with respect to the goodsor services, the sale or lease or rendition of which gave rise or will give rise to each account and all of its obligations to be performed under or with respect to the general intangibles. Debtor also covenants a nd agrees to take any action and/or execute any documents that Lender may reasonably request in order to comply with law relating to the assignment of the accounts.
(cc) Limitation on Issuance of Equity. Debtor shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, issue, sell, assign, or otherwise dispose of (i) any of its stock or other equity interests, (ii) any securities exchangeable for or convertible into or carrying a ny rights to acquire any of its stock or other equity interests, or (iii) any option, warrant, or other right to acquire any of its stock or other equity interests. Notwithstanding the foregoing, the Debtor shall be permitted to issue shares of its equity securities for securities convertible and/or exercisable into equity securities of the Company which are set forth on Schedule 6(cc) hereto.
(dd) Chattel Paper, Documents and Instruments. Debtor will take such action as may be requested by Lender in its Permitted Discretion in order to cause any chattel paper, documents or instruments to be valid and enforceable and will cause all chattel paper, and instruments to have only one original counterpart. Upon request by Lender, Debtor will deliver to Lender all originals of chattel paper, documents or instruments and unless such request is made, Debtor will not deliver possession of such chattel paper, documents or instruments to any Person and will mark all chattel paper, documents or instruments with a legend indicating that such chattel paper, document or instrument is subject to the security interest granted hereunder.
(ee) Uncertificated Securities and Certain Other Investment Property. Debtor will permit Lender from time to time to cause the appropriate issuers (and, if held with a securities intermediary, such securities intermediary) of uncertificated securities or other types of investment property not represented by certificates which are Collateral to mark their books and records with the numbers a nd face amounts of a l such uncertificated securities or other types of investment property not represented by certificates and a l rollovers and replacements therefor to reflect the Lien of Lender gra nted pursuant to this Agreement. Debtor will take any actions necessary to cause (i) the issuers of uncertificated securities which are Collateral and which are securities and (ii) any financial intermediary which is the holder of any investment property, to cause Lender to have and retain control over such securities or other investment property. Without limiting the foregoing, Debtor will, with respect to investment property held with a financial intermediary, cause such financial intermediary to enter into a control agreement with Lender in form and substance satisfactory to Lender.
(ff) Certificates of Title. With respect to any item of equipment which is covered by a certificate of title and indication of a security interest on such certificate is required as a condition of perfection, upon the request of Lender, Debtor shall cause Lender’s security interest to be properly indicated thereon.
(gg) Deposit Accounts. All deposit accounts of Debtor used for customer receipts sha l be subject to a Deposit Account Control Agreement; provided that with respect to the deposit accounts shown as customer receipt accounts on Schedule I, Debtor shall have FORTY-FIVE (45) days from the Effective Date to make such accounts subject to a Deposit Account Control Agreement.
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8. Financial Covenants. Until a ll Indebtedness is Indefeasibly Paid or satisfied and Lender has no further commitment to lend under the Credit Facility, Obligor agrees and covenants that it will, unless Lender sha l otherwise consent in writing:
(a) Fixed Charge Coverage Ratio. Debtor, on a consolidated basis, shall maintain a Fixed Charge Coverage Ratio of not less than the ratio set forth opposite the a pplicable periods in the ta ble below. The Fixed Charge Coverage Ratio shall be calculated monthly as of the end of each calendar month as follows: (i) for month(s) SEVEN (7) through month(s) ELEVEN (11) following the Effective Da te, based on the results for the tra iling period starting from the Effective Date; and (ii) for month TWELVE (12) and each month thereafter, based on the results for the tra iling TWELVE (12) months.
| Period | Ratio | |
| March 31, 2026 through August 31, 2026 | Wa ived | |
| August 31, 2026 through January 31, 2027 | 1.10 to 1.00 | |
| Thereafter | 1.20 to 1.00 |
(b) Minimum Tangible Net Worth. Debtor, on a consolidated basis, sha ll ma intain a Minimum Tangible Net Worth Ratio of not less thanthe percentage set forth opposite the applicable periods in the table below. The Minimum Tangible Net Worth Ratio shall be tested monthly as of the last day of each calendar month, commencing with the month end of the Effective Date. If Debtor is in breach of the Minimum Tangible Net Worth Ratio, Debtor shall have a period of THIRTY (30) days to cure such breach.
| Period | Ratio | |||
| March 31, 2026 through August 31, 2026 | Waived | |||
| September 30, 2026 through January 31, 2027 | 15 | % | ||
| Thereafter | 25 | % | ||
(c) Defined Terms. The following terms will have the meanings given such terms in this Section:
(i) “Adjusted EBITDA” means EBITDA less Capital Expenditures less Taxes plus Increase in Bad Debt Reserve plus Increase in Inventory Reserve plus Deferred Income Tax Expenses plus Non-Cash Impairment Charges plus Non-Cash Stock Compensation plus Non-Cash FX Losses. Notwithstanding anything to the contrary, Adjusted EBITDA shall not include any realized or cash losses, any reversal of reserves or valuation allowances, any item resulting from a change in accounting policy not previously approved by Lender, or any a dd back that would result in double counting with borrowing base availability or collateral eligibility.
(ii) “Capital Expenditures” means all cash expenditures made by Debtor for fixed or capital assets, including machinery, equipment, tooling, lea sehold improvements, and capitalized software or development costs, excluding capitalized interest and expenditures funded with insurance proceeds or asset sale proceeds approved by Lender.
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(iii) “Deferred Income Tax Expense” means non cash deferred income tax expense recorded during such period, excluding any cash tax payments.
(iv) “EBITDA” means net income, plus, without duplication, interest expense, income tax expense, depreciation, and amortization.
(v) “Fixed Charge Coverage Ratio” means, as of any date of determination, the ratio of (a ) Adjusted EBITDA to (b) Interest Paid plus rent expense for such trailing period.
(vi) “Increase in Bad Debt Reserve” means the non cash increase (but not decrease) during such period in the allowance for doubtful accounts or bad debt reserves, excluding any actual write offs, charge offs, or realized credit losses.
(vii) “Increase in Inventory Reserve” means the non cash increase (but not decrease) during such period in inventory valuation reserves, including obsolescence, excess, slow moving, or lower of cost or net realizable value reserves, excluding any realized inventory losses, scrap, or disposal write downs.
(viii) “Interest Paid” means a ll cash interest actually paid by Debtor on Debt during such period, excluding PIK interest, non cash interest accretion, and amortization of deferred financing fees.
(ix) “Minimum Tangible Net Worth” means, for any Person at any time, as of any date of determination, Total Equity plus Subordinate Indebtedness less inta ngible assets less amounts due to Zircon Mexicoless long term deposits less deferred tax assets less pa tents less prepaids less prepaid taxes less shareholder receivables.
(x) “Minimum Tangible Net Worth Ratio” means the Minimum Tangible Net Worth divided by the outstanding principal balance of the Loan.
(xi) “Non Cash Impairment Charges” means non cash charges resulting from the impairment or write down of goodwill, intangible assets, long lived assets, or right of use assets, excluding any impairment related to inventory, accounts receivable, or assets disposed of during such period.
(xii) “Non Cash Stock Based Compensation” means stock based or equity based compensation expense that does not require a cash payment during such period.
(xiii) “Non Cash Foreign Exchange Losses” means unrealized, non cash foreign currency translation or remeasurement losses recorded during such period, excluding any realized foreign exchange losses settled in cash.
(xiv) “Taxes” means cash income taxes paid during such period, excluding deferred tax expense, valuation allowances, and other non cash tax charges.
A breach of a financial covenant contained in this Section shall be deemed to have occurred as of any date of determination thereof by Lender or as of the last day of any specified measuring period, regardless of when the fina ncial sta tements or any certificate reflecting such breach are delivered to Lender. Debtor shall provide Lender such calculations and certificates as Lender shall require in its Permitted Discretion in ca lculating complia nce with the financial covenants set forth herein.
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9. Reporting Requirements. Until a ll Indebtedness is Indefeasibly Paid and satisfied, and Lender has no further commitment to lend under the Credit Facility, Obligor agrees and covenants that it will furnish or cause to be furnished the following:
(a) Monthly Financial Statements. As soon as available and in any event within FORTY-FIVE (45) calendar days after the end of each calendar month, financial statements on an accrual basis to include a balance sheet, income statement and cash flow statement of Debtor (on a consolidated and consolidating basis), as of the end of such month, except that unaudited financial statements may not contain all footnotes required by GAAP.
(b) Annual Financial Statements. As soon as availa ble and in any event within NINETY (90) calendar days after the end of each fiscal year, financial statements on an accrual basis to include a balance sheet, income statement and cash flow statement of Debtor (on a consolidated and consolidating basis), as of the end of such fiscal year, audited by independent certified public accountants of recognized standing satisfactory to Lender.
(c) Borrowing Base. (i) As soon as available and in any event within TEN (10) days after the end of each calendar month (ii) with each request for an Advance, and (iii) and at such other times as may be required by Lender from time to time, in each case a Borrowing Base Certificate in form and content satisfactory to Lender in its Permitted Discretion which shall, without limitation, calculate the Borrowing Base and reflect the components of the Borrowing Base, including (i) Eligible Accounts of Debtor (ii) Eligible Finished Goods Inventory of Debtor, and (iii) Eligible Work-In-Process Inventory of Debtor as of the end of the preceding month and calculating the advance amounts based thereon, together with the Account agings, cash receipt journals or copies of checks, invoices for new billings, sales journals andbackup for all miscellaneous credits and debits, purchases journals and cost of goods sold reports and inventory reports, which support such report, and worksheets detailing the Accounts excluded from Eligible Accounts and Inventory excluded from Eligible Inventory Finished Goods Inventory and Eligible Work-In-Process Inventory and the reason for such exclusion. The monthly Borrowing Base Certificate shall be current asof the close of business on the last Business Day of the immediately preceding month. Any Borrowing Base Certifica te delivered in connection with a request for an Advance shall include the Borrowing Base as of FORTY-EIGHT (48) hours prior to the borrowing date specified in such request for Advance.
(d) Compliance Certificate. Concurrently with the delivery of each of the financial statements of Debtor referred to in Sections 9(a) and (b), a certificate of a Responsible Officer of Debtor (i) stating that to such officer’s knowledge, no Default has occurred and is continuing, or if a Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, and (ii) showing in reasonable detail the calculations demonstrating compliance with the financial covenants set forth in Section 8 of this Agreement.
(e) Management Letters. Promptly upon receipt thereof Debtor shall furnish to Lender, a copy of any management letter or written report submitted to Debtor by independent certified public accountants with respect to the business, condition (financial or otherwise), operations, prospects, or properties of Debtor.
(f) ERISA Reports. Promptly after the filing or receipt thereof, copies of all reports, including annual reports, and notices which Debtor files with or receives from the PBGC or the U.S. Department of Labor under ERISA; and as soon as possible and in a ny event within FIVE (5) Business Days after Debtor knows or has reason to know that any reportable event or prohibited transaction has occurred with respect to any plan or that the PBGC or Debtor has instituted or will institute proceedings under Title IV of ERISA to terminate any plan, a certificate of an officer of Debtor setting forth the details as to such reportable event or prohibited transaction or plan termination a nd the action that Debtor proposes to take with respect thereto.
(g) Notice of Default and Events of Default. As soon as possible and in any event within FIVE (5) Business Days after the occurrence of each Default, a written notice setting forth the details of such Default and the action which is proposed to be taken by Debtor with respect thereto.
(h) General Information. Debtor shall promptly deliver such other information concerning Obligor or the Colla teral as Lender may request.
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10. Rights of Lender. Lender shall have the rights contained in this Section at all times that this Agreement is effective.
(a) Financing Statements. Debtor hereby authorizes Lender to file one or more financing or continuation statements, and amendments thereto, relating to the Collateral. Debtor hereby irrevocably authorizes Lender at any time and from time to time to file in any UCC jurisdiction any initia l financing statements a nd amendments thereto that (i) indica te the Colla teral (1) as all a ssets of Debtor or words of similar effect; regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC, or (2) as being of an equal or lesser scope or with greater detail, and (ii) contain any other information required by Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment. Debtor hereby ratifies any pre-filed financing statement relating to the Colla teral made by or on behalf of Lender.
(b) Power of Attorney. Debtor hereby irrevocably appoints Lender as Debtor’s attorney-in-fact, such power of attorney being coupled with an interest, with full authority in the place and stead of Debtor and in the name of Debtor or otherwise, from time to time following the occurrence and during the continuation of an Event of Default in Lender’s Permitted Discretion, subject to any a pplicable cure periods, to take any action and to execute any instrument which Lender may deem necessary or appropriate to accomplish the purposes of this Agreement, including without limitation: (i) to obtain and adjust insurance required by Lender hereunder; (ii) to demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of the Collateral; (iii) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with cla use (i) or (ii) above; (iv) to file any claims or take any action or institute any proceedings which Lender may deem necessary or appropriate for the collection and/or preservation of the Collateral or otherwise to enforce the rights of Lender with respect to the Collateral; and (v) to act on Debtor’s behalf as permitted by any other Loan Document.
(c) Performance by Lender. If Obligor shall fail to perform any covenant or agreement contained in any of the Loan Documents, then Lender may perform or attempt to perform such covenant or agreement on behalf of Obligor following the occurrence and during the continuation of an Event of Default in Lender’s Permitted Discretion, subject to any applicable cure periods. In such event, Debtor shall, at the request of Lender, promptly pay to Lender on demand any amount expended by Lender in connection with such performance or attempted performance, together with interest thereon at the Maximum Rate (as such term is defined in the Note) from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly a greed that Lender shall not have any liability or responsibility for the performance of any covenant, agreement, or other obligation of Obligor under this Agreement or any other Loan Document.
(d) Debtor’s Receipt of Proceeds. Upon the occurrence and during the continuation of an Event of Default, all amounts and proceeds (including instruments and writings) received by Debtor in respect of the Collateral shall be received in trust for the benefit of Lender hereunder and, upon the written request of Lender, shall be segregated from other property of Debtor and shall be forthwith delivered to Lender in the same form asso received (with any necessary endorsement) and applied to the Indebtedness in accordance with the Loan Documents.
(e) Notification of Account Debtors. Lender may at its Permitted Discretion from time to time during the continuation of an Event of Default notify any or all account debtors under any accounts (i) of Lender’s security interest in such accounts or general intangibles and direct such account debtor to make payment of all amounts due or to become due to Debtor thereunder directly to Lender, and (ii) to verify the accounts with such account debtor. Lender shall have the right, at the expense of Debtor, to enforce collection of any such accounts a nd to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Debtor.
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11. Events of Default. Each of the following shall constitute an “Event of Default” under this Agreement:
(a) Payment Default. The failure, refusal or neglect of Debtor to pay when due any part of the principal of, or interest on the Indebtedness owing to Lender by Debtor or any other indebtedness or obligations due and owing from Debtor to Lender under the Loan Documents from time to time a nd such failure, refusal or neglect shall continue unremedied for a period of TEN (10) days from the date such payment is due.
(b) Performance or Warranty Default. Except as otherwise provided in this Agreement, the fa ilure of Obligor to timely and properly observe, keep or perform any covenant, agreement, warranty or condition required herein or in any of the other Loan Documents or any other agreement with Lender, provided that, if such Default is curable but is not cured within FIVE (5) Business Days following written notice from Lender to Obligor, then it shall be an Event of Default, except that, if (i) such curable Default cannot be cured within FIVE (5) Business Days, (ii) Obligor has, within such period, taken such actions as deemed necessary a nd appropriate by in Lender’s Permitted Discretion to cure such curable Default, and (iii) Obligor shall continue to diligently pursue such actions, then such cure period shall be extended for a period of THIRTY (30) Business Days.
(c) Representations. Any representation contained herein or in any of the other Loan Documents made by Obligor is false, misleading or erroneous in any material respect when made or when deemed to have been made.
(d) Other Debt. The occurrence of any event which results in the ACCELERATION of the maturity of any Debt for borrowed money in an aggregate principal amount in excess of ONE HUNDRED THOUSAND AND 00/100 DOLLARS ($100,000.00) owing by Obligor to any third party under any agreement or understanding.
(e) Insolvency. If Obligor (i) becomes insolvent, or makes a transfer in fraud of creditors, or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts as they become due; (ii) generally is not paying its debts as such debts become due; (iii) has a receiver, trustee or custodian appointed for, or take possession of, all or substantially all of its assets, either in a proceeding brought by it or in a proceeding brought against it and such appointment is not discharged or such possession is not terminated within SIXTY (60) days after the effective date thereof or it consents to or a cquiesces in such appointment or possession; (iv) files a petition for relief under the United States Bankruptcy Code or any other present or future federal or state insolvency, Bankruptcy or similar laws (all of the foregoing hereina fter collectively ca lled “Applicable Bankruptcy Law”) or an involuntary petition for relief is filed against it under any Applicable Bankruptcy Law and such involuntary petition is not dismissed within SIXTY (60) days after the filing thereof, or an order for relief naming it is entered under any Applicable Bankruptcy Law, or any composition, rearrangement, extension, reorganization or other relief of debtors now or hereafter existing is requested or consented to by it; or (v) fails to have discharged within a period of SIXTY (60) days any attachment, sequestration or similar writ levied upon any property of it.
(f) Judgment. The entry of any judgment a gainst Obligor or the issuance or entry of any attachments or other Liens against any of the property of Obligor for an amount in excess of ONE HUNDRED THOUSAND AND 00/100 DOLLARS ($100,000.00) (individually or in the aggregate) if uninsured, undischarged, unbonded or undismissed on the date on which such judgment would be executed upon.
(g) Action Against Collateral. The Collateral or any portion thereof is taken on execution or other process of law in any action.
(h) Change in Control. (i) JOHN STAUSS shall cease to be active in the management of Debtor, or (ii) more than TWENTY-FIVE PERCENT (25.00%) of the record or beneficial ownership of Debtor shall have been transferred, assigned or hypothecated to any Person, when compared to such ownership as of the Effective Date.
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(i) ERISA Default. Any of the following events shall occur or exist with respect to Debtor or any ERISA Affilia te: (i) any prohibited transaction involving any plan; (ii) any reportable event with respect to any plan; (iii) the filing under Section 4041 of ERISA of a notice of intent to terminate any plan or the termination of any pla n; (iv) any event or circumstance that might constitute groundsentitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any plan, or the institution by the PBGC of any such proceedings; or (v) complete or partial withdra wal under Section 4201 or 4204 of ERISA from a multiemployer plan or the reorganization, insolvency, or termination of any multiemployer plan; and in each case above, such event or condition, together with all other events or conditions, if any, have subjected or would in the opinion of Lender in its Permitted Discretion subject Debtor to any tax, penalty, or other lia bility to a plan, a multiemployer plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate exceed or would reasonably be expected to exceed ONE HUNDRED THOUSAND AND 00/100 DOLLARS ($100,000.00).
(j) Death or Incompetence; Dissolution. Obligor that is (i) a natural Person shall have died or have been declared incompetent by a court of proper jurisdiction, or (ii) not a natural Person shall have been dissolved, liquidated, or merged or consolidated with or into any other Person without the prior written consent of Lender, provided, however, the death or legal incapacity of Obligor that is a natural person shall not be an Event of Default if (1) no distributions are made from the deceased or incapacitated Obligor’s estate without the prior written consent of Lender, and (2) within TEN (10) days of the date of the appointment or qua lification of the representative or lega l guardian of Obligor or Obligor’s estate, said representative or legal guardian affirms in writing the obligations of Obligor’s estate with respect to the Indebtedness, which affirmation shall be in form and substance satisfactory to Lender.
(k) Action of Lien Holder. The holder of any Lien or security interest on the Collateral (without hereby implying the consent of Lender to the existence or creation of any such Lien or security interest on the Collateral), declaresa default thereunder or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.
(l) Subordinate Indebtedness. The subordination provisions related to any Subordinate Indebtedness or a ny other agreement, document or instrument governing any Subordinate Indebtedness shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, or any Person sha l contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Indebtedness, for any reason shall not have the priority contemplated by this Agreement or any such subordination provisions.
(m) Material Adverse Effect. Any event shall have occurred or is continuing which sha l have had a Material Adverse Effect.
(n) Loan Documents. (i) The Loan Documents shall at any time after their execution and delivery and for any reason cease (1) to create a valid and perfected first priority security interest (subject to Permitted Encumbrances) in and to the Collateral; or (2) to be in full force and effect or shall be declared nu l and void, or (ii) the validity or enforceability of the Loan Documents shall be contested by Obligor or any other Person party thereto or Obligor shall deny it has any further liability or obligation under the Loan Documents.
Nothing contained in this Agreement shall be construed to limit the events of default enumerated in any of the other Loan Documents and all such events of default shall be cumulative.
12. Remedies and Related Rights. If an Event of Default shall ha ve occurred and be continuing, and without limiting any other rights and remedies provided herein, under any of the Loan Documents or otherwise available to Lender, Lender may exercise one or more of the rights and remedies provided in this Section.
(a) Remedies. Upon the occurrence of any one or more of the foregoing Events of Default, (i) the entire unpaid balance of principal of the Note, together with all accrued but unpaid interest thereon, and all other Indebtedness owing to Lender by Debtor at such time shall, at the option of Lender, become immediately due and payable without further notice, demand, presentation, notice of dishonor, notice of intent to accelerate, notice of acceleration, protest or notice of protest of any kind, all of which are expressly waived by Debtor, and (ii) Lender may, at its option, cease further Advances under the Note (if applicable) and this Agreement; provided, however, concurrently and automatically with the occurrence of an Event of Default under Section 12(e) further advances under the Loan Documents shall automatically cease, the Indebtedness at such time shall, without any action by Lender, become due and payable, without further notice, demand, presentation, notice of dishonor, notice of acceleration, notice of intent to accelerate, protest or notice of protest of any kind, all of which are expressly waived by Debtor. All rights and remedies of Lender set forth in this Agreement and in any of the other Loan Documents may also be exercised by Lender, in its sole discretion, upon the occurrence of an Event of Default, and not in substitution or diminution of any rights now or hereafter held by Lender under the terms of any other agreement.
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(b) Other Remedies. Upon the occurrence of any one or more of the foregoing Events of Default, Lender may from time to time at its discretion, without limita tion and without notice except as expressly provided in any of the Loan Documents:
(i) Exercise in respect of the Collateral all the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral);
(ii) Require Debtor to, and Debtor hereby agrees that it will at its expense and upon request of Lender, assemble the Collateral as directed by Lender and make it available to Lender at a place to be designated by Lender which is reasonably convenient to both parties;
(iii) Reduce its claim to judgment or foreclose or otherwise enforce, in whole or in part, the security interest granted hereunder by any available judicial procedure;
(iv) Sell or otherwise dispose of, at its office, on the premisesof Debtor or elsewhere, the Collateral, as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale or other disposition of any part of the Collateral shall not exhaust Lender’s power of sale, but sales or other dispositions may be made from time to time until a ll of the Collateral has been sold or disposed of or until the Indebtedness has been paid and performed in full), and at any such sale or other disposition it shall not be necessary to exhibit any of the Collateral;
(v) Buy the Collateral, or any portion thereof, at any public sale;
(vi) Buy the Colla teral, or any portion thereof, at any private sale if the Colla teral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations;
(vii) Apply for the appointment of a receiver for the Collateral, and Debtor hereby consents to any such appointment; and
(viii) At its option, retain the Collateral in sa tisfaction of the Indebtedness whenever the circumstances are such that Lender is entitled to do so under the UCC or otherwise.
Debtor agrees that in the event Debtor is entitled to receive any notice under the UCC, as it exists in the state governing any such notice, of the sale or other disposition of any Collateral, reasonable notice shall be deemed given when such notice is deposited in a depository receptacle under the care and custody of the United States Postal Service, postage prepaid, at Debtor’s address set forth on the signature page hereof, TEN (10) days prior to the date of any public sale, or after which a private sale, of any of such Collateral is to be held. Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.
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(c) Securities Issues. Lender recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (collectively, the “Securities Act”) and applicable state securities laws, Lender may be compelled, with respect to any sale of all or any part of the Pledged Equity Interests conducted without prior registration or qualification of such Pledged Equity Interests under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Equity Interests for their own account, for investment and not with a view to the distribution or resale thereof. Debtor acknowledges that any such private sale may be at prices and on terms less favorable than those obtainable through a public sa le without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, Debtor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Lender shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Equity Interests for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. If Lender determines to exercise its right to sell any or all of the Pledged Equity Interests, upon written request, Debtor shall and shall cause each issuer of any Securities to be sold hereunder, each partnership and each limited lia bility company from time to time to furnish to Lender a ll such information as Lender may request in order to determine the number and nature of interest, shares or other instruments included in the Pledged Equity Interests which may be sold by Lender in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. In case of any sale of all or any part of the Pledged Equity Interests on credit or for future delivery, such Collateral so sold may be retained by Lender until the selling price is paid by the purchaser thereof, but Lender shall not incur any liability in case of the failure of such purchaser to take up and pay for such assets so sold and in case of any such failure, such Collateral may again be sold upon like notice. Lender, instead of exercising the power of sale herein conferred upon them, may proceed by a suit or suits at law or in equity to foreclose security interests created hereunder and sell such investment property, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.
(d) Application of Proceeds. If any Event of Default shall have occurred and is continuing, Lender may at its sole discretion apply or use any cash held by Lender as Collateral, and any cash proceeds received by Lender in respect of any sale or other disposition of, collection from, or other realization upon, all or any part of the Collateral as follows in such order and manner as Lender may elect:
(i) to the repayment or reimbursement of the reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred by Lender in connection with (1) the administration of the Loan Documents, (2) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, the Collateral, and (3) the exercise or enforcement of any of the rights and remedies of Lender hereunder;
(ii) to the payment or other satisfaction of any Liens and other encumbrances upon the Colla tera l;
(iii) to the satisfaction of the Indebtedness;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by applicable law; and
(vi) by delivery to Debtor or any other party lawfully entitled to receive such cash or proceeds whether by direction of a court of competent jurisdiction or otherwise.
(e) License. Lender is hereby granted a license or other right to use, following the occurrence and during the continuance of an Event of Default, without charge, Debtor’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, customer lists and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sa le, and selling any Colla teral, and, following the occurrence and during the continuance of an Event of Default, Debtor’s rights under a ll licenses and all franchise agreements shall inure to Lender’s benefit. In addition, Debtor hereby irrevocably agreesthat Lender may, following the occurrence and during the continuance of an Event of Default, sell any of Debtor’s inventory directly to any Person, including without limitation Persons who have previously purchased Debtor’s inventory from Debtor and in connection with any such sale or other enforcement of Lender’s rights under this Agreement, may sell inventory which bears any trademark owned by or licensed to Debtor and any inventory that is covered by any copyright owned by or licensed to Debtor and Lender may finish any work in process and affix any trademark owned by or licensed to Debtor and sell such inventory as provided herein.
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(f) Use and Operation of Collateral. If any Event of Default shall have occurred and is continuing, should any Collateral come into the possession of Lender, Lender may use or operate such Collateral for the purpose of preserving it or its value, pursuant to the order of a court of appropriate jurisdiction or in accordance with any other rights held by Lender in respect of such Collateral. Debtor covenants to promptly reimburse and pay to Lender, at Lender’s request, the amount of all expenses (including the cost of any insurance and payment of taxes or other charges) incurred by Lender in connection with its custody and preservation of the Collateral, shall be payable by Debtor to Lender upon demand and shall become part of the Indebtedness. However, the risk of accidental loss or damage to, or diminution in value of, the Collateral is on Debtor, and Lender shall have no liability whatever for failure to obtain or maintain insurance, nor to determine whether any insurance ever in force is adequate as to amount or as to the risks insured. With respect to the Collateral that is in the possession of Lender, Lender shall have no duty to fix or preserve rights against prior parties to such Collateral and shall never be liable for any failure to use diligence to collect any amount payable in respect of such Colla teral, but shall be lia ble only to account to Debtor for what it may actually collect or receive thereon.
(g) Deficiency. In the event that the proceeds of any sale of, collection from, or other realization upon, all or any part of the Collateral by Lender are insufficient to pay all amounts to which Lender is lega lly entitled, Obligor (unless otherwise provided) shall be lia ble for the deficiency, together with interest thereon as provided in the Loan Documents.
(h) Non-Judicial Remedies. In granting to Lender the power to enforce its rights hereunder without prior judicial process or judicial hearing, Obligor expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Lender to enforce its rights by judicial process. Obligor recognizes and concedes that non-judicial remedies are consistent with the usage of trade, are responsive to commercial necessity and are the result of a bargain at arm’s length.
(i) Use and Possession of Certain Premises. Upon the occurrence of an Event of Default, Lender shall be entitled to occupy and use any premises owned or leased by Debtor where any of the Colla teral or any records rela ting to the Colla teral are located until the Indebtedness is pa id or the Collateral is removed therefrom, whichever first occurs, without any obligation to pay Debtor for such use and occupancy.
(j) Other Recourse. Obligor waives any right to require Lender to proceed against any third party, exhaust any Collateral or other security for the Indebtedness, or to have any third party joined with Debtor in any suit arising out of the Indebtedness or any of the Loan Documents, or pursue any other remedy availa ble to Lender. Obligor further waives any and all notice of acceptance of this Agreement and of the creation, modification, rearrangement, renewal or extension of the Indebtedness. Obligor further wa ives any defense arising by reason of any disability or other defense of any third party or by reason of the cessation from any cause whatsoever of the liability of any third party. Until all of the Indebtedness shall have been paid in full, Obligor shall have no right of subrogation and Obligor waives the right to enforce any remedy which Lender has or may hereafter have against any third party, and waives any benefit of and any right to participate in any other security whatsoever now or hereafter held by Lender. Obligor authorizes Lender, and without notice or demand and without any reservation of rights against Obligor and without affecting Obligor’s liability hereunder or on the Indebtedness to (i) take or hold any other property of any type from any third party as security for the Indebtedness, and exchange, enforce, waive and release any or all of such other property, (ii) apply such other property a nd direct the order or manner of sale thereof as Lender may in its Permitted Discretiondetermine, (iii) renew, extend, accelerate, modify, compromise, settle or release any of the Indebtedness or other security for the Indebtedness, (iv) waive, enforce or modify any of the provisions of any of the Loan Documents executed by any third party, and (v) release or substitute any third party.
| LOAN AND SECURITY AGREEMENT – PAGE 32 |
| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
(k) No Waiver; Cumulative Remedies. No failure on the part of Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by law.
(l) Equitable Relief. Obligor recognizes that in the event Debtor fails to pay, perform, observe, or discharge any or all of the Indebtedness, any remedy at law may prove to be inadequate relief to Lender. Obligor therefore agrees that Lender, if Lender so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.
13. Cross-Collateralization and Cross-Default. Obligor and Lender contemplate that Obligor and Lender have engaged or may, from time to time, engagein various loan transactions and that from time to time other circumstances may arise, in which Obligor becomes obliga ted to Lender, including transactionsof a type that are very different from the transactions evidenced by the Loan Documents, including by notes, advances, overdrafts, bookkeeping entries, guaranty agreements, deeds of trust, or any other method or means (each a “Loan Obligation”). Unless otherwise agreed in writing, Obligor and Lender agree that all such transactions will be secured by the Collateral, and that the Indebtedness arising under this Agreement and the other Loan Documents will be secured by any colla teral granted in connection with such Loan Obligation. Repayment of all Indebtedness and performance of all other obligations under this Agreement by Obligor sha ll not terminate Lender’s security interests in the Colla teral, unless Lender executes a written release. Unless otherwise agreed in writing, if any default occurs under any Loan Obligation, then Lender may declare an Event of Default hereunder and an Event of Default hereunder sha l be a default under such Loan Obliga tion. Lender’s failure to exercise its right of cross-default shall not constitute a waiver by Lender of such right.
14. Indemnity. OBLIGOR SHALL INDEMNIFY LENDER AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS (EACH, AN “INDEMNIFIED PERSON”) FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS’ FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (a) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (b) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (c) ANY BREACH BY OBLIGOR OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (d) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF DEBTOR OR ANY OF ITS SUBSIDIARIES OR ANY OTHER OBLIGATED PARTY, OR (e) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE FOREGOING. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH INDEMNIFIED PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS’ FEES) ARISING OUT OF OR RESULTING FROM THE SOLE CONTRIBUTORY OR ORDINARY NEGLIGENCE OF SUCH PERSON. THE INDEMNIFICATION PROVIDED FOR IN THIS SECTION SHALL NOT EXTEND TO LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS’ FEES) ARISING OUT OF OR RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PERSON. OBLIGOR AGREESTHAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO LENDER’S AGREEMENT TO ENTER INTO THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS. IF OBLIGOR OR ANY THIRD PARTY EVER ALLEGES SUCH GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY ANY INDEMNIFIED PERSON, THE INDEMNIFICATION PROVIDED FOR IN THIS SECTION SHALL NONETHELESS BE PAID UPON DEMAND, SUBJECT TO LATER ADJUSTMENT OR REIMBURSEMENT, UNTIL SUCH TIME AS (A) A COURT OF COMPETENT JURISDICTION ENTERS A FINAL JUDGMENT AS TO THE EXTENT AND EFFECT OF THE ALLEGED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR (B) LENDER HAS EXPRESSLY AGREED IN WRITING WITH OBLIGOR THAT SUCH CLAIM IS PROXIMATELY CAUSED BY SUCH INDEMNIFIED PERSON’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE INDEMNIFICATION PROVIDED FOR IN THIS SECTION SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT AND SHALL EXTEND AND CONTINUE TO BENEFIT EACH INDIVIDUAL OR ENTITY THAT IS OR HAS AT ANY TIME BEEN AN INDEMNIFIED PERSON HEREUNDER.
| LOAN AND SECURITY AGREEMENT – PAGE 33 |
| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
15. Limitation of Liability. Neither Lender nor any officer, director, employee, attorney, or agent of Lender shall have any lia bility with respect to, and Obligor hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by Obligor in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or a ny of the other Loan Documents. Obligor hereby wa ives, releases, and a grees not to sue Lender or any of Lender’s Affilia tes, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. OBLIGOR AGREES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO LENDER’S AGREEMENT TO ENTER INTO THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS.
16. No Duty. All attorneys, accountants, appraisers, and other professional Persons a nd consultants retained by Lender shall have the right to act exclusively in the interest of Lender and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obliga tion of any type or nature whatsoever to Obligor or any of Obligor’s equity holders or any other Person. Documents in connection with the transactions contemplated hereunder have been prepared by Lender’s Counsel. Obligor acknowledges and understands that Lender’s Counsel is acting solely as counsel to Lender in connection with the transaction contemplated herein, is not representing Obligor in connection therewith, and has not, in any manner, undertaken to assist or render legal advice to Obligor with respect to this transaction. Obligor has been advised to seek other legal counsel to represent Obligor’s interests in connection with the transactions contemplated herein.
17. Lender not Fiduciary. The relationship between Obligor and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Obligor, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between Obligor and Lender to be other than that of debtor and creditor.
18. Waiver andAgreement. No waiver of any provision in this Agreement or in any of the other Loan Documents and no departure by Obligor therefrom shall be effective unless the same shall be in writing and signed by Lender, and then shall be effective only in the specific instance and for the purpose for which given and to the extent specified in such writing. No modification or amendment to this Agreement or to any of the other Loan Documents shall be valid or effective unless the same is signed by the partyagainst whom it is sought to be enforced.
19. Benefits. This Agreement shall be binding upon and inure to the benefit of Lender and Obligor, and their respective heirs, personal representatives, successors and assigns, provided, however, that Obligor maynot, without the prior written consent of Lender, assign any rights, powers, duties or obligations under this Agreement or any of the other Loan Documents.
20. Notices. All notices or other communications required or permitted to be given pursuant to this Agreement or the other Loan Documents (unless otherwise expressly stated therein) shall be in writing and sha l be considered as properly given if (a) mailed by first class United States mail, postage prepaid, registered or certified with return receipt requested, (b) by delivering same in person to the intended addressee, or (c) by delivery to an independent third party commercial delivery service for same day or next day delivery and providing for evidence of receipt at the office of the intended addressee. Notice so mailed shall be effective upon its deposit with the United States Postal Service or any successor thereto; notice sent by such a commercial delivery service shall be effective upon delivery to such commercial delivery service; notice given by personal delivery shall be effective only if and when received by the addressee; and notice given by other means shall be effective only if and when received at the office or designated place or machine of the intended addressee. For purposes of notice, the addresses of the parties shall be as set forth herein; provided, however, that a ny party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving notice to the other parties in the manner set forth herein.
| LOAN AND SECURITY AGREEMENT – PAGE 34 |
| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
21. Construction; Venue; Service of Process. THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION OR PROCEEDING AGAINST OBLIGOR UNDER OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT WITHIN THE COUNTY OF NEW CASTLE, DELAWARE (THE “VENUESITE”). OBLIGOR HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. OBLIGOR AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. NOTHING IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST OBLIGOR OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY OBLIGOR AGAINST LENDER SHALL BE BROUGHT ONLY IN A COURT LOCATED IN THE VENUE SITE. OBLIGOR AGREES THAT THE VENUE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO LENDER’S AGREEMENT TO ENTER INTO THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS AND LENDER WOULD NOT ENTER INTO SUCH TRANSACTIONS EXCEPT IN RELIANCE ON THE VENUE PROVISIONS SET FORTH HEREIN.
22. Invalid Provisions. If any provision of the Loan Documents is held to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of the Loan Documents shall remain in full force and effect and shall not be affected by the illega l, inva lid or unenforceable provision or by its severance.
23. Expenses. Debtor shall pay all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees) in connection with (a) the drafting and execution of the Loan Documents and the transactions contemplated therein, (b) any action required in the course of administration of the Indebtedness and obligations evidenced by the Loan Documents, and (c) any action in the enforcement of Lender’s rights upon the occurrence of an Event of Default.
24. Sale, Pledge or Participation of the Loan. Obligor agrees that Lender may, at its option, sell, pledge or participate its interests in the Loanand its rights under this Agreement to a financial institution or institutions and, in connection with each such sale, pledge or participation Lender may disclose any financial and other information available to Lender concerning Obligor to any Person party to such transaction subject to obtaining a confidentiality agreement with each such Person prior to disclosing Obligor’s confidential information.
25. Conflicts. Except as otherwise expressly provided in the Note, in the event any term or provision of this Agreement is inconsistent with or conflicts with any provision of the other Loan Documents, the terms and provisions contained in this Agreement shall be controlling. The terms, conditions and provisions of the other Loan Documents (as the same may be amended, modified or restated from time to time) are incorporated herein by reference, the same as if stated verbatim herein.
26. Multiple Counterparts. The Loan Documents may be executed in a number of identical separate counterparts, each of which for all purposes is to be deemed an original, but all of which shall constitute, collectively, one agreement. Signature pages to Loan Documents may be detached from multiple separate counterparts and attached to the same document and a telecopy, pdf. or other facsimile of any such executed signature page sha l be va lid as an origina l. The exchange of copies of the Loan Documents and of signa ture pages by telecopy, pdf. or other facsimile transmission shall constitute effective execution and delivery of the Loan Documents as to the parties thereto and may be used in lieu of the original agreement for all purposes. The Loan Documents may be in the form of an Electronic Record and may be executed using Electronic Signatures (including, without limitation, facsimile and .pdf) which shall be deemed to have the same force and effect as manual signatures and shall be considered an original, and shall have the same legal effect, validity, and enforceability as a paper record. For purposes hereof, “Electronic Record” a nd “Electronic Signature” shall have the meanings assigned to them, respectively, by 15 USC §7006, as it may be amended from time to time.
| LOAN AND SECURITY AGREEMENT – PAGE 35 |
| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
27. Survival. All representations and warranties made in the Loan Documents or in any document, statement, or certificate furnished in connection with this Agreement shall survive the execution and delivery of the Loan Documents, and no investigation by Lender or anyclosing shall affect the representations and warranties or the right of Lender to rely upon them.
28. Construction. Obligor and Lender acknowledge that they had the opportunity to consult with legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel of its own choice and that this Agreement and the other Loan Documents sha l be construed as if jointly drafted by Obligor and Lender.
29. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default if such action is taken or such condition exists.
30. Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, OBLIGOR AND LENDER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY ORIN WRITING (OTHER THAN BY A MUTUAL WRITTENWAIVER SPECIFICALLY REFERRING TO THIS SECTION AND EXECUTED BY EACH PARTY HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
31. Patriot Act Notice. Lender hereby notifies Obligor that pursuant to the requirements of Section 326 of the USA Patriot Act of 2001, 31 U.S.C. § 5318 (the “Act”), it is required to obtain, verify and record information that identifies Obligor, which information includes the name and address of Obligor and other information that wi l allow Lender to identify Obligor in accordance with the Act.
32. Notice of Right to Receive a Copy of Appraisal. If the Indebtedness is secured by a Lien in real property, Debtor has a right to receive a copy of the appraisal report used in connection with the Loan. If Debtor would like to receive a copy, Debtor must contact Lender at the address set forth herein and request a copy of the appraisal report. Lender must receive such a request from Debtor no later than NINETY (90) days after the Effective Da te.
33. Notice of Balloon Payment. At maturity (whether by acceleration or otherwise), Debtor must repay the entire principal balance of Loan and unpaid interest then due. Lender is under no obligation to refinance the outstanding principal balance of Loan (if any) at that time. Debtor will, therefore, be required to make payment out of other assets Debtor may own; or Debtor will have to find a lender willing to lend Debtor the money at prevailing market rates, which may be higher than the interest rate on the outstanding principal balance of the Loan. If Obligor have guaranteed payment of the Loan, Obligor may be required to perform under such guaranty.
| LOAN AND SECURITY AGREEMENT – PAGE 36 |
| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
34. Additional Interest Provision. It is expressly stipulated and agreed to be the intent of Debtor and Lender at all times to comply strictly with the applicable law governing the maximum rate or amount of interest payable on the indebtednessevidenced by any Note, any Loan Document, and the Related Indebtedness (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under applicable law). If the applicable law is ever judicially interpreted so as to render usurious any amount (a) contracted for, charged, taken, reserved or received pursuant to any Note, any of the other Loan Documents or any other communication or writing by or between Debtor and Lender related to the transaction or transactions that are the subject matter of the Loan Documents, (b) contracted for, charged, taken, reserved or received by reason of Lender’s exercise of the option to accelerate the maturity of any Note and/or any and a l indebtedness paid or payable by Debtor to Lender pursuant to any Loan Document other than any Note (such other indebtedness being referred to in this Section as the “Related Indebtedness”), or (c) Debtor will have paid or Lender will have received by reason of a ny voluntary prepayment by Debtor of any Note and/or the Related Indebtedness, then it is Debtor’s and Lender’s express intent that all amounts charged in excess of the Maximum Rate sha l be automatically canceled, ab initio, and all amounts in excess of the Maximum Rate theretofore collected by Lender shall be credited on the principal balance of any Note and/or the Related Indebtedness (or, if any Note and all Related Indebtedness have been or would thereby be paid in full, refunded to Debtor), and the provisions of any Note and the other Loan Documents shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessityof the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder; provided, however, if any Note or Related Indebtedness has been paid in full before the end of the stated term thereof, then Debtor a nd Lender agree that Lender shall, with reasonable promptness after Lender discovers or is advised by Debtor that interest was received in an amount in excess of the Maximum Rate, either refund such excess interest to Debtor and/or credit such excessinterest against such Note and/or any Related Indebtedness then owing by Debtor to Lender. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not theintention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.
35. Tax Information. Obligor understands and agrees that Lender may obtain, use a nd share Obligor’s state and federal tax return information for purposes of: (a) reviewing and responding to the Loan application; (b) originating the Loan; (c) servicing the Loan; (d) selling or transferring all or a part of the Loan or any interest in it; and (e) interna l marketing analysis, marketing to Obligor, and other marketing as permitted by law. Obligor understands to accomplish these purposes Lender may need to share this information with third parties, including loan servicers, actual or potential purchasers or investors in loans, government agency loan guarantors, mortgage insurers, marketing companies, and others, depending on the type of Loan applied for, and Obligor agrees to such information sharing for these purposes on Obligor’s behalf. For the purpose of this consent to sharing tax return information, Lender and third parties includes the affiliates, agents, and any successors or assigns of Lender and third parties.
36. Document Retention Policy. Obligor expressly acknowledges, understands and agrees that Lender’s document retention policy involves the imaging of the Loan Documents and the destruction of the paper originals thereof. In connection therewith, Obligor hereby waives any and all rights Obligor has or may have to claim, for any and all purposes whatsoever, that the imaged copies of the Loan Documents are not originals thereof.
37. Notice of Final Agreement. It is the intention of Obligor and Lender that the following NOTICE OF FINAL AGREEMENT be incorporated by reference into each of the Loan Documents (as the same may be amended, modified or restated from time to time). Obligor and Lender warrant and represent that the entire agreement made and existing by or among Obligor and Lender with respect to the Loan is and shall be contained within the Loan Documents, and that no agreements or promises exist or shall exist by or among, Obligor and Lender that are not reflected in the Loan Documents. By execution and delivery of this Agreement, Obligor acknowledges that Obligor has received a copy of this NOTICE OF FINAL AGREEMENT.
| LOAN AND SECURITY AGREEMENT – PAGE 37 |
| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
NOTICE OF FINAL AGREEMENT
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
| LOAN AND SECURITY AGREEMENT – PAGE 38 |
| ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION |
AGREED as of the Effective Date.
| LENDER: | ADDRESS: | ||
| ALTRIARCH HOLDINGS SPV, LLC, | 177 Meeting Street, Suite 230 | ||
| a Dela ware limited partnership | Charleston, SC 29401 | ||
| By: | Altria rch Commercial Finance, Inc., | ||
| a Delaware corporation, | |||
| its Manager | |||
| By: | /s/ Danielle Brown | ||
| Name: | Danielle Brown | ||
| Title: | CEO | ||
| With copies of notices to “Lender’s Counsel”: | HUSCH BLACKWELL LLP | ||
| 600 Travis St., Suite 2350 | |||
| Houston, TX 77002 | |||
| Attention: Reuben Rosof | |||
LOAN AND SECURITY AGREEMENT - SIGNATURE PAGE
ALTRlARCH HOLDINGS SPY LLC - ZIRCON CORPORATION
| DEBTOR: | ADDRESS: | ||
| ZIRCON CORPORATION, | 1580 Dell Avenue | ||
| a California corporation | Campbell, CA 95008 | ||
| By: | /s/ John Stauss | ||
| Name: | John Stauss | ||
| Title: | Chief Executive Officer | ||
| ADDRESS: | |||
| ZRCN INC. | 1580 Dell Avenue | ||
| a Delaware corporation | Campbell, CA 95008 | ||
| By: | /s/ John Stauss | ||
| Name: | John Stauss | ||
| Title: | Chief Executive Officer | ||
LOAN AND SECURITY AGREEMENT - SIGNATURE PAGE
ALTRlARCH HOLDINGS SPY LLC - ZIRCON CORPORATION
DISCLOSURE SCHEDULES
This disclosure schedule (“Disclosure Schedule”) is being delivered pursuant to that certain Loan and Security Agreement, dated as of March 17, 2026 (the “Agreement”), by and ALTRIARCH HOLDINGS SPV, LLC, a Delaware limited liability company (together with its successors and assigns, “Lender”), ZIRCON CORPORATION, a California corporation (“Zircon”) and ZRCN INC. a Delaware corporation (“ZRCN” and together with Zircon, jointly and severally, “Debtor”).
This Disclosure Schedule has been arranged in sections corresponding to each applicable section of the Agreement. Terms used but not defined herein shall have the meanings given to them in the Agreement. The inclusion of any specific item in this Disclosure Schedule is not intended to vary the definition of “Material Adverse Effect” or to imply that the item so included or other items are or are not material.
Each section of this Disclosure Schedule is qualified in its entirety by reference to specific provisions of the Agreement and does not constitute, and shall not be construed as constituting, representations, warranties or covenants of any party, except as and to the extent provided in the Agreement.
All attachments to this Disclosure Schedule are incorporated by reference into the Section of this Disclosure Schedule in which they are referenced.
Headings and subheadings in this Disclosure Schedule (other than references to sections and subsections of the Agreement) are for convenience or reference only and shall not be deemed to expand or limit the scope of the information required to be disclosed in this Disclosure Schedule, to expand or limit the effect of the disclosures contained in this Disclosure Schedule or to otherwise affect the interpretation of the Agreement or this Disclosure Schedule.
Schedule I
Location of Collateral
| Location ID | Address | City | State | Country | ||||
| ZDM | Iturbide 424 Colonia Obrera | Enseneda | Baja California | Mexico | ||||
| UPS-US | N/A | |||||||
| 20 | Old UPS 3PL | San Diego | California | United States | ||||
| ROMPA | 22-26A Austin Ave | Tsimshatsui | N/A | Hong Kong, P.R.C. | ||||
| PACE | The Sanlain Industrial
Park |
Hershan City | N/A | P.R.C. | ||||
| UPS-CA | 4150 Mainway Rd. | Burlington | Ontario | Canada | ||||
| Campbell | 1580 Dell Ave | Campbell | California | United States | ||||
| Europe | VOLASTRAAT 20 | NUMANSDORP | N/A | Netherlands | ||||
| ZUK | Unit 50 Boston Road | Beaumont Leys | N/A | United Kingdon |
Equity Interest
| Company | Shareholder Name | Shares Held | Ownership % | |||||||
| ZRCN Inc. | STAUSS FAMILY ADMINISTRATIVE TRUST | 3,990,133 | 38.4 | % | ||||||
| ERIC STAUSS | 1,773,393 | 17.1 | % | |||||||
| KURT STAUSS | 1,773,393 | 17.1 | % | |||||||
| ROBERT WYLER | 1,330,045 | 12.8 | % | |||||||
| Owned by various minority shareholders | 1,518,959 | 14.6 | % | |||||||
| Zircon Corporation | ZRCN, Inc. | Wholly- owned sub | ||||||||
| Zircon de Mexico, S.A. De C.V. | John Stauss | 334 | 33.4 | % | ||||||
| Eric Stauss | 333 | 33.3 | % | |||||||
| Kurt Stauss | 333 | 33.3 | % | |||||||
| Zircon Corporation Limited | John Stauss | 45 | 45.0 | % | ||||||
| Eric Stauss | 20 | 20.0 | % | |||||||
| Kurt Stauss | 20 | 20.0 | % | |||||||
| Robert Wyler | 15 | 15.0 | % | |||||||
LOAN AND SECURITY AGREEMENT - SIGNATURE PAGE
ALTRlARCH HOLDINGS SPY LLC - ZIRCON CORPORATION
Intellectual Property
A copy of the Intellectual Property Spreadsheet was sent by Debtor’s Counsel to Lender on March 13, 2026
LOAN AND SECURITY AGREEMENT - SIGNATURE PAGE
ALTRlARCH HOLDINGS SPY LLC - ZIRCON CORPORATION
Deposit, Commodity, and Securities Accounts
| Zircon Corporation – Cash Bank Accounts | ||||
Account Number | Description | Customer Receipt Account Yes/No | ||
| 1-10010 | CASH IN BANKS | No | ||
| 1-10011 | CHASE – AP 613005381 | No | ||
| 1-10014 | CHASE – INTERNET SALE 613005530 | Yes | ||
| 1-10017 | CHASE – TARIFFS AND DUTIES AC 613005506 | No | ||
| 1-10018 | CHASE – SH CAPITAL AC 689796988 | No | ||
| 1-10019 | CHASE – CUSTOMER DEPOSIT 613005399 | Yes | ||
| 1-10020 | CHASE – FG FUNDING 613005522 | No | ||
| 1-10021 | CHASE – PAYROLL 613005555 | No | ||
Letter of Credit Rights
None.
LOAN AND SECURITY AGREEMENT - SIGNATURE PAGE
ALTRlARCH HOLDINGS SPY LLC - ZIRCON CORPORATION
Schedule II
Existing Liens
Liens granted to FGI under existing loan documents but only to the extent released at closing of the Loan.
Financing on leased vehicle used by manager of Zircon de Mexico S.A. De C.V.
LOAN AND SECURITY AGREEMENT - SIGNATURE PAGE
ALTRlARCH HOLDINGS SPY LLC - ZIRCON CORPORATION
SCHEDULE 6(a)
CHANGES TO NAME, JURISDICTION OF ORGANIZATION, PRINCIPAL PLACE OF BUSINESS, CHIEF EXECUTIVE OFFICE, OR CORPORATE STRUCTURE WITHIN PAST FIVE YEARS
On April 14, 2023, Zircon effectuated a merger and reorganization with ZRCN. The combination of ZRCN and Zircon was effectuated through a merger (the “Merger”) whereby a merger subwas merged with and into Zirconand Zircon became a wholly-owned subsidiary of ZRCN. Upon completion of the Merger, ZRCN changed its name to ZRCN, Inc. and all operations of ZRCN moved to Zircon’s corporate offices.
LOAN AND SECURITY AGREEMENT - SIGNATURE PAGE
ALTRlARCH HOLDINGS SPY LLC - ZIRCON CORPORATION
SCHEDULE 6(j)
EXISTING DEFAULTS
On April 30, 2025, the Debtor received a Notice of Default on its Revolving Credit, Security, and Guaranty Agreement (the “Credit Agreement”) with FGI Worldwide LLC (the “Lender”) as a result of being non-compliant with its Fixed Cost Coverage Ratio covenant (as defined in the Credit Agreement) and one additional non-financial covenant and failing to cure the non-compliance (collectively, the “Existing Defaults”). The Existing Defaults are primarily due to reduced revenues and duties incurred on products imported from China..
On July 15, 2025, the Debtor entered into a forbearance agreement a nd first amendment to Credit Agreement (the “Forbearance Agreement”) with the Lenderamending, modifying and otherwise affecting the Credit Agreement. Pursua nt to the Forbearance Agreement, the Agent has agreed to forbear from exercising a ny of its rights and remedies arising under the Credit Agreement and applicable law as a result of the occurrence and continuance of certain specified existing events of default until the earlier of (a) February 28, 2026 and (b) the date on which any Termination Event (as defined in the Forbearance Agreement) occurs (the “Forbearance Period”). The Forbearance Agreement, among other things: (i) permits the Company to not comply with its Fixed Cost Coverage Ratio covenant until the end of the Forbearance Period, (ii) increases the Revolving Interest Rate (as defined in the Credit Agreement) from 3.0% to 3.3%, (iii) increases the Management Fee (as defined in the Credit Agreement) from 0.2% to 0.3%, (iv) requires the Company to prepare and deliver to Agent a budget on a weekly basis, (v) requires the Company to enter into a payment plan with its Key Supplier (as defined in the Forbearance Agreement), (vi) requires the Company to maintain certain minimum consolidated EBITDA through the Forbearance Period, (vii) requires the Company to use commercially reasonable efforts to contribute $2,000,000 to the capital of Zircon on or prior to February 28, 2026, which amounts shall be held in a Blocked Account (as defined in the Credit Agreement), and (viii) requires Zircon to engage the services of a third party consultant to advise on all aspects of the business, operations and properties of the Company and Zircon within 21 days of the date of execution of the Forbearance Agreement.
On September 17, 2025, the Debtor received a Notice of Default under the Credit Agreement as a result of its failure to satisfy the EBITDA Covenant.
On October 21, 2025, the Company entered into a second forbearance agreement and second amendment to the Credit Agreement (the “Second Forbearance Agreement”) with FGI amending, modifying and otherwise affecting that certain Credit Agreement, dated May 31, 2024. One of the primary requirements of this second forbearance agreement is for the Company to engage an Investment Banker to work with the management of the Company to coordinate a nd conduct all aspects of pursuing investments in the Company’s business or the sales of a l or part of the Company or its assets.
On November 7, 2025 the Company and FGI extended the Second Forbearance Agreement from November 7, 2025 to November 14, 2025 and on November 14, 2025 further extended the Second Forbearance Agreement to November 21, 2025.
On November 24, 2025, the Company entered into a third forbearance agreement and second amendment to the Credit Agreement (the “Third Forbearance Agreement”) with FGI amending, modifying and otherwise affecting that certain Credit Agreement, dated May 31, 2024. One of the primary requirements of this Third Forbearance Agreement is for the Company to prepare a nd management to review (including the Chief Restructuring Officer) and approve a rolling 13-week cash flow forecast for the benefit of the FGI agent (as defined in the Credit Agreement). Additionally, on or prior to February 13, 2026, Loan Parties shall have delivered to Agent a draft Term Sheet in connection with a Financing Transaction, in form and substance satisfactory to Agent, which must include a funding amount sufficient for Loan Parties to make a Payment in Full of the Obligations to FGI on or before March 31, 2026, executed by the prospective party planning to enter into the Financing Transaction. Additionally, on or prior to February 23, 2026, the Loan Parties shall have executed and delivered to Agent a binding Term Sheet and/or commitment letter in form and substance satisfactory to Agent, which must include a funding amount sufficient for the Loan Parties to make Payment in Full of the Obligations on or before March 31, 2026; As part of this paydown the Loan Parties will make an additional early termination payment of $225,000 as per the Credit Agreement.
As of the date hereof, the Lender has not: (i) accelerated or demanded any payment; (ii) applied interestunder the Credit Agreement at the default rate; (iii) foreclosed on all or any part of any lien or security interest created by any of the loan documents; and (iv) exercised any other right or remedy that may be available to it. The Company has no assurance that the Lender will not seek to enforce its rights in the future.
SCHEDULE 6(cc)
EQUITY SECURITIES PERMITTED TO ISSUE
NUMBER OF SHARES OUTSTANDING: 10,385,923
NUMBER OF SHARES ISSUABLE UPON EXERCISE OF WARRANTS: 217,184 NUMBER OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS:3,146,500
Warrants Outstanding:
| Number | Name | Issue Date | Category | Number | Term (yrs) | Expiration | Strike Price | |||||||||||||
| A-0001 | Douglas Rogers | 4/14/2024 | Comp-in-Lieu | 169,608 | 10 | 4/14/2034 | $ | 0.20 | ||||||||||||
| A-0002 | Pickwick Capital Partners | 4/14/2024 | Comp-in-Lieu | 29,931 | 10 | 4/14/2034 | $ | 0.20 | ||||||||||||
| A-0003 | Law Office of Laura Anthony | 4/14/2024 | Comp-in-Lieu | 12,500 | 10 | 4/14/2034 | $ | 0.20 | ||||||||||||
| A-0004 | Deming Huang | 4/14/2024 | Comp-in-Lieu | 3,370 | 10 | 4/14/2034 | $ | 0.20 | ||||||||||||
| z | Nick Zeng | 2/5/2021 | Private Placement | 1,775 | 10 | 2/5/2031 | $ | 5.00 | ||||||||||||
| Total | 217,184 | |||||||||||||||||||
Stock Option Outstanding:
| Option # | Grantee | Type | # options | Exercise Price | Grant | Term (years) | ||||||||||
| 1 | Shortt, Robert A. | ISO | 100,000 | 0.88 | 05/01/24 | 5 | ||||||||||
| 2 | Parsons, Jeffrey | ISO | 100,000 | 0.88 | 07/17/24 | 5 | ||||||||||
| 3 | Lim, Jennifer | ISO | 50,000 | 0.88 | 08/01/24 | 5 | ||||||||||
| 4 | Bronson, Joseph R. | NSO | 48,000 | 0.88 | 08/14/24 | 5 | ||||||||||
| 5 | McDowell, Ryan | ISO | 25,000 | 0.88 | 10/01/24 | 5 | ||||||||||
| 6 | Wong, Brian P. | NSO | 48,000 | 0.88 | 10/07/24 | 5 | ||||||||||
| 7 | Graebner, Linda | NSO | 48,000 | 0.88 | 10/18/24 | 5 | ||||||||||
| 8 | Bourque, Ronald | ISO | 655,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 9 | Cortez, Jane V. | ISO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 10 | Eng, Steven R. | ISO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 11 | Gee, Amy Shannon | ISO | 120,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 12 | Hamid, Abdul | ISO | 40,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 13 | Hein, Susette A. | ISO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 14 | Hernandez, Robert D. | ISO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 16 | Johnston, Travis | ISO | 30,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 17 | Kapp, Micaela G. | ISO | 30,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 18 | Keliihanapule, Mark | ISO | 35,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 19 | Lalka, Nitin M. | ISO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 20 | Mangano, Frank Joseph | ISO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 21 | Montero, Alejandro | ISO | 15,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 22 | Montero, Pablo | ISO | 40,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 23 | Orozco Cardenas, Jose Manuel | ISO | 25,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 24 | Rascov, Joshua P. | ISO | 15,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 25 | Schwarzenbach, Steven | ISO | 40,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 26 | Shore, Terrance | ISO | 30,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 27 | Stauss, Eric C. | ISO | 35,000 | 0.83 | 01/31/25 | 5 | ||||||||||
| 28 | Stauss, James M. | ISO | 15,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 29 | Stauss, John | ISO | 458,000 | 0.83 | 01/31/25 | 5 | ||||||||||
| 30 | Stauss, Luis B. | ISO | 16,500 | 0.83 | 01/31/25 | 5 | ||||||||||
| 31 | Tapia, Dawn | ISO | 35,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 32 | Tran, Anh T. | ISO | 15,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 33 | Tsugaya, Miyuki | ISO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 34 | Valencia, J. Jesus | ISO | 75,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 35 | Yee, Alanna | ISO | 35,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 36 | Wyler, Robert | ISO | 478,000 | 0.83 | 01/31/25 | 5 | ||||||||||
| 37 | Fisher, Connie | NSO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 38 | Ballou, Daniel | NSO | 10,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 41 | Rico, Gary | NSO | 30,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 44 | Stauss, Kurt | NSO | 15,000 | 0.83 | 01/31/25 | 5 | ||||||||||
| 45 | Camacho, Renato | NSO | 15,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 46 | Diaz, Claudia | NSO | 30,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 47 | Flemate, Yahara | NSO | 15,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 48 | Garcia, Evelia | NSO | 10,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 49 | Gonzalez, Lizeth | NSO | 25,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 50 | Gorosave Jordan, Jose | NSO | 15,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 51 | Hernandez, Marco Vinicio | NSO | 35,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 52 | Martinez, Auturo | NSO | 15,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 53 | Pazos, Isela Rosa | NSO | 35,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 54 | Prieto, Jose | NSO | 25,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 55 | Rodriguez, Israel | NSO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 56 | Villalobos, Marina | NSO | 20,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| 57 | Zuniga, Salvador | NSO | 15,000 | 0.75 | 01/31/25 | 5 | ||||||||||
| Total | 3,146,500 | |||||||||||||||
SCHEDULE III
EXISTING INDEBTEDNESS
Lender | Payor | Balance | Undrawn Commitments | Guarantees | Liens | |||||||
| FGI Worldwide LLC | Zircon Corporation | $ | 6,530,943.15 | none | none | All assets | ||||||
| Zircon de Mexico, S.A. De C.V. | Zircon Corporation | $ | 800,000.00 | none | none | none | ||||||
| The Stauss Family Administrative Trust | Zircon Corporation | $ | 667,229.88 | none | none | none | ||||||
| Nan Du | Zircon Corporation | $ | 122,769.00 | none | none | none | ||||||
Notes:
The FGI Worldwide LLC debt will be paid off in full at closing.
Zircon De Mexico, S.A. De C.V. and The Stauss Family Administrative Trust are Subordinate Indebtedness
LOAN AND SECURITY AGREEMENT – SCHEDULE II
ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION
EXHIBIT A
TO
LOAN AND SECURITY AGREEMENT
BORROWING BASE CERTIFICATE
DATE: ______________________
RE: LOAN AND SECURITY AGREEMENT (as amended, modified or restated from time to time, the “Agreement”) dated as of MARCH 17, 2026, between ((a ) ALTRIARCH HOLDINGS SPV, LLC, a Delaware limited lia bility company(together with its successors and assigns, “Lender”), (b) ) (i) ZIRCON CORPORATION, a Ca lifornia corporation (“Zircon”) and (ii) ZRCN INC. a Delaware corporation (“ZRCN” and together with Zircon, jointly and severally, “Debtor”). This Borrowing Base Certificate is delivered under the Agreement. Capitalized terms used in this Borrowing Base Certificate shall, unless otherwise indicated, have the meanings set forth in the Agreement.
1. Certification. Responsible Officer hereby certifies to Lender as of the date hereof that (a ) such Responsible Officer is the ____________of Debtor, and that, as such, such Responsible Officer is authorized to execute and deliver this Certificate to Lender on behalf of Debtor, (b) no Default has occurred and is continuing, (c) a review of the activities of Debtor during period subject to this Borrowing Base Certificate has been made under the supervision of Responsible Officer with a view to determining the amount of the current Borrowing Base, (d) the inventory and accounts included in the Borrowing Base below meet all conditions to qualify for inclusion therein as set forth in the Agreement, and all representations and warranties set forth in the Agreement with respect thereto are true and correct in a ll ma terial respects, and (e) the information set forth below hereto is true and correct as of the last day of the Subject Date.
2. Borrowing Base. Debtor represents to Lender that the following information regarding the Borrowing Base is true and correct as of _____________ (the “Subject Date”):
INSERT BORROWING BASE
3. Binding Nature. The Loan Documents are acknowledged, ratified, confirmed, and agreed by Debtor to be valid, subsisting, and binding obligations. Debtor agrees that there is no right to set off or defense to payment of the Indebtedness.
EXECUTED as of the date first written above.
DEBTOR:
| ZIRCON CORPORATION, | ||
| a California corporation | ||
| By: | ||
| Name: | John Stauss | |
| Title: | Chief Executive Officer | |
| ZRCN INC. | ||
| a Delaware corporation | ||
| By: | ||
| Name: | John Stauss | |
| Title: | Chief Executive Officer | |
LOAN AND SECURITY AGREEMENT – EXHIBIT A
ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION
EXHIBIT B
TO
LOAN AND SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
DATE: _________________
RE: LOAN AND SECURITY AGREEMENT (as amended, modified or restated from time to time, the “Agreement”) dated as of MARCH 17, 2026 between (a) ALTRIARCH HOLDINGS SPV, LLC, a Delaware limited lia bility company(together with its successors and assigns, “Lender”), (b) ) (i) ZIRCON CORPORATION, a Ca lifornia corporation (“Zircon”) and (ii) ZRCN INC. a Delaware corporation (“ZRCN” and together with Zircon, jointly and severally, “Debtor”).
| Check One | Section Reference | Subject Period | ||
| Section 9(a) – Monthly Progress Statements | ||||
| Section 9(b) – Annual Fina ncia l Statements |
This Complia nce Certificate is delivered under the Agreement. Capitalized terms used in this Compliance Certificate shall, unless otherwise indicated, have the meanings set forth in the Agreement. Responsible Officer hereby certifies to Lender as of the date hereof that: (a) such Responsible Officer is the of Debtor, and that, as such, Responsible Officer is authorized to execute and deliver this Compliance Certificate to Lender on behalf of Debtor; (b) such Responsible Officer has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under such Responsible Officer’s supervision, a detailed review of the transactions and condition (financial or otherwise) of Debtor during the Subject Period; (c) during the Subject Period, Debtor performed and observed each covenant a nd condition of the Loan Documents applicable to it and no Default currently exists or has occurred which has not been cured or waived by Lender (except as may be set forth on Exhibit I attached hereto); (d) the representations and warranties of Debtor contained in the Agreement, and any representations and warranties of Debtor that are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date; (e) the fina ncial sta tements of Debtor attached to this Compliance Certificate were prepared in accordance with GAAP, and present, on a consolidated basis, fairly and accurately the financial condition and results of operations of Debtor and its Subsidiaries as of the end of and for the Subject Period; and (f) the financial covenant analyses as set forth on Exhibit II and information set forth below are true and accurate on and as of the date of this Compliance Certificate.
| DEBTOR: | ||
| ZIRCON CORPORATION, | ||
| a California corporation | ||
| By: | ||
| Name: | John Stauss | |
| Title: | Chief Executive Officer | |
| ZRCN INC. | ||
| a Delaware corporation | ||
| By: | ||
| Name: | John Stauss | |
| Title: | Chief Executive Officer | |
LOAN AND SECURITY AGREEMENT – EXHIBIT B
ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION
EXHIBIT I
DEFAULT
LOAN AND SECURITY AGREEMENT – EXHIBIT I TO EXHIBIT B
ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION
EXHIBIT II
FINANCIAL COVENANTS
LOAN AND SECURITY AGREEMENT – EXHIBIT II TO EXHIBIT B
EXHIBIT B ALTRIARCH HOLDINGS SPV LLC – ZIRCON CORPORATION
Exhibit 10.6
September 9, 2026
ZIRCON CORPORATION
1580 Dell Avenue
Campbell, CA 95008 Attention: John Stauss
ZRCN INC.
1580 Dell Avenue
Campbell, CA 95008 Attention: John Stauss
Re: LOAN AND SECURITY AGREEMENT (as amended, modified or restated from time to time, this “Agreement”) dated as of MARCH 17, 2026 by and between (a) ALTRIARCH HOLDINGS SPV, LLC, a Delaware limited liability company (together with its successors and assigns, “Lender”), and (b) (i) ZIRCON CORPORATION, a California corporation (“Zircon”) and (ii) ZRCN INC., a Delaware corporation (“ZRCN” and together with Zircon, jointly and severally, “Debtor”). All terms not otherwise defined herein shall have the meaning set forth in the Agreement.
Dear Sirs:
This letter is sent by Lender. Section 9(b) of the Agreement requires Debtor to furnish to Lender, as soon as available and in any event within NINETY (90) calendar days after the end of each fiscal year, financial statements on an accrual basis to include a balance sheet, income statement and cash flow statement of Debtor (on a consolidated and consolidating basis) as of the end of such fiscal year, audited by independent certified public accountants of recognized standing satisfactory to Lender. Section 9(d) of the Agreement requires Debtor to furnish, concurrently with the delivery of such financial statements, a certificate of a Responsible Officer of Debtor as described therein (a “Compliance Certificate”).
Debtor has advised Lender that the audit of Debtor’s financial statements for the fiscal year ended MARCH 31, 2026, was not completed by, and that such audited financial statements and the related Compliance Certificate were not furnished to Lender on or before, JUNE 30, 2026 (being NINETY (90) calendar days after the end of such fiscal year), as required by Sections 9(b) and 9(d) of the Agreement (the “Specified Default”).
Waiver. Subject to the terms and conditions of this letter, Lender hereby waives the Specified Default and any Default or Event of Default that has arisen or may arise under the Agreement as a result thereof. This waiver is a one-time waiver, is limited solely to the Specified Default, and, in accordance with Section 18 of the Agreement, is effective only in the specific instance and for the purpose for which it is given and to the extent expressly specified herein. For the avoidance of doubt, this letter does not constitute, and shall not be deemed to constitute, notice from Lender to Obligor under Section 11(b) of the Agreement with respect to the Specified Default.
Delivery of Financial Statements. Debtor shall furnish to Lender the audited financial statements required by Section 9(b) of the Agreement and the related Compliance Certificate required by Section 9(d) of the Agreement, in each case for the fiscal year ended MARCH 31, 2026, on or before OCTOBER 15, 2026. The failure of Debtor to do so shall constitute a Default under Section 11(b) of the Agreement, and nothing in this letter shall be construed as a waiver of, or a consent to, any such failure.
Reservation of Rights. Lender hereby expressly reserves all of its rights, powers, privileges and remedies under the Agreement or any of the other Loan Documents, at law or in equity (collectively, the “Rights, Privileges and Remedies”). The waiver set forth in this letter shall not, and shall not be deemed to, directly or indirectly in any way whatsoever, either: (a) constitute a waiver of any past, present or future Default or Event of Default other than the Specified Default, including without limitation any failure to comply with Section 9(b) or Section 9(d) of the Agreement with respect to any other fiscal year or reporting period; (b) impair, prejudice or otherwise adversely affect Lender’s right at any time to exercise any Rights, Privileges and Remedies; (c) amend or alter any provision of the Loan Documents or any other contract or instrument; (d) constitute any course of dealing or other basis for altering any obligation of Obligor or any Rights, Privileges and Remedies, or constitute any consent of Lender to any prior, existing or future violations of the Loan Documents; or (e) establish any obligation on the part of Lender to grant any further or future waiver, consent, amendment or forbearance.
Miscellaneous. This letter constitutes a Loan Document and shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of laws, and shall be subject to Sections 21 and 30 of the Agreement. This letter may be executed in counterparts, and delivery of an executed counterpart by electronic transmission shall be as effective as delivery of an original. Except as expressly set forth herein, the Agreement and each of the other Loan Documents shall remain in full force and effect in accordance with their respective terms.
THIS LETTER IS NOT AN AGREEMENT OF FORBEARANCE. THERE ARE NO ORAL AGREEMENTS BETWEEN OBLIGOR AND LENDER. ANY PRIOR OR FUTURE DISCUSSIONS OR REPRESENTATIONS REGARDING THE LOAN SHALL NOT CONSTITUTE A WAIVER OF, OR FORBEARANCE WITH RESPECT TO, ANY PAST, PRESENT OR FUTURE DEFAULT AND/OR EVENT OF DEFAULT, OTHER THAN THE SPECIFIED DEFAULT AS AND TO THE EXTENT EXPRESSLY WAIVED ABOVE.
| Sincerely, | ||
| ALTRIARCH HOLDINGS SPV, LLC, | ||
| as Lender | ||
| By: | Altriarch Commercial Finance, Inc., a Delaware corporation, its Manager | |
| By: | /s/ Danielle Brown | |
| Name: | Danielle Brown | |
| Title: | CEO | |
| ACKNOWLEDGED AND AGREED | ||
| as of the date first written above: | ||
| ZIRCON CORPORATION, | ||
| a California corporation | ||
| By: | /s/ John Stauss | |
| Name: | John Stauss | |
| Title: | Chief Executive Officer | |
| ZRCN INC., | ||
| a Delaware corporation | ||
| By: | /s/ John Stauss | |
| Name: | John Stauss | |
| Title: | Chief Executive Officer | |
ALTRIARCH HOLDINGS SPV, LLC – ZIRCON CORPORATION September 9, 2026 Page 2 |
Exhibit 31.1
Certification of Chief Executive Officer of ZRCN Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John Stauss, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of ZRCN Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: September 28, 2026 | /s/ John Stauss |
| John Stauss | |
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
Certification of Chief Financial Officer of ZRCN Inc.
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jeff Parsons, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of ZRCN Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: September 28, 2026 | /s/ Jeff Parsons |
| Jeff Parsons | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
Certification of Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, John Stauss, Chief Executive Officer of ZRCN Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge and belief:
| 1. | The Company’s Annual Report on Form 10-K for the year ended March 31, 2026 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: September 28, 2026 | /s/ John Stauss |
| John Stauss | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
Certification of Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Jeff Parsons, Chief Financial Officer of ZRCN Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge and belief:
| 1. | The Company’s Annual Report on Form 10-K for the year ended March 31, 2026 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: September 28, 2026 | /s/ Jeff Parsons |
| Jeff Parsons | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |