ZRCN 10-K & 10-Q changes, risk factors and insider trading
ZRCN Inc. · OTC · Miscellaneous Electrical Machinery, Equipment & Supplies · CIK 1901297 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
Removed heading “We may have inadvertently violated Section 13(k) of the Exchange Act (implementing Section 402 of the Sarbanes-Oxley Act of 2002) as a result of the transition from private to public accounting and may be subject to sanctions as a result.”
Removed heading “The Company was issued a default letter by its lender during the three months ended June 30, 2025 and is now operating under a forbearance agreement. If the Company cannot meet the covenants under the forbearance agreement, it may not be able to continue borrowing under its Credit Agreement.”
Removed heading “We may conduct offerings of our equity securities in the future, in which case an investor’s proportionate interest may become diluted.”
Removed heading “The sale or availability of substantial amounts of our common stock could adversely affect their market price.”
Removed heading “We have never declared or paid any cash dividends or distributions on our capital stock. And we do not anticipate paying any cash dividends on our common stock in the foreseeable future.”
Removed heading “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.”
Largest changes
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 assee in full comparisondebta liability on our balance sheet.WhileWewedo not believethatourweexistinghavecash 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 tosufficientlycontinue as a going concern without any additionalfundmanagement actions. As of March 31, 2026, ourplannedadditionaloperationsborrowing 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 capitalexpendituresexpenditures,fornegotiatingthecostforeseeablereductionsfuture,withvariousour 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 otherfactors.factorsWeincluding 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 actionsacceptable.will be successful in eliminating the substantial doubt about the Company’s ability to continue as a going concern.
“The Company was issued a default letter by its lender during the three months ended June 30, 2025 and is now operating under a forbearance agreement. If the Company cannot meet the covenants under the forbearance agreement, it may not be able to continue borrowing under its Credit Agreement.”see in full comparison
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.see in full comparison
“We may have inadvertently violated Section 13(k) of the Exchange Act (implementing Section 402 of the Sarbanes-Oxley Act of 2002) as a result of the transition from private to public accounting and may be subject to sanctions as a result.”see in full comparison
“Section 13(k) of the Exchange Act provides that it is unlawful for a company, such as ours, that has a class of securities registered under Section 12 of the Exchange Act to, directly or indirectly, including through any subsidiary, extend or maintain credit in the form of a personal loan to or for any director or executive officer of the company. …”see in full comparison
“The Company was issued a default letter from its lender during the three months ended June 30, 2025. It entered into a forbearance agreement with its lender on July 15, 2025 under which it must meet certain monthly reporting requirements, achievement of certain EBITDA targets and revised FCCR targets. If the Company does not meet these forbearance requirements, then the Company could be put in default again and the lender could exercise its rights under such a default which include making an immediate demand of the amounts outstanding under the credit facility. …”see in full comparison
Full comparison: every changed paragraph (31)
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 MexicoMexico, 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.
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, havehad
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.
We
rely on outsourcing suppliers in MexicoMexico, 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 military
actions, economic, business, labor, environmental, public health or political issues, or international trade disputes.
We
offer products that can be affected by design and manufacturing defects. Defects can also exist in components and soproducts 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.
A
significant portion of our revenue is dependent upon a small number of customers, and our twothree largest customers that collectively accounted
for approximately 61%68% and 63%64% of net revenue in fiscal 20252026 and fiscal 2024,2025, 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 76%75% and 78%76% of our net sales for the years ended March 31, 20252026 and 2024,2025, respectively.
respectively. Sales to our largest customer accounted for approximately 46%40% and 40%46% of our net sales, respectively, and another
customer two customers accounted
for approximately 15%28% and 23%,18%, respectively, of our net sales for the years ended March 31, 20252026 and 2024.2025. 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
may have inadvertently violated Section 13(k) of the Exchange Act (implementing Section 402 of the Sarbanes-Oxley Act of
2002) as a result of the transition from private to public accounting and may be subject to sanctions as a result.
Section
13(k) of the Exchange Act provides that it is unlawful for a company, such as ours, that has a class of securities registered under Section
12 of the Exchange Act to, directly or indirectly, including through any subsidiary, extend or maintain credit in the form of a personal
loan to or for any director or executive officer of the company. In March 2022, Zircon Corporation, our wholly owned subsidiary, loaned
our chief executive officer funds to pay certain tax obligations, which was still outstanding when we acquired Zircon in April 2023,
which may have violated Section 13(k) of the Exchange Act as a result of the transition from private to public company accounting. The
loan was repaid in August 2023 as soon as management became aware of the possible violation. The loan repayment was made by means of
an offset to beneficial amounts of our chief executive officer in certain loans to the Company to which offset he did not object. Issuers
that are found to have violated Section 13(k) of the Exchange Act may be subject to civil sanctions, including injunctive remedies and
monetary penalties, as well as criminal sanctions. The imposition of any of such sanctions on us could have a material adverse effect
on our business, financial position, results of operations or cash flows.
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 debta liability on our balance sheet. WhileWe wedo not believe thatour weexisting havecash 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 sufficientlycontinue as a going concern without any additional
fundmanagement actions. As of March 31, 2026, our plannedadditional operationsborrowing 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 expendituresexpenditures, fornegotiating thecost foreseeablereductions future,with variousour 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.factors Weincluding 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
acceptable.will be successful in eliminating the substantial doubt about the Company’s ability to continue as a going concern.
ourOur
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 borrowingsborrowings, could become more
significant.
The
Company was issued a default letter by its lender during the three months ended June 30, 2025 and is now operating under a forbearance
agreement. If the Company cannot meet the covenants under the forbearance agreement, it may not be able to continue borrowing under its
Credit Agreement.
The
Company was issued a default letter from its lender during the three months ended June 30, 2025. It entered into a forbearance agreement
with its lender on July 15, 2025 under which it must meet certain monthly reporting requirements, achievement of certain EBITDA targets
and revised FCCR targets. If the Company does not meet these forbearance requirements, then the Company could be put in default again
and the lender could exercise its rights under such a default which include making an immediate demand of the amounts outstanding under
the credit facility. The Company did not meet its EBITDA target for July 2025 but was granted a waiver from the lender on September 5,
2025.
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. We have been, and could be in the future,
subject to liability if we do not comply with these regulations. In addition, we may in the future be, held responsible for remedial
investigations and clean-up costs resulting from the discharge of hazardous substances into the environment, including sites that have
never been owned or operated by us but at which we have been identified as a potentially responsible party under federal and state environmental
laws and regulations. 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.
WeAllegations
manufacture products and perform various services that create exposure to product and professional liability claims and litigation. The
failure of our products and services toare benot properly manufactured, configured, installed, designed or delivered, resulting in personal injuries,
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,
claims, whether or not successful.
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. ATo 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.
Our
results of operations and earnings may not meet guidance orforecasted future expectations.
Our
results of operations and earnings may not meet guidance orforecasted future expectations. We may provide publicforecasts guidance onof expected results of operations
operations for future periods. This guidanceforecast would be comprised of forward-looking statements subject to risks and uncertainties, including the
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 guidance.forecast. Our guidanceforecast may not always be accurate. We may also choose to withdraw
guidance, or lower guidance in future periods. If, in the future, our results
of operations
for a particular period do not meet our guidanceforecast or the expectations of investment analysts, we reduce our guidance for future periods,
or we withdraw guidance, the market price of our common
stock could decline significantly.
We
may conduct offerings of our equity securities in the future, in which case an investor’s proportionate interest may become diluted.
If
we issue additional common stock shares or securities convertible into our common stock, your percentage interest in the Company could
become diluted.
During
any future financing, when common stock is issued in return for capital investment, the price per share could be lower than that paid
by our current shareholders.
The
sale or availability of substantial amounts of our common stock could adversely affect their market price.
Should
we become a publicly listed company, sales of substantial amounts of our common stock in the public market, or the perception that these
sales could occur, could adversely affect the market price of our common stock and could materially impair our ability to raise capital
through equity offerings in the future. As of the date of this report, we have 10,332,425 shares of common stock issued and outstanding.
We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the
availability of these securities for future sale will have on the market price of our common stock.
We
have never declared or paid any cash dividends or distributions on our capital stock. And we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.
We
have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings,
if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock
in the foreseeable future.
The
declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon,
among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other
factors that the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are
paid, there is no assurance with respect to the amount of any such dividend.
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.
We
currently intend to retain most, if not all, of our available funds and any future earnings to fund the operations and growth of our
business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment
in our common stock as a source for any future dividend income.
Accordingly,
a positive return on any investment in our common stock will depend entirely upon any future price appreciation of our common stock.
There is no guarantee that the market price of our common stock will appreciate, or even maintain the price at which an investor may
have purchased the common stock. Investors may not realize a return on their investment in our common stock and may even lose their entire
investment in our common stock.
InAs
the event we become a publicly listed company, we may also from time to time make forward-looking statements about future operating results
and provide some
financial guidanceforecasts 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.
We
have elected to avail ourselfourselves of the extended transition period for complying with new or revised accounting standards pursuant to
Section 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 laws
and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC,
which which
could undermine investor confidence in the Company.
Management's Discussion & Analysis (MD&A)
New heading “REMEDIATION OF SIGNIFICANT DEFICIENCIES”
Largest changes
“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. …”see in full comparison
“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. …”see in full comparison
“We do not believe our existing cash and cash equivalents along with borrowing capacity from our current lender will be sufficient to meet our anticipated cash needs over the next 12 months. The Company has incurred losses and anticipates that existing cash and available credit may not be sufficient to meet its operating and debt service needs for the next 12 months. As of March 31, 2025, the Company is not in compliance with its Credit Agreement covenants and is operating under a forbearance agreement. …”see in full comparison
“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%. …”see in full comparison
“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. …”see in full comparison
“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 …”see in full comparison
Full comparison: every changed paragraph (56)
The
information presented as of March 31, 2026 and March 31, 2025 represents the information for ZRCN Inc. The information presented as of March 31, 2024 represents
the information of Zircon Corporation.
Total
assets as of March 31, 2025,2026, were $23.4$20.3 million compared to $27.6$23.4 million as of March 31, 2024,2025, which was a decrease of approximately
$4.2$3.1 million. This decrease was driven primarily by ana increasedecrease in cash of $0.9$0.6 million, ana increasedecrease in deferredinventory financingof costs$2.2 million, a decrease
in operating use assets of $0.2
million offset by a decrease in accounts receivable of approximately$0.7 $2.5million million,and aan decrease in inventory of approximately $1.6 million,
a decreaseincrease in deferred tax assetsfinancing
cost of $0.5$0.6 million,million aresulting decreasefrom inour property,new plant and equipmentline of $0.2credit million,with aAltriarch decrease in operating
right-of-use assets of $0.2 million, a decrease in federal tax deposits of $0.2 million, and a decrease in net intangible assets of $0.1
million.Holdings.
Total
liabilities as of March 31, 2025,2026, were $17.9$21.4 million compared to $19.3$17.9 million as of March 31, 2024,2025, which was aan decreaseincrease of approximately
$1.5$3.6 million. This decreaseincrease was driven primarily by aan decreaseincrease in accounts payable and accrued expenses of $1.7$4.2 million andwhich was offset
by a decrease
in operating lease liabilities of $0.2 million whichand wasa offset by an increasedecrease in the line of credit of $0.4 million.
TotalThe
equitytotal net deficit as of March 31, 2024,2026, was $5.5$1.1 million compared to $8.9equity of $5.5 million as of March 31, 2024,2025, which was a decrease
of approximately $2.7
$6.6 million. This decrease was driven primarily by a net loss of $3.0$7.1 million offset by stockincreased basedstock-based paymentscompensation
of $0.3 million and an increase in accumulated other comprehensive income of approximately $0.3$0.2 million.
Revenue
for fiscal 20252026 was $28.1$26.9 million compared to $31.5$28.1 million in fiscal 20242025 which was a decrease of $3.4$1.2 million, or 11%.4%. This decrease
was driven primarily by decreased sales in the United States from one keymajor 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 2025
2026 was $7.9 million, or 29.3% compared to $11.1 million, or
39.7% compared to $13.8 million, or 43.9%,39.7%, which was a decrease of $2.7$3.2 million, or 19%,29% and 4.2%,10.4%, respectively.
While Theone reason for the decrease in gross
profit was driven primarily by reduced revenue from one key customercustomer, andadditional the decreasedecreases in gross profit and
gross margin waswere driven by aincreased morecost 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 reducedexpanded absorptiontariffs pursuant to authorities under the International
Emergency Economic Powers Act (‘IEEPA”), targeting imports from certain countries that are significant sources of manufacturingraw expensesmaterials,
components, dueand tofinished reducedgoods unitused volume.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.
The Company has taken the following actions to mitigate the impact of these tariffs going forward including:
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 expenses for fiscal 20252026 were $1.7 million compared to $1.9$1.7 million in fiscal 2024.2025. The decrease in 20252026 was $0.2 million,$52,000,
or 11%,3%, and was driven primarily by reduced consulting expenses.
Marketing
and selling expenses for fiscal 20252026 were $4.5$4.8 million compared to $4.4$4.5 million in fiscal 20242025 which was an increase of $0.1$0.3 million,
or 4%.5%. This increase was driven primarily by an increase in payroll expense.expenses.
General
and administrative expenses for fiscal 20252026 were $7.3 million compared to $6.7$7.3 million in fiscal 20242025 which was ana increasedecrease of $0.4$14,000,
million, or 6%.less than 1%. This increasedecrease was driven primarily by anreduced increase of $0.4 million in non-interest bank charges such as audit and
legal expenses incurred by the lenderconsulting and chargedoutside to the Company and $0.2 million of auditservice fees.
OtherInterest
incomeand other expenses for fiscal 20252026 waswere $0.8$1.3 million compared to zero$0.7 million in fiscal 20242025 which was an increase of $0.8$0.6 million.million This increase was drivenor
primarily by a settlement benefit in the Stanley Black & Decker litigation of $0.8 million. This litigation is now closed.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.
Interest
and other expenses for fiscal 2025 were $0.8 million compared to $0.8 million in fiscal 2024 which was an increase of $63,000 or 8%.
This increase was driven primarily by an increase in interest expense of $72,000 related to the amortization of deferred financing
cost associated with the new financing from FGI. Income from foreign currency translation adjustments increased by $0.3 million
primarily due to favorable exchange rate changes between the U.S. dollar and the Mexican peso.
ProvisionIncome
for income taxes
The
Company moved from a benefitprovision positionfor income taxes of $70,000$0.6 million during the year ended March 31, 20242025, to the need for a provisionbenefit position of $0.6$0.1 million
for for
the year ended March 31, 2026. The provision recorded in fiscal 2025 aswas thedue Companyprimarily recordedto a full valuation allowance on its previouslybeing recorded
against all deferred tax assets. The
Companyassets recorded thisthrough valuationthat allowancefiscal asyear. aThe result of net lossesbenefit recorded during recent fiscal years.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”).
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, 2024, net cash provided by operating activities was $1.2 million. This increase was due to net income of $51,000,
non-cash expenses for depreciation, amortization, and inventory obsolescence impairment of $1.3 million, provision for bad debt and foreign
currency losses of $89,000, a decrease in prepaids and other assets of $0.2 million, and common stock issued for advisory services of
$0.1 million, an increase in accounts payable and accrued expenses and other current liabilities of $2.8 million, offset by an increase
in accounts receivable of $1.1 million, an increase in inventory of $1.4 million, and increase in deferred tax assets of $0.5 million,
an increase in the federal tax deposit of $78,000, and a decrease in operating lease liabilities of $0.2 million.
During
the year ended March 31, 2025,2026, net cash used in investing activities was $0.8$0.4 million. This decrease was due to purchases of property
and equipment of $0.8$0.3 million,million During
the year ended March 31, 2024, net cash used in investing activities was $1.2 million. This decrease was due toand purchases of property
and equipment of $0.6 million, the net effect of the Harmony merger of $0.5 million, and investments in intangible assets of $68,000.$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.
During
the year ended March 31, 2025,2026, net cash used in financing activities was $0.7$1.3 million. This decrease was due to borrowings under the
Company’s line of credit of $25.0$25.5 million offset by repayment of borrowings of $24.6$26.0 million,million net shareholder distributions of
approximately $0.7 million,and deferred financing costs of $0.3 million, and repayment of debt assumed as part of the Harmony merger of$0.8
$75,000.million.
During
the year ended March 31, 2024,2025, net cash providedused byin financing activities was $0.6$0.7 million. This increasedecrease was due to borrowings under the
the Company’s line of credit of $10.9$25.0 million offset by repayment of borrowings of $10.1$24.6 million, anet bankshareholder overdraftdistributions of
approximately $0.7 million, deferred financing costs of $0.4$0.3 million
offsetmillion, byand repayment of debt assumed as part of the Harmony merger of $0.3 million and repayments of notes payable of $0.3
$0.1 million.
As
of March 31, 2025,2026, the Company had a cash balance of $1.4$0.8 million and working capital of $3.5$4.2 million. Working capital as of March 31,
31, 20242025, was $13.4$3.4 million. This decreaseincrease of $9.9$0.8 million was driven primarily by ana increasedecrease in cash of $0.9$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 $1.7$4.2 million, and a decrease in the current portion of notes payable of $75,000 offset by a
reclass of the $8.4 million line of credit to current liabilities from non-current liabilities, a decrease in accounts receivables
of $2.5 million, a decrease in inventory of $1.6 million, and a decrease in prepaids of $0.1$8.4 million. To date the Company has been
financed primarily
through retained earnings, loans and credit lines secured by accounts receivable, inventory and fixed
assets.
The increased tariff-related costs have placed additional pressure on our working capital requirements. The decrease in gross profit and gross margin and extended supply chain cycles have resulted in a decrease in our cash balance of approximately $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.
We
do not believe our existing cash and cash equivalents along with borrowing capacity from our current lender will be sufficient to
meet our anticipated cash needs over the next 12 months. The Company has incurred losses and anticipates that existing cash and
available credit may not be sufficient to meet its operating and debt service needs for the next 12 months. As of March 31, 2025,
the Company is not in compliance with its Credit Agreement covenants and is operating under a forbearance agreement. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively pursuing
options to improve liquidity, including negotiating waivers or amendments to existing debt covenants, reducing discretionary
spending, and evaluating potential capital raises. While these plans are intended to mitigate the risk, there can be no assurance
that they will be successful in eliminating the substantial doubt.
On
MayMarch 31,17, 2024,2026 (the “Effective Date”), the Company entered into a RevolvingLoan Creditand Security Agreement (the “CreditLoan Agreement”)
with FGIAltriarch WorldwideHoldings SPV, LLC, as Agent
for the lender (“FGILender”). The CreditLoan Agreement provides for a $15$12.5 million senior secured revolving
credit facility (the “Credit
Facility”) available to be used by the Company,Company and Zircon andfor, itsamong Affiliatesother forthings, replacement
and discharge of the Company’s
current US Bank loan of $8,750,000$15.0 andmillion matureswith onFGI MayWorldwide, 31, 2027. The Company, ZirconLLC and the Affiliatesability areto guarantorsincrease its borrowings
from the Lender for working capital purposes. As a result of allthis repayment, the Company has no continuing obligations
to FGI under the
former Credit Agreement and the Company’s four principal shareholders are limited guarantors thereof. As of March 31, 2025,
the outstanding balance on the FGI Credit Facility was approximately $8.4 million.Agreement.
The Loan Agreement matures on March 17, 2029 (the “Maturity Date”), subject to the right of the Debtor to request to extend the Maturity Date for up to an additional one (1) year period. Prior to the Maturity Date or an Event of Default, the interest rate shall be the lesser of (a) the Maximum Rate (as defined in the Loan Agreement), and (b) the 3-month term SOFR (as defined in the Loan Agreement) plus the 8.75%. Accrued and unpaid interest on the outstanding principal balance of Credit Facility shall be due and payable monthly commencing on April 14, 2026, and continuing on the tenth (10th) Business Day of each month thereafter and on the Maturity Date.
So long as no Event of Default (as defined in the Loan Agreement) has occurred and is continuing, upon notice to Lender, Debtor may, request increases in the Credit Facility (each, a “Commitment Increase”) by an amount not exceeding Five Million Dollars ($5,000,000.00) in the aggregate; provided that (i) Debtor may make a maximum of two (2) such requests and (ii) Lender may grant or deny all or any portion of such Commitment Increase in its sole discretion.
The Loan Agreement requires the Company to comply with maximum tangible net worth and minimum fixed charge coverage ratios. However, the lender has waived compliance with the financial covenants through August 31, 2026. The 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.
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.
The
Credit Agreement stipulates a base rate measured by the sum of Term SOFR for a period of one month, as published by the CME Group Benchmark
Administration Limited (or any successor administration of Term SOFR) two business days prior to the beginning of the calendar month
and a percentage equal to 0.10% (10 basis points) per annum. If at any time the displayed Term SOFR is less than 0.00%, Term SOFR is
deemed to be 0.00% for the purposes of the credit facility.
The
Credit Agreement bears interest measured by such outstanding amounts on receivable advances and inventory advances that accrue interest
at the greater of 5.25% per annum or 3.00% above the base rate. Interest is charged on the last day of each month on a daily net balance
of funds advanced or otherwise charged to the Company.
The
Credit Agreement requires the Company to comply with a maximum total net leverage of $15.0 million and a minimum fixed charge coverage
ratio of 1.10. As of March 31, 2025, the Company was not in compliance with the fixed charge coverage ratio and is working with the lender
to obtain a waiver and has entered into a forbearance agreement with regard thereto along with additional covenants.
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.
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
will issue an additional 49,998 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.
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
settle outstanding liabilities for services related to patent infringement litigation and patent acquisition. These shares also
include the shares issued or to be issued to SCE.
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.
The
Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of March 31, 2025,2026, 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 FGIAltriarch Holdings SPV, LLC and no payment is to be
made on the note without
prior approval from FGI. In the second quarter of 2023, a portion of the note payable to Stauss Family Administrative Trust was settled
as a non-cash transaction against the note receivable from one stockholder for $240,190.Altriarch.
On
March 31, 2024 the Stauss Family Administrative Trust and the Company agreed to extend the maturity date of the Notes Payable to the
trust to December 31, 2025.
As
of March 31, 2025,2026, we had contractual obligations for building leases, ainterest on our line of credit with FGI,Altriarch andSPV LLC, notes payable
with the Stauss
Family Administrative Trust.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, 2025,2026, our future contractual commitments
for our leases were $0.6$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 $8.4
million.$0.7 million which mature in December 2027. For additional information on our leases and timing of future payments, please see Note 10
9 and Note 1413 to the consolidated
financial statements included in this Annual Report on this Form 10-K.
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.
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.
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.
What changed in the latest 10-Q
Risk Factors
Information regarding the primary risks and uncertainties that could materially and adversely affect our future performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements, appears in Part I, Item 1A - “Risk Factors” of our 2026 Form 10-K filed with the Securities and Exchange Commission on September 24, 2026. There have been no material changes from the risk factors set forth in our Form 10-K filed on September 24.
Full comparison: every changed paragraph (1)
Information
regarding the primary risks and uncertainties that could materially and adversely affect our future performance or could cause actual
results to differ materially from those expressed or implied in our forward-looking statements, appears in Part I, Item 1A - “Risk
Factors” of our 20252026 Form 10-K filed with the Securities and Exchange Commission on September 10,24, 2025 .2026. There have been no material
changes from the risk factors set forth in our Form 10-K filed on September 10th, 2025.24.
Management's Discussion & Analysis (MD&A)
New heading “stockholders’ deficit”
Largest changes
“The Loan Agreement requires the Company to comply with maximum tangible net worth and minimum fixed charge coverage ratios. However, the lender has waived compliance with the financial covenants through August 31, 2026. The covenants will be enforced beginning in September 2026 through the term of the agreement. …”see in full comparison
We do not believe our existing cash and cash equivalents along with borrowing capacity from our current lender will be sufficient to meetsee in full comparisonmeetour anticipated cash needs over the next 12months.monthsThewhichCompany has incurred losses and anticipates that existing cash and available credit may not be sufficient to meet its operating and debt service needs for the next 12 months. As of December 31, 2025, the Company is not in compliance with its Credit Agreement covenants and is operating under a forbearance agreement. These conditions raiseraises substantial doubt about the Company’s ability to continue as a goingconcern.concern without any additional management actions. As of June 30, 2026, our additional borrowing capacity against the line of credit was $4.3 million. For the three months ended June 30, 2026, the Company had incurred a net loss of $1.5 million, had an accumulated deficit of $12.9 million, and a net stockholders’ deficiency of $2.4 million. We are dependent on the line of credit and our financial covenants were only waived through August 31, 2026. The covenants will be enforced beginning in September 2026 through the term of the agreement. Management is actively pursuing options to improve liquidity, including negotiating waivers and/or amendments toexistingourdebtfinancial covenants, reducing discretionaryspending,spending and capital expenditures, negotiating cost reductions with our suppliers, continuing to improve inventory and evaluating potential capital raises.WhileThese 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 substantialdoubt.doubt about the Company’s ability to continue as a going concern.
“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%. …”see in full comparison
“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 …”see in full comparison
“From July 2025 through March 2026, the Company and FGI entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. On March 17, 2026, the Company repaid in full and extinguished its revolving credit facility with FGI Worldwide, LLC using proceeds from a new senior secured revolving credit facility. …”see in full comparison
“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.”see in full comparison
Full comparison: every changed paragraph (54)
During
the ninethree months ended DecemberJune 31,30, 2025,2026, and as ofat March 31, 2025,2026, Zircon’s selected financial information is the following (in
thousands):
The
information presented below as of DecemberJune 31,30, 20252026 as compared to March 31, 20252026 for ZRCN Inc (in thousands):
Total
assets on DecemberJune 31,30, 20252026 were $22.0$18.4 million compared to $23.4$20.3 million on March 31, 2025,2026, which was a decrease of approximately $1.4$1.9 million.
million. This decrease was driven primarily by a decrease in cash of $0.7 million, an increase in accounts receivable and prepaids of $1.4$0.2 million,
a decrease in inventory of $2.2 million, an increase in prepaids and other assets of $0.2$1.2 million, and a decrease in allproperty, otherplant, and equipment and right-of-use assets
of $0.1$0.2 million.
Total
liabilities on DecemberJune 31,30, 20252026 were $20.0$20.8 million compared to $17.8$21.4 million on March 31, 2025,2026, which was ana increasedecrease of approximately $0.6
$2.2 million. This increasedecrease was driven primarily by an increase in accountsour payableline of $3.1credit of $0.2 million, an increase in accruedthe expensesnote payable to
the Stauss Family Administrative Trust of $0.4$0.5 million,million offset by a decrease in ouraccounts linepayable and accrued expenses of credit of $1.2 million and a decrease in the operating lease liability of $0.1$1.3 million.
stockholders’ deficit
Equity
Total
equitystockholders’ deficit on DecemberJune 31,30, 20252026 was $2.0$2.4 million compared to $5.5$1.1 million on March 31, 2025,2026, which was a decrease of approximately
$1.3 $3.5million. million
andThis decrease was driven primarily by a comprehensive loss of $3.7$1.4 million offset by an increase in additional paid-in
capital fromand stock-basedother compensation
comprehensive loss of $0.2$0.1 million.
Revenue
for the three months ended DecemberJune 31,30, 20252026 was $7.1$5.7 million compared to $7.2$6.1 million for the three months ended DecemberJune 31,30, 20242025 which was
was ana decrease of $0.1$0.3 millionmillion, or 1%.5%. This was driven primarily by decreased sales toof oneour Stud Sensor Edge products offset by smaller sales
increases of our majorMultifunctional customers.scanner and Stud Sensor Center products. Revenues were down across all geographies except Japan but
primarily in the United States and Canada. Gross profit for the
three months ended DecemberJune 31,30, 20252026 was $2.7$2.0 million, or 38%34.9% compared
to $3.0$1.4 million, or 42%,22.8%, during the three months ended December
31,June 2024,30, 2025, which was aan decreaseincrease of $0.3$0.6 million, or 10%.45% and 12.1%, respectively.
The decreaseincrease in gross profit was primarily driven by ana increasedecrease in duty expense
resulting from increaseddecreased tariffs on our products manufactured
in China.China and Malaysia.
Revenue
for the nine months ended December 31, 2025 was $22.6 million compared to $22.4 million for the nine months ended December 31, 2024 which
was an increase of $0.2 million, or 1%. This increase was driven primarily by increased sales in the United States to our major customers.
Gross profit for the nine months ended December 31, 2025 was $6.9 million, or 31% compared to $9.4 million, or 42%, during the nine months
ended December 31, 2024, which was a decrease of $2.5 million, or 26%. The decrease in gross profit was primarily driven by an increase
in duty expense resulting from increased tariffs on our products manufactured in China.
During
the three and nine months ended DecemberJune 31,30, 2025, the U.S. government implemented and/or expanded tariffs pursuant to authorities under
the International
Emergency Economic Powers Act (‘IEEPA”), targeting imports from certain countries that are significant
sources of raw materials,
components, and finished goods used in the Company’s operations. As a result, we experienced increased input costs associated with
imported materials and products subject to these tariffs. Tariff costs incurred during the three months ended June 30, 2025 was approximately
$1.4 million which was an increase of $1.1 million compared to the three months ended June 30, 2024. These costs were recognized primarily
within cost of goods sold and contributed to a gross margin decrease of 1,800 basis points.
As
a result, we experienced increased input costs associated with imported materials and products subject to these tariffs. The increased
tariff expense recognized during the three months ended December 31, 2025 was approximately $0.3 million compared to $0.2 million during
the three months ended December 31, 2024 which was an increase of $0.1 million. These costs were recognized primarily within cost of
goods sold and contributed to a gross margin decrease of 100 basis points.
The
increased tariff expense recognized during the nine months ended December 31, 2025 was approximately $2.8 million compared to $0.8 million
during the nine months ended December 31, 2024 which was an increase of $2.0 million. These costs were recognized primarily within cost
of goods sold and contributed to a gross margin decrease of 900 basis points and significantly impacted our ability to make vendor payments.
The
Company has takentook the following actions to mitigate the impact of these tariffs going forward including:
However,
these mitigation efforts havedid not fully offset the increased costs from the tariffs and the timing and effectiveness of such actions may
may vary. In addition, the increased tariffs have contributed to supply chain disruptions, including longer lead times and increased logistics
costs, 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; however; to date the Company cannot reasonably estimate the amounts nor the timing
of such refunds.
In February 2026, the IEEPA tariffs were declared illegal by the Court of International Trade with the presiding judge declaring that a) the IEEPA tariffs should no longer be collected by U.S. Customs and Border Protection and b) companies that paid IEEPA tariffs are due refunds. As a result, tariff expense incurred by the Company decreased by approximately $1.2 million. Subsequent to June 30, 2026, the Company received refunds from Customs and Border Protection of $0.7 million in July 2026 and $1.0 million in September 2026 (Note 15).
Research
and development expenses for the three months ended DecemberJune 31,30, 20252026 were approximately $0.4 million compared to approximately$0.4 $0.4
million for the three months ended
June December30, 31,2025 2024.which Thiswas an increase of $16,000,$21,000, or 4%,3%, and was driven primarily by an increase inincreased consulting
expenses.
Research
and development expenses for the nine months ended December 31, 2025 were $1.2 million compared to $1.2 million for the nine months ended
December 31, 2024. This decrease of $2,000, or 0%, was driven primarily by reduced consulting expenses.
General
and administrative expenses for the three months ended DecemberJune 31,30, 20252026 were $2.2$1,4 million compared to $1.7$1.4 million for the three months
ended DecemberJune 31,30, 20242025 which was a increasedecrease of $0.5 million,$27,000, or 30%.2%. This increasedecrease was driven primarily by ana increasedecrease in consulting
and outside service expenses and bank charges.expenses.
General
and administrative expenses for the nine months ended December 31, 2025 were $5.4 million compared to $5.2 million for the nine months
ended December 31, 2024 which was an increase of $0.2 million, or 4%. This increase was driven primarily by an increase in consulting
and outside service expenses.
Marketing
and selling expenses for the three months ended DecemberJune 31,30, 20252026 were $1.2$1.1 million compared to $1.3$1.2 million for the three months ended June
December30, 31, 20242025 which was aan decreaseincrease of $0.1 million,$11,000, or 7%.1%. This decrease was driven primarily by a decrease in trade showconsulting and travel
expenses.advertising expense.
Marketing
and selling expenses for the nine months ended December 31, 2025 were $3.6 million compared to $3.3 million for the nine months ended
December 31, 2024 which was an increase of $0.3 million, or 6%. This increase was driven primarily by additional payroll expenses.
Interest/Other
(income) expenses
OtherInterest
and other expenses for the three months ended DecemberJune 31,30, 20252026 were approximately $0.2$0.4 million compared to other income of ($0.6)$0.3 million for
the three months
ended DecemberJune 31,30, 20242025 which was aan decreaseincrease of approximately $0.8$0.1 million, or 135%.22%. This decreaseincrease was driven primarily
by aan priorincrease yearin
interest legalexpense settlement.resulting from our change in lender in March 2026.
Other
expenses for the nine months ended December 31, 2025 were approximately $0.7 million compared to other income of ($0.3) million for the
nine months ended December 31, 2024 which was a decrease of approximately $1.0 million, or 323%. This decrease was driven primarily by
a prior year legal settlement.
During
the ninethree months ended DecemberJune 31,30, 2025,2026, net cash providedused byin operating activities was $1.3$1.2 million. This increasedecrease was due to a net loss of
of $3.9$1.5 million offset by non-cash expenses for depreciation, amortization, inventory obsolescence impairment, credit loss provision,recovery, and
amortization of deferred financing costs,costs stockof based$0.5 million, stock-based compensation and common stock issued for advisory services of $1.5 million, an increase
in accounts receivable of $1.4 million, a decrease in inventories of $1.8 million, an increase in prepaids and other assets of $0.2 million,
an increase in accounts payable and accrued expenses of $3.5 million, a decrease in operating lease liabilities of $0.1 million, and
non-cash foreign currency losses of $0.1 million, a decrease
in inventory of $1.2 million, an increase in accounts receivables and prepaids of $0.2 million, and a decrease in accounts payable, accrued
expenses, and operating lease liabilities of $1.3 million.
During
the ninethree months ended DecemberJune 31,30, 2024,2025, net cash providedused byin operating activities was $1.5 million.$42,000. This increasedecrease was due to a net loss
of $0.1 $1.9
million offset by non-cash expenses for depreciation, amortization, inventory obsolescence impairment,impairment and credit loss recovery,
amortizationrecovery of financing$0.4
million, costs,total stock basedstock-based compensation and common stock issued for advisory services of $1.4$0.1 million, a decrease in
accounts receivable of $1.6$0.3 million, a decrease in inventories
of $1.0$0.8 million, aand decreasean increase in accounts payable and accrued expenses of
$1.6 million, an increase in deferred expenses of $0.3 million, an increase in prepaid expenses of $0.1 million, a decrease in operating
lease liabilities of $0.1 million, and an increase in federal tax deposits of $0.1 million, and non-cash foreign currency gains of $0.2
million.
During
the ninethree months ended DecemberJune 31,30, 2025,2026, net cash used in investing activities was $0.4$70,000. millionThis anddecrease was due to purchases of intangible
assets of $50,000 and property
and equipment of $0.4 million.$20,000.
During
the ninethree months ended DecemberJune 31,30, 2024,2025, net cash used in investing activities was $0.7$0.1 millionmillion. andThis decrease was due to purchases of property
and equipment of $0.7$0.1 million.
During
the nine months ended December 31, 2025, net cash used in financing activities was $1.2 million. This decrease was due to net repayments
on our line of credit of $1.2 million.
During
the ninethree months ended DecemberJune 31,30, 2024,2026, net cash provided by financing activities was $0.2$0.7 million. This increase was due to net borrowings
on our line of credit of $1.0 million, offset by prior Subchapter S shareholder tax distributions of $0.7$0.2 million and repaymentadditional borrowings from the Stauss Family Administrative Trust of debt
assumed as part of the Harmony merger of $0.01$0.5 million.
During the three months ended June 30, 2025, net cash used in financing activities was $0.7 million. This decrease was due to net repayments on our line of credit of $0.7 million.
As
of DecemberJune 31,30, 20252026, the Company had a cash balance of $0.7$0.1 million and negative working capital of $0.08$3.7 million. Working capital as
of March 31, 2025
2026 was $3.5$4.2 million. The decrease of $3.5$0.5 million was driven primarily by a decrease in cash of $0.7 million, an increase in accounts
receivable of $0.1 million, a decrease
in inventory of $2.2$1.2 million, an increase in prepaids of $0.1 million, and a decrease in accounts
payable and accrued expenses of $3.5 million offset by an increase in accounts
receivables of $1.4 million, a decrease in our line of credit of $1.2 million and increase in prepaids and other current assets of $0.3
million. To date the Company has been financed primarily through retained earnings, loans and credit
lines secured by accounts receivable,
inventory and fixed assets.
The
increased tariff-related costs in prior year have placed additional pressure on our working capital requirements. The decreaseincrease in gross
profit and
gross margin from March 31, 2026 and extended supply chain cycles have resultedcontributed into a decrease in our cash balance of approximately
$0.7 million from March
31, 2025.million. Continued or escalated tariffs will require additional financing and changes in capital allocation priorities including
shifting shifting
payments to the U.S. Government from inventory suppliers to other vendors.
We
do not believe our existing cash and cash equivalents along with borrowing capacity from our current lender will be sufficient to
meet meet
our anticipated cash needs over the next 12 months.months Thewhich Company has incurred losses and anticipates that existing cash and available
credit may not be sufficient to meet its operating and debt service needs for the next 12 months. As of December 31, 2025, the Company
is not in compliance with its Credit Agreement covenants and is operating under a forbearance agreement. These conditions raiseraises substantial
doubt about the Company’s ability to continue
as a going concern.concern without any additional management actions. As of June 30, 2026, our additional borrowing capacity against the
line of credit was $4.3 million. For the three months ended June 30, 2026, the Company had incurred a net loss of $1.5 million, had
an accumulated deficit of $12.9 million, and a net stockholders’ deficiency of $2.4 million. We are dependent on the line of
credit and our financial covenants were only waived through August 31, 2026. The covenants will be enforced beginning in September
2026 through the term of the agreement. Management is actively pursuing options to improve liquidity,
including negotiating waivers
and/or amendments to existingour debtfinancial covenants, reducing discretionary spending,spending and capital expenditures, negotiating cost reductions
with our suppliers, continuing to improve inventory and evaluating potential capital
raises. WhileThese 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.doubt
about the Company’s ability to continue as a going concern.
On
May 31, 2024, the Company entered into a Revolving CreditCredit, Security, and Guaranty Agreement (the “Credit Agreement”) with
FGI Worldwide LLC, as Agent
for the lender (“FGI”). The Credit Agreement provides for a $15$15.0 million senior secured revolving
credit facility (the “Credit
Facility”) available to be used by the Company, Zircon and its Affiliates for replacement and
discharge of the Company’s
then currentprior USline Bankof loancredit balance of $8.8 million and matures on May 31, 2027. The Company, Zircon and
the Affiliates are guarantors of all the obligations
under the Credit Agreement and the Company’s four principal shareholders are
limited guarantors thereof. As of December 31, 2025,
the outstanding balance on the FGI Credit Facility was approximately $7.2 million.
As of June 30, 2025, the Company was not in compliance with certain covenants under its revolving credit facility with FGI Worldwide, LLC (“FGI”) and entered into a series of forbearance agreements with FGI.
From July 2025 through March 2026, the Company and FGI entered into multiple forbearance agreements and amendments to the Credit Agreement, which temporarily waived existing covenant defaults and imposed additional operational and reporting requirements while the Company pursued strategic and financing alternatives. On March 17, 2026, the Company repaid in full and extinguished its revolving credit facility with FGI Worldwide, LLC using proceeds from a new senior secured revolving credit facility. Upon repayment, the FGI Credit Agreement was terminated and the Company was released from all remaining obligations.
On March 17, 2026 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Altriarch Holdings SPV, LLC, as lender (“Lender”). The Loan Agreement provides for a $12.5 million senior secured revolving credit facility (the “Credit Facility”) available to be used by the Company and Zircon for, among other things, replacement and discharge of the Company’s current loan of $15.0 million with FGI Worldwide, LLC and the ability to increase its borrowings from the Lender for working capital purposes. As a result of this repayment, the Company has no continuing obligations to FGI under the former Credit Agreement.
The Loan Agreement matures on March 17, 2029 (the “Maturity Date”), subject to the right of the Debtor to request to extend the Maturity Date for up to an additional one (1) year period. Prior to the Maturity Date or an Event of Default, the interest rate shall be the lesser of (a) the Maximum Rate (as defined in the Loan Agreement), and (b) the 3 month term SOFR (as defined in the Loan Agreement) plus the 8.75%. Accrued and unpaid interest on the outstanding principal balance of Credit Facility shall be due and payable monthly commencing on April 14, 2026 and continuing on the tenth (10th) Business Day of each month thereafter and on the Maturity Date.
So long as no Event of Default (as defined in the Loan Agreement) has occurred and is continuing, upon notice to Lender, Debtor may, request increases in the Credit Facility (each, a “Commitment Increase”) by an amount not exceeding Five Million Dollars ($5,000,000.00) in the aggregate; provided that (i) Debtor may make a maximum of two (2) such requests and (ii) Lender may grant or deny all or any portion of such Commitment Increase in its sole discretion.
The Loan Agreement requires the Company to comply with maximum tangible net worth and minimum fixed charge coverage ratios. However, the lender has waived compliance with the financial covenants through August 31, 2026. The covenants will be enforced beginning in September 2026 through the term of the agreement. In addition, the Credit Agreement contains other standard affirmative and negative covenants such as those which (subject to certain thresholds) limit the ability of the Company and its subsidiary and affiliates to, among other things, incur debt, incur liens, engage in any Change of Control (as defined in the Loan Agreement), enter into new lines of business not related to the Company’s current lines of business, make certain investments, issue equity securities, engage in transactions with affiliates, or prepay any debt without the approval of the Lender. Events of default under the Loan Agreement include, among other things, payment defaults, breaches of representations, warranties or covenants, defaults under material indebtedness, certain events of bankruptcy or insolvency, judgment defaults, certain defaults or events relating to employee benefit plans or a change in control of the Company. The events of default would permit the lender to terminate commitments and accelerate the maturity of borrowings under the Loan Agreement if not cured within applicable grace periods.
If the Loan Agreement is terminated by Debtor anytime prior to the first (1st), second (2nd) or third (3rd) anniversary of the Effective Date (including without limitation as a result of acceleration of the outstanding balance of the Loan Agreement as a result of the occurrence of an Event of Default), Debtor will pay to Lender, as a prepayment premium (the “Prepayment Premium”) and not as a penalty, an amount equal to one and one-half percent (1.50%), one percent (1%) and one-half percent (0.5%) of the Maximum Amount, respectively, provided that the Prepayment Premium will be waived if the Loan Agreement is terminated on or after the second (2nd) anniversary of the Effective Date and the Loan Agreement is contemporaneously refinanced by a Federal Deposit Insurance Corporation insured financial institution.
On September 9, 2026, the Lender notified the Company that the Company’s audited financial statements and related compliance certificate for the fiscal year ended March 31, 2026 had not been delivered to the Lender by June 30, 2026, the 90-calendar-day deadline required under Sections 9(b) and 9(d) of the Loan Agreement (Note 9), which constituted a default under the Loan Agreement. The Lender waived this default, and any Default or Event of Default arising from it, on a one-time basis limited solely to this default, and required the Company to deliver such audited financial statements and compliance certificate to the Lender on or before October 15, 2026, which the Company satisfied with its filing of the Annual Report on Form 10-K on September 28, 2026.
The Company recognized deferred financing costs of approximately $0.8 million for bank fees which will be amortized over three years and recorded as interest expense. For the three months ended June 30, 2026 and 2025, the Company recognized less than $0.1 million, respectively, as interest expense for the amortization of deferred financing costs. For the three months ended June 30, 2026 and 2025, interest expense on our lines of credit totaled $0.3 million and $0.2 million, respectively.
The
Credit Agreement stipulates a base rate measured by the sum of Term SOFR for a period of one month, as published by the CME Group Benchmark
Administration Limited (or any successor administration of Term SOFR) two business days prior to the beginning of the calendar month
and a percentage equal to 0.10% (10 basis points) per annum. If at any time the displayed Term SOFR is less than 0.00%, Term SOFR is
deemed to be 0.00% for the purposes of the credit facility.
The
Credit Agreement bears interest measured by such outstanding amounts on receivable advances and inventory advances that accrue interest
at the greater of 5.25% per annum or 3.00% above the base rate. Interest is charged on the last day of each month on a daily net balance
of funds advanced or otherwise charged to the Company.
The
Credit Agreement requires the Company to comply with maximum total net leverage of $15.0 million and a minimum fixed charge coverage
ratio of 1.10. As of December 31, 2025 the Company was not in compliance with the fixed charge coverage ratio and is working with the
lender to obtain a waiver and has entered into a third forbearance agreement and Credit Agreement amendment with regard thereto along
with additional covenants.
Remediation
of MaterialSIGNIFICANT WeaknessDEFICIENCY
DuringAs
andof subsequentJune to30, the period ended December 31, 2025,2026, we have initiated steps to remediate the materialsignificant weaknessesdeficiencies 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.
While
these actions are intended to remediate the identified materialsignificant weaknesses,deficiencies, the materialsignificant weaknessesdeficiencies cannot be considered remediated
until until
the applicable controls have been fully implemented and have operated effectively for a sufficient period of time and management
has 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.
During
the ninethree months ended DecemberJune 31,30, 2025,2026, the Company issueddid 54,998not issue any common sharesshares, warrants, or options to any consultants withor service
providers. 15,000 employee stock options were forfeited during the associatedthree stock-basedmonths compensation
beingended recordedJune in30, general and administrative expenses.2026.
The
Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of DecemberJune 31,30, 2025,2026, principal
balance of $0.7$1.2 million is due and payable onin December 31, 2027. Interest accruedfor the initial loan balance of $0.7 million accrues at 5.5% per annum
annum, is paid quarterlyquarterly, and is included in accrued expenses. The second borrowing of $0.5 million, which occurred during June 2026,
accrues at 6.0% per annum, is paid quarterly, and is included in accrued expenses. The notes are subordinated to the credit note payable to FGILender and no principal
payment is to be made on the notes without prior
approval from the lender.Lender. For the three months ended June 30, 2026 and 2025 the interest
expense on notes payable to the Stauss Family Administrative Trust was approximately $9,000, respectively.
For
the three and nine months ended December 31, 2025, the interest expense on notes payable to the Stauss Family Administrative Trust was
approximately $9,000 and $28,000, respectively. For the three and nine months ended December 31, 2024, the interest expense on notes
payable to the Stauss Family Administrative Trust was approximately $6,000 and $19,000, respectively.
ZRCN
prepares its consolidated financial statements in accordance with US GAAP, which require management to make estimates and assumptions
that affect the amounts of its assets and liabilities, the information provided with regard to future assets and liabilities as well
as the amounts of revenues and expenses for the relevant periods. Readers are invited to refer to Note 3 of the financial statements
for the three and nine months ended DecemberJune 31,30, 2025,2026, for details.
ZRCN insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
No Form 4 stock transactions in this period.
Well-known investors holding ZRCN (13F)
None of the 59 investors we track reported a position in their latest 13F.