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 $0.8 million which was recorded as other income in the Statement of Operations

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 $19,000 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 $0.2 million and $0.2 million for the years ended March 31, 2026 and 2025, respectively. The trust is considered a related party to both Zircon and ZRCN (Note 14).

The Company leases office equipment through a lease that expires in June 2026 and requires monthly lease payments of less than $0.1 million for a period of five years. The total lease expense for the years ended March 31, 2026 and 2025, amounted to less than $0.1 million in each respective period.

The Company had leased a vehicle that expired on July 2024 and required monthly lease payments of less than $0.1 million for a period of three years. In July of 2024 the Company leased a new vehicle under the same terms, which expires in June 2027 with required monthly lease payments of less than $0.1 million for a period of three years. The total lease expense for the years ended March 31, 2026 and 2025 amounted to less than $0.1 million in each respective period.

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

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

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

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 $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.

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.

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 $1.4 million for products and services to be received within the next 12 months. The Company has no commitments outstanding under “take or pay” agreements.

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 $10,000. However, if sales of these products increase in the future, such regulations in California and in other states and across the globe could have a negative impact on the company’s financial performance through increased fees and increased compliance costs to meet any new regulations. Such compliance costs could have a material impact on the Company’s financial performance as well.

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.