ZK International(ZKIN) - 2025 Q4 - Annual Report

Regulatory Risks - ZK International's current auditor, Fortune CPA, Inc., is not subject to PCAOB inspection, which poses a risk of potential delisting under the HFCAA if the PCAOB cannot inspect the auditor for two consecutive years[26]. - The company is not currently required to obtain approval from Chinese authorities to list on U.S. exchanges, but future requirements could significantly impact operations[31]. - The Trial Administrative Measures by the CSRC effective March 31, 2023, may require filing for future offshore offerings, which could hinder the ability to offer securities[34]. - The approval from the China Securities Regulatory Commission (CSRC) may be required for future offerings, and failure to meet such requirements could limit the company's ability to offer securities[83]. - Recent regulatory actions by the PRC government include increased oversight of overseas offerings and foreign investments, which could hinder the company's ability to conduct business and accept foreign investments[76]. - The company is facing uncertainty regarding audit cooperation with PCAOB due to Chinese authorities' approval, which may affect the trading of its securities[169]. Financial Operations and Cash Flow - The company relies on dividends from its subsidiaries to fund cash needs, and any limitations on these payments could adversely affect operations and investments[35]. - There have been no transfers, dividends, or distributions between ZK International and its subsidiaries during the fiscal years ended September 30, 2025, 2024, and 2023[44]. - ZK International and its subsidiaries do not plan to distribute earnings or settle amounts owed in the foreseeable future, intending to use earnings for business operations instead[45]. - The company relies on dividends from PRC subsidiaries for cash needs, and any limitations on these payments could impact operational expenses[64]. - The company recorded an income tax liability of $669 for the fiscal year ended September 30, 2023, with no liabilities for the previous two fiscal years[119]. - Operating activities provided $736,397 in net cash during the fiscal year ended September 30, 2025, while using $6,475,650 and $1,905,912 in the fiscal years ended September 30, 2024, and 2023, respectively[127]. - The company incurred net losses of $61,290,390, $2,783,566, and $4,015,330 for the years ended September 30, 2023, 2024, and 2025, respectively, with accumulated deficits amounting to $54,433,757 as of September 30, 2025[156]. Market and Economic Conditions - The company faces significant risks related to doing business in China, including regulatory scrutiny and potential restrictions on operations[74]. - The Chinese government continues to exert substantial control over the economy, which may lead to material changes in the operations of PRC subsidiaries and significant depreciation of the company's ordinary shares[75]. - A weakening Chinese economy, particularly in the real estate and hospitality sectors, could negatively impact demand for the company's products[121]. - The PRC government's policies significantly influence economic growth, which could reduce demand for the company's products and adversely affect its competitive position[90]. Compliance and Legal Risks - The PRC Data Security Law and the Personal Information Protection Law impose strict requirements on data collection and processing, which could affect the company's operations if deemed applicable[77][78]. - The Measures for Cybersecurity Review (2021) require online platform operators with over one million users' personal information to undergo cybersecurity reviews before listing abroad, potentially impacting the company's future listings[79]. - The company is not currently required to file for cybersecurity review, but future regulations could impose significant compliance burdens and affect business operations[81]. - The British Virgin Islands laws provide limited protection for minority shareholders, which may affect their ability to address corporate governance issues[188]. Competition and Market Position - The company faced significant competition in the domestic market for pipe and fitting products, with over one hundred smaller companies and a few large competitors[120]. - The company is heavily dependent on senior management and key research and development personnel, particularly the Chairman of the Board, Jiancong Huang, for managing operations in the PRC[141]. - The company faces intense competition for qualified personnel, which could increase compensation costs and adversely affect operational results[143]. Intellectual Property and Innovation - The company has not been granted patents outside of China, which may limit its ability to protect its intellectual property as it expands internationally[130]. - The company relies on a combination of patent, copyright, trademark, and trade secret laws to protect its intellectual property rights, owning various patents in China related to its production technology[146]. - The company plans to explore strategic acquisitions to support growth but may face challenges in identifying suitable candidates and integrating them into existing operations[135]. Shareholder and Capital Structure - Officers and directors control approximately 24% of the company's outstanding shares, which may influence shareholder decisions and management[172]. - The company is classified as an emerging growth company and may benefit from reduced reporting requirements for up to five years, but this could make its shares less attractive to investors[171]. - The company does not intend to pay dividends in the foreseeable future, meaning returns for investors will depend on share price appreciation[185]. - The company's ordinary share price may experience significant volatility, potentially leading to securities litigation[190]. - The trading price of the Company's ordinary shares has fluctuated between $0.82 and $6.3 during the fiscal year ended September 30, 2025[191]. Financing and Capital Needs - The company may require additional capital to support business growth, which could involve equity or debt financing, potentially leading to dilution for existing shareholders[122]. - The Company entered into a securities purchase agreement on November 27, 2023, to issue and sell $5 million of ordinary shares, with the initial subscription amount of $1.5 million to be paid within three business days[215]. - The Private Placement was completed in three subscriptions, with the total amount to be issued based on a pricing structure that includes 185% of the higher closing bid price prior to the agreement[215]. - Univest Securities, LLC facilitated the Private Placement and received a commission of $150,000[216]. - On October 20, 2025, the Company agreed to sell 10,010,000 ordinary shares at a price of $2.09 per share, totaling $20,920,900[217]. - The Company entered into a securities purchase agreement on July 12, 2024, to purchase 2,000,000 shares of common stock from Recruiter.Com Group, Inc. at $1.00 per share[218]. Corporate Governance and Compliance - The company must maintain effective internal control over financial reporting, and failure to do so could lead to a decline in share price and investor confidence[177]. - Becoming a public company will increase legal and financial compliance costs, impacting the company's net income and liquidity[181]. - The company is implementing an anti-corruption program to comply with the U.S. Foreign Corrupt Practices Act and Chinese anti-corruption laws[100]. - Recent PRC regulations emphasize the need for oversight of overseas listings, which could hinder the company's ability to raise additional capital[104].