| Summary of Significant Accounting Policies | 3.
Summary of Significant Accounting Policies Basis
of Presentation The
accompanying unaudited consolidated financial statements and related disclosures have been prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”) applicable to interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary
for a fair presentation of the Company and its subsidiaries’ financial position and interim results as of and for the periods presented
have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Results for interim periods are
not necessarily indicative of those that may be expected for a full year. The
financial information included herein should be read in conjunction with our audited consolidated financial statements and related notes
included in our Annual Report for the year ended March 31, 2023, on our form 8-K/A. The
merger between Harmony’s wholly owned subsidiary and Zircon was accounted for as a reverse asset acquisition in accordance with
GAAP. Under this method of accounting, Harmony, through its merger subsidiary, was treated as the “acquired” company and
Zircon was treated as the acquirer for financial reporting purposes. ZRCN
Inc. CONDENSED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 The
consolidated assets, liabilities and results of operations prior to the merger are those of Zircon. Refer to Note 4 for additional information
on the transaction. Principles
of Consolidation The
accompanying unaudited consolidated financial statements include the accounts of ZRCN as well as its variable interest entities. The
Company consolidates all entities over which the Company has the power to govern the financial and operating policies and therefore exercises
control, and upon which the Company has a controlling financial interest. The entities are consolidated from the date at which the Company
obtains control and are de-consolidated from the date at which control ceases. All intercompany balances and transactions have been eliminated.
Accounting policies of the entities have been revised where necessary to ensure consistency with the policies adopted by the Company. Under
Accounting Standards Codification (“ASC”) Topic 810-10-25, Consolidation Reverse
Stock Split On
May 10, 2023, ZRCN authorized a 1:20 reverse split 198,964,500 9,948,272 Variable
Interest Entities In
accordance with ASC 810, Consolidation If
an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis
is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company
- that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic
performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially
be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary. ZRCN
Inc. CONDENSED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 The
Company has determined that ZDM and Zircon UK are variable interest entities with the Company’s wholly owned subsidiary, Zircon,
as the primary beneficiary, and thus the Company, with the ability to exercise control, as determined under the guidance of ASC 810.
In its determination, management considered the following qualitative and quantitative factors:
● the
overall purpose and design of the entities, which exist primarily for the benefit of or on behalf of the Company and
● the
Company’s contractual and common control arrangements with the VIEs, through which it gains both the power to direct the activities
that most significantly impact their economic performance, and the obligation to absorb losses and receive benefits that potentially
could be significant to the VIEs.
● the
equity at risk of the entities is not sufficient to finance the entities’ activities without additional subordinated financial
support by the Company (i.e., the entities are thinly capitalized). Non-controlling
Interests The
Company follows ASC 810, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially
owned consolidated entities and the loss of control of those entities. Non-controlling interest positions, which represent 100% of the
activity in the Company’s consolidated entities after intercompany transactions have been eliminated, are reported as a separate
component of consolidated stockholders’ equity from the equity attributable to ZRCN’s stockholders for all years presented.
The net income attributed to the NCI’s is separately designated in the accompanying unaudited consolidated statements of operations
and comprehensive income (loss). Use
of Estimates The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported amounts of revenues and expenses. Significant estimates used in preparing these unaudited consolidated financial statements
include the allowance for doubtful accounts, inventory obsolescence reserve, allocation of overhead to inventory, estimated future benefit
and fair value of intangible assets, accrued rebates and advertising allowances, useful lives and depreciation methods of property and
equipment, and uncertain tax positions. It is at least reasonably possible that the significant estimates used will change within the
next year. Accounts
Receivable, Net The
Company provides credit without requiring collateral, in the normal course of business, to credit- worthy customers as determined by
management’s review of references and credit reports. Bad debts are charged against the allowance for doubtful accounts. The allowance
is adjusted to provide a specific and general reserve for estimated uncollectible accounts, which is based on management’s judgment.
Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to accounts receivable. Based on management’s assessment of the credit history with customers having outstanding
balances and current relationships with them, management believes that losses on balances outstanding will not exceed the allowance. Accounts
receivable consisted of the following: Schedule of Accounts Receivable
June
30, 2023 March
31, 2023
Accounts receivable $ 6,646,162 $ 7,534,193
Less
allowance for doubtful accounts (13,267 ) (9,765 )
Accounts
receivable, net $ 6,632,895 $ 7,524,428 ZRCN
Inc. CONDENSED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 Activity
related to the Company’s allowance for doubtful accounts was as follows: Schedule of Allowance for Doubtful Accounts
June
30, 2023 March
31, 2023
Balance, beginning
of year $ 9,765 $ 115,129
Bad debt
allowance 3,502 (1,561 )
Write-offs — (103,803 )
Balance,
end of year $ 13,267 $ 9,765 Inventory,
Net Inventories,
which consist primarily of raw materials and finished goods, are stated at the lower of cost or net realizable value. The Company states
inventory cost utilizing the first-in, first-out (FIFO) method. Labor and overhead associated with inventory purchases are estimated
and capitalized in inventory. The need for an allowance for inventory obsolescence is based on an evaluation of slow-moving or obsolete
inventory. Obsolescence allowance was estimated at $ 407,534 487,830 Revenue
Recognition The
Company’s revenues result from the sale of products and reflect the consideration to which the Company expects to be entitled.
The Company records revenue based on a five-step model in accordance with ASC 606, Revenue from Contracts with Customers Provisions
for customer volume rebates, product returns, discounts and allowances are variable consideration and are recorded as a reduction of
revenue in the same period the related sales are recorded. Such provisions are calculated using historical averages adjusted for any
expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a
reduction of revenue except to the extent that there is a distinct good or service and evidence of the fair value of the advertising,
in which case the expense is classified as selling, general, and administrative expense. Sales tax for the sale of products is applied
to the invoice and recorded as an accrued liability. Research
and Development The
Company incurs research and development costs of products for use in scanning behind opaque surfaces. The Company will continue to invest
in research and development to develop additional components and products of its scanning product offerings and remains committed to
providing its customers and partners with best-in-class scanning products and services. Such research and development costs, software
development costs, and any new product development costs, are expensed as incurred, and include personnel-related costs, depreciation
related to engineering and test equipment, allocated costs of facilities and information technology, outside services and consultant
costs, supplies, software tools and product certification. Comprehensive
Loss Comprehensive
loss of all periods presented is comprised primarily of net income (loss) and foreign currency translation adjustments. ZRCN
Inc. CONDENSED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 Segment
Reporting The
Company determines its reporting units in accordance with FASB ASC 280, Segment Reporting Concentration
of Business and Credit Risk As
of June 30, 2023, the Company maintained deposits in a single bank that exceeded the federal insured deposit limit of the Federal Deposit
Insurance Corporation (FDIC). During
the three months ended June 30, 2023 and 2022, the Company generated approximately 66 64 70 71 Fair
Value of Financial Instruments In
accordance with FASB ASC 820 Fair Value Measurements and Disclosures
● Level
1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
● Level
2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability other than quoted prices, either directly or indirectly including inputs in markets
that are not considered to be active; and
● Level
3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company
believes the carrying amounts of its cash equivalents, accounts receivable, other current assets, other assets, accounts payable, accrued
expenses, and other current liabilities approximated their fair values as of June 30, 2023 and March 31, 2023 due to their short-term
nature. Management measures intangible assets at fair value on a non-recurring basis using internally developed assumptions about the
market as there is no market activity available. All carrying amounts of other applicable assets and liabilities on the Company’s
balance sheet approximate fair value. For long-term debt, the estimated fair value approximates its carrying value, as the interest rate
is in line with the market interest rates for this type of debt Income
Taxes Income
taxes are recorded in accordance with ASC 740, Income Taxes As
of April 14, 2023, the Company’s election to be an S Corporation under the Internal Revenue Code was no longer in effect. ZRCN
Inc. CONDENSED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 Loss
Per Share Basic
loss per share of common stock is computed by dividing net loss attributable to ZRCN by the weighted average number of shares of common
stock outstanding for the period. Diluted loss per share excludes, when applicable, the potential impact of common stock warrant shares
and other dilutive instruments because their effect would be anti-dilutive. The Company did not have any dilutive instruments outstanding
as of March 31, 2023. The dilutive securities outstanding are as follows: Schedule of Dilutive Securities Outstanding
June
30, 2023 March
31, 2023
Common stock warrants 217,184 — Leases In
February 2016, the FASB issued a new accounting standard, ASC Topic 842, related to leases to increase transparency and comparability
among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet.
Most significant among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases
classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required to meet the objective of enabling
users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted ASC
Topic 842 effective April 1, 2022, using the modified retrospective transition approach as of the period of adoption. The
Company’s lease arrangements relate primarily to office space, a vehicle, and office equipment. The Company’s leases may
include renewal options and rent escalation clauses. The Company is typically required to make fixed minimum rent payments relating to
its right to use an underlying leased asset. The
Company has lease agreements which contain both lease and non-lease components, which it has not elected to account for as a single lease
component. As such, minimum lease payments exclude fixed payments for non-lease components within a lease agreement, in addition to excluding
variable lease payments not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs
that are subject to fluctuation from period to period. Warrants The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s
specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity Derivatives and Hedging For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component
of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification,
the warrants are required to be liability classified and recorded at their initial fair value on the date of issuance and remeasured
at fair value and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash
gain or loss on the statements of operations. The fair value of the private placement warrants was estimated using a Black Scholes valuation
approach with assumptions relevant on the date of issuance and the fair value of the penny warrants issued in connection with the Merger
was estimated using the intrinsic value method. ZRCN
Inc. CONDENSED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 Recently
Issued Accounting Pronouncements As
an emerging growth company, the Company will have the option of adopting new accounting pronouncements on a delayed basis and has opted
to take advantage of this option. As a result, the Company has been adopting new accounting standards based on the timeline for adoption
afforded to privately held companies, unless it chooses to early adopt a new accounting standard. Recently
Issued Accounting Standards Adopted In
May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified
Written Call Options In
October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers In
June 2016, the FASB issued ASU No. 2016-13, Accounting for Credit Losses (Topic 326) |
