| Summary of Significant Accounting Policies | 3.
Summary of Significant Accounting Policies Basis
of Presentation The
accompanying consolidated financial statements of the Company are prepared on the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America (GAAP). On this basis, revenue and the related assets are recognized when
services are performed and products are sold, and expenses and related liabilities are recorded when the obligation is incurred. Principles
of Consolidation The
accompanying consolidated financial statements include the accounts of ZRCN as well as its variable interest entities. The Company consolidates
all entities over which the Company has the power to govern the financial and operating policies and therefore exercises control, and
upon which the Company has a controlling financial interest. The entities are consolidated from the date at which the Company obtains
control and are de-consolidated from the date at which control ceases. All intercompany balances and transactions have been eliminated.
Accounting policies of the entities have been revised where necessary to ensure consistency with the policies adopted by the Company. ZRCN
Inc. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2024 AND 2023 Under
Accounting Standards Codification (“ASC”) Topic 810-10-25, Consolidation Reverse
Stock Split On
May 10, 2023, ZRCN authorized a 1:20
reverse split of its common shares outstanding,
pursuant to a majority vote of stockholders as provided under Section 228 of the Delaware General Corporation Law (DGCL). As a result,
ZRCN made an amendment to the Certificate of Incorporation of the Corporation to affect a reverse split of the Common Stock whereby each
twenty (20) issued and outstanding shares of Common Stock was exchanged for one (1) share of Common Stock. Each resulting fractional
share of Common Stock was rounded up to the next nearest whole share of Common Stock and with no change to the authorized shares of Common
Stock. At the time, the effect of the reverse stock split reduced the number of common shares outstanding from 198,964,500
to 9,948,272 .
All references to common stock, stock warrants to purchase common stock, share data, per share data and related information contained
in these consolidated financial statements have been retrospectively adjusted to reflect the effect of the reverse stock split for all
periods presented. 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. The
Company has determined that ZDM and Zircon UK are variable interest entities with the Company’s wholly owned subsidiary, Zircon,
as the primary beneficiary, and thus the Company, with the ability to exercise control, as determined under the guidance of ASC 810.
In its determination, management considered the following qualitative and quantitative factors:
a. the
overall purpose and design of the entities, which exist primarily for the benefit of or on
behalf of the Company and;
b. the
Company’s contractual and common control arrangements with the VIEs, through which
it gains both the power to direct the activities that most significantly impact their economic
performance, and the obligation to absorb losses and receive benefits that potentially could
be significant to the VIEs;
c. the
equity at risk of the entities is not sufficient to finance the entities’ activities
without additional subordinated financial support by the Company (i.e., the entities are
thinly capitalized). ZRCN
Inc. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2024 AND 2023 The
following table summarizes the carrying amount of the assets and liabilities of ZDM included in the Company’s consolidated balance
sheets at March 31, 2024 and 2023 (after elimination of intercompany transactions and balances): Schedule
of Carrying Amount of Assets and Liabilities for Variable Interest Entities
As
of March 31,
2024 2023
ASSETS
Current
assets:
Cash $ 29,671 $ 38,844
Accounts
receivable $ 10,288 8,115
Prepaid
expenses and other assets $ 63,146 47,156
Total
current assets 103,105 94,115
Property
and equipment $ 251,819 272,723
Total
assets $ 354,924 $ 366,838
LIABILITIES
Current
liabilities:
Accounts
payable $ 130,994 $ 153,916
Accrued
expenses $ 73,641 114,719
Total
current liabilities $ 204,635 $ 268,635 The
following table summarizes the carrying amount of the assets and liabilities of Zircon UK included in the Company’s consolidated
balance sheets at March 31, 2024 and 2023 (after elimination of intercompany transactions and balances): Schedule
of Carrying Amount of Assets and Liabilities for Variable Interest Entities
As
of March 31,
2024 2023
ASSETS
Current
assets:
Cash $ — $ 21,103
Accounts
receivable 9,173 4,366
Total
current assets 9,173 25,469
LIABILITIES
Current
liabilities:
Accounts
payable $ 32,964 $ 31,086
Total
current liabilities $ 32,964 $ 31,086 Non-controlling
Interests The
Company follows ASC 810, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially
owned consolidated entities and the loss of control of those entities. Non-controlling interest positions, which represent 100% of the
activity in the Company’s consolidated entities before intercompany transactions have been eliminated, are reported as a separate
component of consolidated stockholders’ equity from the equity attributable to ZRCN’s stockholders for all years presented.
The net income attributed to the NCI’s is separately designated in the accompanying comprehensive loss. ZRCN
Inc. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2024 AND 2023 Use
of Estimates The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported amounts of revenues and expenses. Significant estimates used in preparing these consolidated financial statements include
the provision for credit losses, allowance for inventory obsolescence, allocation of overhead to inventory, estimated future benefit
and fair value of intangible assets, accrued rebates and advertising allowances, useful lives and depreciation methods of property and
equipment, and uncertain tax positions. It is at least reasonably possible that the significant estimates used will change within the
next year. Cash The
carrying value of cash approximates fair value due to the short-term nature of the instruments. From time to time, the Company may be
in the position of a “book overdraft” in which outstanding checks exceed cash. The Company classifies book overdrafts in
accounts payable within its consolidated balance sheets, and classifies the change in accounts payable associated with book overdrafts
as an operating activity within the consolidated statement of cash flows. As of March 31, 2024, the book overdraft included within accounts
payable was $ 350,022 .
As of March 31, 2023, the Company did not have any book overdrafts included within accounts payable. Accounts
Receivable, Net Accounts
receivables are stated at the amount the Company expects to collect. The Company provides credit without requiring collateral, in the
normal course of business, to credit-worthy customers as determined by management’s review of references and credit reports. Bad
debts are charged against the provision for credit losses. The provision for credit losses is adjusted to provide a specific and general
allowance for estimated uncollectible accounts, which is based on management’s judgment based on a number of factors, including
the length of time the receivables are past due, significant one-time events and historical experience. Balances that are still outstanding
after management has used reasonable collection efforts are written off through a charge to the provision for credit losses and a credit
to accounts receivable. Based on management’s assessment of the credit history with customers having outstanding balances and current
relationships with them, management believes that losses on balances outstanding will not exceed the provision for credit losses. Accounts
receivable consisted of the following: Schedule
of Accounts Receivable
March
31, 2024 March
31, 2023
Accounts
receivable $ 8,657,894 $ 7,534,193
Less
provision for credit losses (13,521 ) (9,765 )
Accounts
receivable, net $ 8,644,373 $ 7,524,428 Activity
related to the Company’s provision for credit losses was as follows: Schedule
of Provision for Credit losses
March
31, 2024 March
31, 2023
Balance,
beginning of period $ 9,765 $ 115,129
Credit
loss provision 3,756 1,561
Write-offs — (106,925 )
Balance,
end of period $ 13,521 $ 9,765 Inventory 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. ZRCN
Inc. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2024 AND 2023 Property
and Equipment, Net Property
and equipment are stated at cost. Leasehold improvements are amortized over the shorter of the lease terms or estimated useful lives
of the respective assets. Depreciation is computed using the straight-line method over the following estimated useful lives of the respective
assets: Schedule
of Useful Life of Asset
Leasehold
improvement 7 - 20
years
Computer
equipment 3 - 5
years
Manufacturing
equipment 3 - 10
years
Furniture
and office equipment 7 - 10
years
Vehicles 4 - 5
years Intangible
Assets, Net Included
in intangible assets are external amounts paid to vendors as well as consulting and legal fees for purchased patents and the cost of
the exclusivity rights and licenses secured by the Company for certain technology. The intangible assets are recorded at cost on the
balance sheet and adjusted for amortization, abandonments, and impairments (see Note 8). Acquired identifiable intangible assets are
valued at the acquisition date primarily by using a discounted cash flow method. Amortization is computed using the straight-line method
over their estimated useful lives of 5
to 20
years. Amortization for filed patents not yet
issued will begin upon the date of issuance. The Company evaluates intangible assets for impairment and writes off assets that are not
used in any products. During the years ended March 31, 2024 and 2023, there were no
impairment expenses for intangible assets. Impairment
of Long-Lived Assets The
Company reviews its long-lived assets for impairment whenever events or circumstances exist that indicate the carrying amount of an asset
or asset group may not be recoverable. The recoverability of long-lived assets is measured by a comparison of the carrying amount of
the asset or asset group to the future undiscounted cash flows expected to be generated by that asset group. If the asset or asset group
is considered to be impaired, an impairment loss is recorded to adjust the carrying amounts to the estimated fair value. The excess of
the carrying value of the reporting unit over the estimated fair value was first allocated to the intangibles and then to goodwill. Fair
value was determined using the income approach. As of March 31, 2024 and March 31, 2023, there has been no
impairment of long lived assets. Deposits The
Company has amounts pledged as security deposits of $ 19,195 at March 31, 2024 and March 31, 2023, respectively, primarily
representing a security deposit required by the Company’s office lease. 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 ZRCN
Inc. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2024 AND 2023 Provisions
for customer volume rebates, product returns, discounts and allowances are variable consideration and are recorded as a reduction of
revenue in the same period the related sales are recorded. Such provisions are calculated using historical averages adjusted for any
expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a
reduction of revenue except to the extent that there is a distinct good or service and evidence of the fair value of the advertising,
in which case the expense is classified as marketing and selling expense. Advertising expenses included within marketing and selling
expenses were $ 57,353
and $ 207,696
for the years ended March 31,
2024 and 2023. 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. Warranty The
Company provides an assurance warranty that its products and the functionalities work as intended and comply with defined specifications.
The Company does not provide an extended service warranty to its customers. The actual cost associated with the assurance warranty is
$ 3,308 as
of March 31, 2024 and $ 4,992 as of March 31, 2023. Costs are expensed as incurred. Comprehensive
Loss Comprehensive
loss of all periods presented is comprised primarily of net loss and foreign currency translation adjustments. Segment
Reporting The
Company determines its reporting units in accordance with FASB ASC 280, Segment Reporting Concentration
of Business and Credit Risk As
of March 31, 2024, the Company maintained deposits in a single bank that exceeded the federal insured deposit limit of the Federal Deposit
Insurance Corporation (FDIC) . During
the years ended March 31, 2024 and 2023 the Company generated approximately 72 %
and 66 %
of its total revenue from three customers. Accounts receivable from these customers amounted to approximately 77 75 ZRCN
Inc. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2024 AND 2023 As
of March 31, 2024 and 2023, 72 %
and 75 %
of its total accounts receivable, were from three customers, respectively. Fair
Value of Financial Instruments In
accordance with FASB ASC 820 Fair Value Measurements and Disclosures
a. Level
1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets;
b. 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
c. Level
3 – inputs to the valuation methodology are unobservable and insignificant 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 March 31, 2024 and 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. Foreign
Operations and Foreign Currency The
Company’s reporting currency is the U.S. dollar and the Company’s records are maintained in U.S. dollars. Assets and liabilities,
including any amounts due or receivable from foreign entities, are translated into the reporting currency using the exchange rates in
effect on the consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained
earnings during the year, which is the result of the consolidated statement of operations translation process. Any revenues or expenses
that are billed in foreign currency are converted at the average rates of exchange prevailing during each period. Realized and unrealized
foreign currency exchange gains and losses arising from transactions denominated in currencies other than the U.S. dollar are reflected
in earnings. The cumulative translation adjustments associated with the net assets of foreign entities are recorded in accumulated other
comprehensive income (loss) in the accompanying consolidated statements of changes in stockholders’ equity. Operations
outside the United States include entities in Mexico and the United Kingdom. The Company also transacts business in other foreign countries.
Foreign operations are subject to risks inherent in operating under different legal systems and various political and economic environments.
Among the risks are changes in existing tax laws, possible limitations on foreign investment and income repatriation, government price
or foreign exchange controls, and restrictions on currency exchange. Income
Taxes Income
taxes are recorded in accordance with ASC 740, Income Taxes ZRCN
Inc. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2024 AND 2023 As
of April 14, 2023, Zircon’s election to be an S Corporation under the Internal Revenue Code was no longer in effect. Net
Loss Per Share Basic
net loss per share of common stock is computed by dividing net income or loss attributable to ZRCN by the weighted average number of
shares of common stock outstanding for the period. Diluted loss per share excludes, when applicable, the potential impact of common stock
warrant shares and other dilutive instruments because their effect would be anti-dilutive. Diluted net income per share, when applicable,
includes the warrant shares because their effect would be dilutive. The dilutive securities outstanding are as follows: Schedule
of Dilutive Securities Outstanding
March
31, 2024 March
31, 2023
Common
stock warrants 217,184 — In
accordance with an agreement with SCE dated May 15, 2023, the Company will issue an additional 25,000 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’s lease arrangements relate primarily to office space, a vehicle, and office equipment. The Company’s leases may
include renewal options and rent escalation clauses. The Company is typically required to make fixed minimum rent payments relating to
its right to use an underlying leased asset. The
Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are presented
as right-of-use (“ROU”) assets and the corresponding lease liabilities are included in operating lease liabilities, current
and operating lease liabilities on the Company’s consolidated balance sheets. ROU assets represent the Company’s right to
use an underlying asset, and lease liabilities represent the Company’s obligation for lease payments in exchange for the ability
to use the asset for the duration of the lease term. The Company does not recognize short term leases that have a term of twelve months
or less as ROU assets or lease liabilities. ROU
assets and lease liabilities are recognized at commencement date and determined using the present value of the future minimum lease payments
over the lease term. The Company uses an incremental borrowing rate based on estimated rate of interest for collateralized borrowing
since the Company’s leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market
data, actual lease economic environment, and actual lease term at commencement date. The lease term may include options to extend when
it is reasonably certain that the Company will exercise that option. The Company recognizes lease expense on a straight-line basis over
the lease term. The
Company has lease agreements which contain both lease and non-lease components, which it has not elected to account for as a single lease
component. As such, minimum lease payments exclude fixed payments for non-lease components within a lease agreement, in addition to excluding
variable lease payments not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs
that are subject to fluctuation from period to period. ZRCN
Inc. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2024 AND 2023 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 stockholders’ equity 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. 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) Recently
Issued Accounting Standards Not Yet Adopted In
November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The new standard
requires a company to disclose incremental segment information on an annual and interim basis, including significant segment expenses
and measures of profit or loss that are regularly provided to the chief operating decision maker. The standard is effective for the Company
beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted. The Company does not expect
to early adopt the new standard. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements
and related disclosures and will adopt the new standard using a retrospective approach. ZRCN
Inc. NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2024 AND 2023 In
December 2023, the FASB also issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The new standard
requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid.
The standard is effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted. The Company
does not expect to early adopt the new standard. The new standard is expected to be applied prospectively, but retrospective application
is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements and related disclosures. In
March 2024, FASB issued ASU No. 2024-01, “Compensation- Stock Compensation (Topic 718): Scope Application of Profits Interest and
Similar Awards.” ASU 2024-01 provides an illustrative example that includes four fact patterns to demonstrate how an entity should
apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance
with Topic 718. ASU 2024-01 is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the
impact of ASU 2024-01 on its consolidated financial statements and related disclosures. |
