10-Q - ZRCN - Equibles

UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

Washington,

DC 20549

FORM

10-Q

(Markone)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Forthe quarterly period ended June 30, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For

the transition period from __________ to __________.

Commission

File Number: 000-56380

ZRCN

INC.

(Exactname of registrant as specified in its charter)

Delaware	83-2756695
(State or other jurisdiction of<br><br> <br>incorporation or organization)	(I.R.S. Employer<br><br> <br>Identification No.)
1580 Dell Avenue<br><br> <br>Campbell, CA	95008
(Address of principal executive offices)	(Zip Code)

(408)963-4550

(Registrant’stelephone number, including area code)

Not

applicable

(Formername, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large<br> Accelerated filer	☐	Accelerated<br> filer	☐
Non-Accelerated<br> filer	☒	Smaller<br> Reporting Company	☒
		Emerging<br> Growth Company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As

of August 19, 2024, 10,050,265 shares of common stock were issued and outstanding.

Securities registered pursuant to Section 12(b) of the Act: None

Forward-Looking

Statements

ThisCurrent Report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), that involve substantial risks and uncertainties. The forward-looking statements are contained in this Report in some casesyou can identify forward-looking statements by terminology such as “may”, “is expected to”, “anticipates”,“estimates”, “intends”, “plans”, “projection”, “could”, “vision”,“goals”, “objective” and “outlook” and similar expressions. These statements are not historical factsand may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differmaterially from those expressed in the forward-looking statements, many of which are difficult to predict and generally beyond our control.

Youshould refer to “Risk Factors” of this Report for a discussion of important factors that may cause our actual results todiffer materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure youthat the forward-looking statements in this Report will prove to be accurate. Furthermore, if our forward-looking statements prove tobe inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you shouldnot regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans inany specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements. Unless the contextrequires otherwise, references to “we,” “us,” “our,” and “Company,” refer to registrant,ZRCN Inc. (“ZRCN” - formerly known as Harmony Energy Technologies Corporation (“Harmony”)) and/or ZRCN’swholly owned subsidiary, Zircon Corporation (“Zircon”).

Ourforward-looking statements are subject to a number of known and unknown risks, uncertainties, assumptions, and other factors that maycause our actual future results, performance, or achievements to differ materially from any future results expressed or implied in thisReport. Reported results should not be considered an indication of future performance.

Becausesome of these risks and uncertainties cannot be predicted or quantified and some are beyond our control, you should not rely on our forward-lookingstatements as predictions of future events. More information about potential risks and uncertainties that could affect our business andfinancial results is included in the section of this Annual Report titled “Risk Factors” and our other filings with the U.S.Securities and Exchange Commission (“SEC”), which are available on the SEC’s web site at www.sec.gov. Moreover,we operate in a very competitive and rapidly changing environment; new risks and uncertainties may emerge from time to time, and it isnot possible for us to predict all risks nor identify all uncertainties. The events and circumstances reflected in our forward-lookingstatements might not be achieved and actual results could differ materially from those projected in the forward-looking statements. Exceptas otherwise noted, all forward-looking statements are made as of the date we file this Report, and are based on information and estimatesavailable to us at this time. Although we believe that the expectations reflected in our forward-looking statements are reasonable, wecannot guarantee future results, performance, or achievements. Except as required by law, we assume no obligation to update any of thestatements in this Report whether as a result of any new information, future events, changed circumstances, or otherwise. You shouldread this Report with the understanding that our actual future results, performance, events, and circumstances might be materially differentfrom what we expect.

Table of Contents

		Page
PART<br> I	FINANCIAL INFORMATION
Item<br> 1.	Financial Statements	3
	Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and March 31, 2023	3
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended June 30, 2024 and 2023 (Unaudited)	4
	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended June 30, 2023 and 2022 (Unaudited)	5
	Consolidated Statements of Cash Flows for the three months ended June 30, 2024 and 2023 (Unaudited)	6
	Condensed Notes to the Unaudited Consolidated Financial Statements	7
Item<br> 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item<br> 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item<br> 4.	Controls and Procedures	28
PART<br> II	OTHER INFORMATION
Item<br> 1.	Legal Proceedings	29
Item<br> 1A.	Risk Factors	30
Item<br> 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item<br> 3.	Defaults Upon Senior Securities	30
Item<br> 4.	Mine Safety Disclosures	30
Item<br> 5.	Other Information	30
Item<br> 6.	Exhibits	30
SIGNATURES		31

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PART

I FINANCIAL INFORMATION

ITEM1. Financial Statements.

ZRCN

Inc

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

			March 31, 2024
	(Unaudited)			(Audited)
ASSETS
Current assets:
Cash	374		$	502
Accounts receivable, net of provision for credit losses of approximately 7 and 14, respectively	5,845			8,644
Inventory, net	13,147			14,057
Prepaid expenses and other assets	427			335
Total current assets	19,793			23,538
Property and equipment, net	1,897			1,803
Deferred tax asset	499			499
Operating lease right-of-use assets	699			751
Federal tax deposit	213			213
Intangible assets, net	763			792
Deposits	19			19
Deferred financing costs	326			—
Total assets	24,209		$	27,615
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	5,286		$	7,050
Accrued expenses	2,246			2,130
Operating lease liability, current	197			195
Notes payable, current portion	—			75
Total current liabilities	7,729			9,450
Line of credit	7,493			8,026
Operating lease liability, net of current portion	481			545
Notes payable to Stauss Family Administrative Trust	667			667
Total liabilities	16,370			18,688
Commitments and Contingencies (Note 14)	-			-
Stockholders’ equity:
Common stock; at 0.0001 par value, 20,000,000 shares authorized, 10,041,936 and 10,016,936 shares issued and outstanding as of June 30, 2024 and March 31, 2024, respectively	1			1
Accumulated other comprehensive loss	(70	)		(187	)
Retained earnings	6,138			7,421
Total equity attributable to ZRCN Inc. stockholders	6,069			7,235
Non-controlling interests in variable interest entities	1,770			1,692
Total stockholders’ equity	7,839			8,927
Total liabilities and stockholders’ equity	24,209		$	27,615

All values are in US Dollars.

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements

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ZRCN

Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share data)

(Unaudited)

	2024			2023
	For the Three Months Ended June 30,
	2024			2023
Net sales	$	5,811		$	6,567
Cost of sales		3,460			3,623
Gross profit		2,351			2,944
Operating expenses:
General and administrative		1,461			1,669
Marketing and selling		903			1,140
Research and development		425			485
Total operating expenses		2,789			3,294
Loss from operations		(438	)		(350	)
Other expenses:
Interest expense		223			157
Other expenses		7			9
(Gain) loss on foreign currency transactions		(103	)		49
Total other expenses		127			215
Loss before income taxes		(565	)		(565	)
Income tax (expense) benefit		(21	)		100
Net loss	$	(586	)	$	(465	)
Less: Net income (loss) attributable to non-controlling interests		78			(83	)
Net loss attributable to ZRCN Inc. common stockholders	$	(664	)	$	(382	)
Net loss	$	(586	)	$	(465	)
Change in foreign currency translation adjustment		117			117
Comprehensive loss		(469	)		(348	)
Net income (loss) attributable to non-controlling interests		78			(83	)
Other comprehensive income (loss) attributable to non-controlling interest		117			117
Comprehensive loss attributable to ZRCN Inc. common stockholders	$	(274	)	$	(314	)
Net loss per share attributable to ZRCN Inc.:
Basic and diluted	$	(0.07	)	$	(0.05	)
Weighted average common shares outstanding:
Basic and diluted		10,029,436			8,436,549

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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ZRCN

Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(Unaudited)

	Shares		Amount		(Loss) Income				Earnings			to ZRCN			Interests		Equity
	Common Stock				Accumulated Other<br><br> <br>Comprehensive				Retained			Total Equity<br><br> <br>Attributable			Non-controlling		Total Stockholders’
	Shares		Amount		(Loss) Income				Earnings			to ZRCN			Interests		Equity
Balance - March 31, 2024		10,016,936	$	1	$	(187	)	-	$	7,421		$	7,235		$	1,692	$	8,927
Stockholder distributions		—		—		—		-		(659	)		(659	)		—		(659	)
Change in foreign currency translation adjustment		—		—		117				—			117			—		117
Common stock issued for advisory services		25,000		—		—				40			40			—		40
Net (loss) income		—		—		—				(664	)		(664	)		78		(586	)
Balance - June 30, 2024		10,041,936	$	1	$	(70	)	-	$	6,138		$	6,069		$	1,770	$	7,839
	Shares		Amount		Income		Stockholder			Earnings			to ZRCN			Interests			Equity
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Common Stock				Accumulated Other<br><br> <br>Comprehensive		Note Receivable from			Retained			Total Equity<br><br> <br>Attributable			Non-controlling			Total Stockholders’
($ in thousands)	Shares		Amount		Income		Stockholder			Earnings			to ZRCN			Interests			Equity
Balance - March 31, 2023		500,000	$	—	$	16	$	(240	)	$	8,630		$	8,406		$	1,422		$	9,828
Balance		500,000	$	—	$	16	$	(240	)	$	8,630		$	8,406		$	1,422		$	9,828
Merger with Harmony		9,448,272		1		—		—			(1,099	)		(1,098	)		—			(1,098	)
Change in foreign currency translation adjustment		—		—		117		—			—			117			—			117
Net loss		—		—				—			(382	)		(382	)		(83	)		(465	)
Net (loss) income		—		—				—			(382	)		(382	)		(83	)		(465	)
Balance - June 30, 2023		9,948,272	$	1	$	133	$	(240	)	$	7,149		$	7,043		$	1,339		$	8,382
Balance		9,948,272	$	1	$	133	$	(240	)	$	7,149		$	7,043		$	1,339		$	8,382

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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ZRCN

Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	2024			2023
	For the Three Months Ended June 30,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(586	)	$	(465	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense		218			180
Amortization of intangible assets		29			20
Amortization of right-of-use assets		52			52
Inventory obsolescence impairment		98			661
Provision (Benefit) from reduction of credit losses		(7	)		4
Common stock issued for advisory services		40			—
(Gain) loss on foreign currency transactions		(103	)		49
Changes in operating assets and liabilities:
Accounts receivable		2,806			822
Inventory		812			(755	)
Prepaid expenses and other assets		(100	)		96
Federal tax deposit		—			(149	)
Deferred expenses		(326	)		—
Accounts payable		(1,823	)		(303	)
Accrued expenses		(65	)		369
Operating lease liabilities		(62	)		(45	)
Net cash provided by operating activities		983			536
CASH FLOWS FROM INVESTING ACTIVITIES
Effect of Harmony Merger, net of cash acquired		—			(519	)
Purchase of property and equipment		(285	)		(258	)
Net cash used in investing activities		(285	)		(777	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable		—			(103	)
Repayment of debt assumed in Harmony Merger		(75	)		(250	)
Borrowing on line of credit		2,349			6,071
Repayment on line of credit		(2,882	)		(5,187	)
Stockholder distributions		(245	)		—
Net cash (used in) provided by financing activities		(853	)		531
Effect of exchange rate fluctuations on cash		27			4
Net (decrease) increase in cash		(128	)		294
Cash at beginning of period		502			29
Cash at end of period	$	374		$	323
Supplemental disclosure of cash flow information:
Cash paid for interest	$	223		$	154
Cash paid for taxes	$	—		$	149
Noncash investing and financing activities:
Common stock issued in connection with Harmony merger	$	—		$	19
Fair value of Advisor Warrants issued to effectuate Harmony Merger	$	—		$	302
Assets acquired in Harmony Merger	$	—		$	1
Liabilities assumed in Harmony Merger	$	—		$	580

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

1.Organization

TheBusiness

Zircon Corporation, ZRCN’s wholly-owned subsidiary, was incorporated in California in 1977. The Company, through Zircon, is principally engaged in the design and manufacture of electronic-based consumer hardware and sells its products primarily to retail outlets located throughout the United States, Canada, Japan and Europe. The Company and Zircon operate from their headquarters located in Campbell, California and an affiliate entity of Zircon, Zircon de Mexico S.A. de C.V., located in Ensenada, Mexico. The operations of the Company and Zircon are supported also by an affiliated entity of Zircon, Zircon Corporation Limited, located in the United Kingdom.

On April 14, 2023 (the “Closing Date”), Zircon Corporation (“Zircon”) effectuated a merger and reorganization with Harmony Energy Technologies, Inc. (“Harmony”), a Delaware Corporation, ZRCN Inc., a California corporation and a wholly owned subsidiary of Harmony (the “Merger Sub”). The merger leverages Zircon’s sensor-based, ASIC (“Application-Specific Integrated Circuits”) processor technology and patent portfolio, to accelerate growth in its product lines and global markets as a publicly-disclosed company, in accordance with the Securities Act of 1933 and the Exchange Act of 1934, both as amended. The combination of Harmony and Zircon was effectuated through a merger (the “Merger”) of Merger Sub into Zircon. The separate existence of Merger Sub ceased, and Merger Sub was merged with and into Zircon (Zircon, as the surviving corporation following the Merger). Upon completion of the Merger, Harmony changed its name to ZRCN Inc. (“ZRCN” or the “Company”). While Harmony was the legal acquirer of Zircon in the Merger, the Merger is treated as a reverse recapitalization, whereby Zircon is deemed to be the accounting acquirer, and the historical financial statements of Zircon became the historical financial statements of Harmony (renamed ZRCN Inc.) upon the closing of the Merger. Under this method of accounting, Harmony was treated as the “acquired” company and Zircon is treated as the acquirer for financial reporting purposes.

Accordingly, for accounting purposes, the Merger was treated as the equivalent of Zircon issuing stock for the net assets of Harmony, accompanied by a recapitalization. The net assets of Harmony were stated at historical cost, with no goodwill or other intangible assets recorded.

2.Liquidity

As

of June 30, 2024, the Company had $0.4

million

in cash and working capital of $12.1

million. To date, ZRCN has been financed primarily through retained earnings, secured loans and a revolving line of credit. The Company’s line of credit was scheduled to expire on July 31, 2024 but on May 31, 2024, the Company entered into a revolving credit agreement with a new lender that matures on May 31, 2027 (Note 10). The loans are secured by accounts receivable, inventory and fixed assets. The Company believes that it has sufficient liquidity to fund its operations and operating capital needs for the next 12 months as well as meet its obligations as they become due in 2024 and 2025.

3.Summary of Significant Accounting Policies

Basisof 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, 2024, in our Form 10-K.

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.

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.

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ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

Principlesof 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, Zircon de Mexico S.A. de C.V. (“ZDM”) and Zircon Corporation Limited (“Zircon UK”) have been determined to be variable interest entities with Zircon as the primary beneficiary. Therefore, the financial statements of ZDM and Zircon UK are consolidated with Zircon and the Company, and all significant intercompany transactions and balances have been eliminated.

VariableInterest Entities

In accordance with ASC 810, Consolidation (“ASC 810”), the Company assesses whether it has an explicit or implicit variable interest in legal entities in which it has a financial relationship and, if so, whether or not those entities are variable interest entities (“VIEs”). Variable interests are contractual, ownership, or other pecuniary interests in an entity whose value changes with changes in the fair value of the entity’s net assets, exclusive of variable interests. Explicit variable interests are those which directly absorb the variability of a VIE and can include contractual interests such as loans or guarantees as well as equity investments. An implicit variable interest acts the same as an explicit variable interest except it involves the absorbing of variability indirectly, such as through related party arrangements or implicit guarantees. The analysis includes consideration of the design of the entity, its organizational structure, including decision making ability over the activities that most significantly impact the VIE’s economic performance. For those entities that qualify as VIEs, ASC 810 requires the Company to determine if the Company is the primary beneficiary of the VIE, and if so, to consolidate the VIE.

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<br> overall purpose and design of the entities, which exist primarily for the benefit of or on behalf of the Company and;
b.	the<br> Company’s contractual and common control arrangements with the VIEs, through which it gains both the power to direct the activities<br> that most significantly impact their economic performance, and the obligation to absorb losses and receive benefits that potentially<br> could be significant to the VIEs;
c.	the<br> equity at risk of the entities is not sufficient to finance the entities’ activities without additional subordinated financial<br> support by the Company (i.e., the entities are thinly capitalized).

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ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

Non-controllingInterests

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.

Useof 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 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 unaudited consolidated balance sheets, and classifies the change in accounts payable associated with book overdrafts as an operating activity within the unaudited consolidated statement of cash flows. As of June 30, 2024, the book overdraft included within accounts payable was $0.2 million. As of March 31, 2024, the book overdraft included within accounts payable was $0.4 million.

AccountsReceivable, 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

	June 30, 2024			March 31, 2024
(In thousands)	(Unaudited)
Accounts receivable	$	5,852		$	8,658
Less provision for credit losses		(7	)		(14	)
Accounts receivable, net	$	5,845		$	8,644

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ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

Activity related to the Company’s provision for credit losses was as follows:

Schedule of Provision for Credit losses

	June 30, 2024			March 31, 2024
(In thousands)	(Unaudited)
Balance, beginning of period		14			10
Credit loss provision (recovery)		(7	)		4
Balance, end of period	$	7		$	14

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.

RevenueRecognition

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 (“ASC 606”). For its contracts with customers, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is transferred to the customer. A good or service is transferred when (or as) the customer obtains control of that good or service. The Company satisfies its performance obligation and recognizes revenue at the time the customer obtains the rights to the product, which is generally when goods are shipped. As a result, the majority of the Company’s revenue is recognized at a point in time.

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 $37,000 and $0.2 million for the three months ended June 30, 2024 and 2023. Sales tax for the sale of products is applied to the invoice and recorded as an accrued liability.

Researchand 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.

ShareBased Compensation

The Company expenses share based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Share-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. For awards with performance conditions, compensation cost is recognized over the requisite service period based on the actual or expected achievement of the performance condition. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of share-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Company estimates the fair value of restricted stock award grants using the closing trading price of the Company’s Common Stock on the date of issuance. All share-based compensation costs are recorded in general and administrative or research and development costs in the condensed consolidated statements of operations and comprehensive income (loss) based upon the underlying individual’s role at the Company. Share-based awards that do not meet the criteria for equity classification are recorded as liabilities and adjusted to fair value at the end of each reporting period.

| 10 |

| --- |

ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

ComprehensiveLoss

Comprehensive loss of all periods presented is comprised primarily of net loss and foreign currency translation adjustments.

SegmentReporting

The Company determines its reporting units in accordance with FASB ASC 280, Segment Reporting (“ASC 280”). The Company evaluates a reporting segment by first identifying its operating segments under ASC 280. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) to allocate resources and assess performance. The Company defines its CODM to be its president and chief operating officer. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The president and chief operating officer reviews the financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating the Company’s financial performance. The Company has one operating segment and therefore one reporting segment. Management reviews its business as a consolidated segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate.

Concentrationof Business and Credit Risk

As of June 30, 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 three months ended June 30, 2024 and 2023 the Company generated approximately 65% and 66% of its total revenue from three customers.

As of June 30, 2024 and March 31, 2024, 69% and 77% of its total accounts receivable, were from three customers, respectively.

FairValue of Financial Instruments

In accordance with FASB ASC 820 Fair Value Measurements and Disclosures, the Company uses a three-level hierarchy for fair value measurements of certain assets and liabilities for financial reporting purposes that distinguishes between market participant assumptions developed from market data obtained from outside sources (observable inputs) and our own assumptions about market participant assumptions developed from the best information available to us in the circumstances (unobservable inputs). The fair value hierarchy is divided into three levels based on the source of inputs as follows:

a.	Level<br> 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
b.	Level<br> 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs<br> that are observable for the asset or liability other than quoted prices, either directly or indirectly including inputs in markets<br> that are not considered to be active; and
c.	Level<br> 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 June 30, 2024 and March 31, 2024 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.

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ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

IncomeTaxes

Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. Management believes estimates related to income tax uncertainties are appropriate based on current facts and circumstances. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof, as well as, other factors. Any interest and penalties related to income tax matters are classified as a component of income tax expense.

As of April 14, 2023, Zircon’s election to be an S Corporation under the Internal Revenue Code was no longer in effect.

NetLoss 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

	June 30, 2024		June 30, 2023
Common stock warrants		217,184		217,184
Stock options		100,000		-

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 unaudited 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.

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| --- |

ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 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 (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

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.

RecentlyIssued 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.

RecentlyIssued 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 unaudited consolidated financial statements and related disclosures and will adopt the new standard using a retrospective approach.

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 unaudited 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 unaudited consolidated financial statements and related disclosures.

| 13 |

| --- |

ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

4.Merger with Harmony Energy Technologies Corporation

On April 14, 2023 (the “Closing Date”), Harmony closed the Merger with Zircon, as a result of which Zircon became a wholly-owned subsidiary of Harmony. While Harmony was the legal acquirer of Zircon in the Merger, for accounting purposes, the Merger is treated as a reverse recapitalization, whereby Zircon is deemed to be the accounting acquirer, and the historical financial statements of Zircon became the historical financial statements of Harmony (renamed ZRCN Inc.) upon the closing of the Merger. Under this method of accounting, Harmony was treated as the “acquired” company and Zircon is treated as the “acquirer” for financial reporting purposes.

As

part of the Merger and reverse recapitalization, the Company assumed certain operating liabilities of Harmony, including certain payables due to vendors and employees, as well as notes payable to noteholders. In addition, Zircon and Harmony effectuated a share exchange whereby the shareholders of Zircon exchanged 500,000 common shares representing 100% of the total outstanding shares of Zircon, for 8,865,234 newly issued common shares of Harmony, or approximately 89% of the total outstanding shares of Harmony. Harmony shareholders thus retained 1,057,754 common shares according to the terms of the merger. In connection with the Merger, the Company entered into a warrant exchange agreement, dated April 14, 2023 (the “Warrant Exchange Agreement”), with certain holders of the Company’s warrants under which such holders received 25,284 shares of Common Stock in exchange for their warrants, bringing the total shares of the combined organization owned by Harmony’s pre-Merger shareholders to 1,083,038 shares.

Zircon

agreed to pay the operating liabilities of Harmony, up to and including an aggregate of $0.2 million through December 31, 2022, which amount included outstanding operating liabilities related to auditing fees, services fees, transfer agent fees, travel reimbursements and accrued and unpaid salaries as of such date; Harmony loans and notes outstanding totaling $0.6 million were fully settled for $0.4 million, with $0.1 million paid upon closing of the Acquisition and $75,000 being paid in four subsequent quarterly payments commencing on the last day of the first full calendar quarter following closing.

Zircon

paid transaction costs of $0.5 million for legal and advisory services and issued warrants to purchase an aggregate 217,184 shares of common stock to advisors who provided services to effectuate the Merger which had a fair value determined to be $0.3 million and are included in the transaction costs and advisory fees allocated to ZRCN equity (refer to Note 13 for further detail regarding these warrants).

The following table reconciles the elements of the Merger to the unaudited consolidated statements of changes in stockholders’ equity for the three months ended June 30, 2023:

Schedule of Consolidated Statements of Changes in Stockholders Equity

(In thousands)	Recapitalization
Cash	$	—
Non-cash net working capital assumed from Harmony		(579	)
Less: cash transaction costs and advisory fees allocated to ZRCN equity		(519	)
Effect of Merger, net of transaction costs	$	(1,098	)

The following table details the number of shares of common stock issued immediately following the consummation of the Merger:

Schedule of Number of Shares of Common Stock

	Number of Shares
Common stock of Harmony prior to Merger		1,057,754
Shares issued for Warrant Exchange Agreement		25,284
Common stock owned by Harmony’s pre-Merger shareholders		1,083,038
Common stock issued in exchange for Zircon common stock		8,865,234
Total shares of common stock immediately after Merger		9,948,272

Debt Settlement Agreement

In

connection with the Merger, the Company entered into debt settlement agreements (the “Debt Settlement Agreements”) with certain third-party creditors of the Company under which the Company agreed to make certain payments over the next 12 months to the creditors in satisfaction of an aggregate of $0.4 million which was owed to them. As of June 30, 2024, the Company has repaid $0.4 million to the creditors and there was no remaining balance.

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| --- |

ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

5.Revenue

Disaggregationof Revenue from Contracts with Customers

Revenue disaggregated according to the timing of transfer of goods or services (e.g., at a point in time) for the three months ended June 30, 2024 and 2023, were as follows:

Schedule of Revenue Disaggregated Transfer of Goods and Services

	2024		2023
	For the Three Months Ended June 30,
	2024		2023
(In thousands)	(Unaudited)
Revenue generated per major product line
Stud sensor edge	$	2,997	$	3,852
Stud sensor center		1,154		1,092
Multifunctional scanners		775		1,067
Target control products		460		315
Other		425		241
Total Revenue	$	5,811	$	6,567

Revenue disaggregated according to the geographical location of customers for the three months ended June 30, 2024 and 2023, were as follows:

Scheduleof Revenue Disaggregated Geographical Location of Customers

	2024		2023
	For the Three Months Ended June 30,
	2024		2023
(In thousands)	(Unaudited)
Revenue by geographic location of customers
United States	$	5,101	$	5,715
Canada		274		425
Japan		266		82
Europe		119		278
Others		51		67
Total Revenue	$	5,811	$	6,567

6.Inventory

Inventory consisted of the following:

Schedule of Inventory

	June 30, 2024		March 31, 2024
(In thousands)	(Unaudited)
Finished goods, net	$	6,890	$	6,930
Raw materials, net		4,090		4,909
Work in process, net		2,167		2,218
Inventory<br> net		13,147		14,057

Obsolescence

allowance was estimated at $0.5 million and $0.4 million as of June 30, 2024 and March 31, 2024.

| 15 |

| --- |

ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

7.Property and Equipment

Property and equipment consisted of the following:

Schedule of Plant and Equipment

	June 30, 2024			March 31, 2024
(In thousands)	(Unaudited)
Manufacturing equipment	$	9,876		$	9,315
Computer equipment		2,796			2,774
Leasehold improvements		1,184			1,218
Furniture and office equipment		931			955
Vehicles		273			275
Propertyand equipment, gross		15,060			14,537
Construction in progress		74			423
Property<br> and equipment before accumulated depreciation and amortization		15,134			14,960
Less accumulated depreciation and amortization		(13,237	)		(13,157	)
Property<br> and equipment, net	$	1,897		$	1,803

For

the three months ended June 30, 2024 and 2023, depreciation and amortization expense was $0.2 million and $0.2 million, respectively.

Construction in progress consists of assets and technologies under development. The Company starts depreciation once the assets are completed and placed in service.

8.Intangible Assets

The Company’s intangible assets consisted of the following:

Schedule of Intangible Assets

	June 30, 2024							March 31, 2024
(In thousands)	(Unaudited)
Finite-lived intangible assets (1):		Intangibles, Gross		Accumulated Amortization			Intangibles, Net		Intangibles, Gross		Accumulated Amortization			Intangibles, Net
Patents issued and pending		2,340		(1,643	)		697		2,340		(1,615	)		725
Exclusivity rights and licenses		168		(102	)		66		168		(101	)		67
Total finite-lived intangible assets	$	2,508	$	(1,745	)	$	763	$	2,508	$	(1,716	)	$	792
Finite-lived intangible assets (1):	June 30, 2024 Weighted<br> <br>Average Life<br> <br>Remaining
---	---	---
Patents issued and pending		13.8
Exclusivity rights and licenses		5.5
(1)	Finite-lived intangible<br>assets have estimated useful lives of five to twenty years and are being amortized to operating expenses on a straight-line basis.
---	---

For

the three months ended June 30, 2024 and 2023, amortization expense was $29,000 and $20,000, respectively.

Expected future amortization expense of acquired finite-lived intangible assets as of June 30, 2024 is as follows:

Schedule of Future Amortization Expense

For the Years Ending March 31, (In thousands)	Amount
Remainder of fiscal 2025	$	74
2026		73
2027		73
2028		72
2029		71
Thereafter		400
Total		763

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| --- |

ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

9.Accrued Expenses

Accrued expenses consisted of the following:

Schedule of Accrued Liabilities

	June 30, 2024		March 31, 2024
	(Unaudited)
Stockholder distributions	$	415	$	—
Vacation		372		389
Accrued taxes		362		361
Sales expense		334		205
Payroll and related		291		334
Rebates		253		538
Advertising allowance		110		134
Professional services		100		94
Interest		9		75
Accrued<br> liabilities	$	2,246	$	2,130

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| --- |

ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

10.Debt

Lineof Credit

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 $15.0 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 current US Bank loan of $8.8 million and matures on May 31, 2027. The Company, Zircon and the Affiliates are guarantors of all of the obligations under the Credit Agreement and the Company’s four principal shareholders are limited guarantors thereof.

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 and minimum fixed charge coverage ratios.

For

the three months ended June 30, 2024 and 2023, respectively, interest expense on the line of credit totaled $0.2 million and $0.1 million, respectively.

The components of the Credit Agreement consisted of the following (in thousands):

Schedule of Revolving Line of Credit

	June 30, 2024		March 31, 2024
(In thousands)	(Unaudited)
SOFR	$	7,493	$	8,026
Excess of SOFR		—		—
Line<br> of credit	$	7,493	$	8,026

Notespayable to Stauss Family Administrative Trust

The

Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of June 30, 2024, the principal balance of $0.7 million is due and payable in December 2025. Interest accrues 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 the bank and no payment is to be made on the note without prior approval from the bank. In the second quarter of 2023, a portion of the note payable to Stauss Family Administrative Trust was settled as a noncash transaction against the note receivable from one stockholder for $0.2 million.

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.

| 18 |

| --- |

ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

For

the three months ended June 30, 2024 and 2023 the interest expense on notes payable to the Stauss Family Administrative Trust totaled $9,000 and $13,000 respectively.

LoanRepayment

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, the Company’s 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. In accordance with ASC 450, Contingencies, no amounts have been accrued for a loss contingency as it is not estimable as of June 30, 2024. 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.

11.Profit Sharing and 401(k) Plan

The Company has a defined contribution profit sharing plan for all eligible employees. Contributions to the profit-sharing plan are determined annually by the Board of Directors. There were no profit-sharing contributions made during the three months ended June 30, 2024 and 2023.

All eligible employees are also allowed to participate in the Company’s 401(k) plan. The Company’s contributions to the plan are based on a specified percentage of each participant’s eligible contribution, decided annually by the Board of Directors, as defined in the plan document. The Company’s contributions of $12,000 were accrued for the three months ended June 30, 2024. The Company’s contributions of $50,000 for the year ended March 31, 2024 were paid during the three months ended June 30, 2024.

The Company’s contributions

of $52,000 for the year ended March 31, 2023 were paid in May 2023.

12.Equity

On February 28, 2024 the Company adopted a 2024 Equity Incentive Plan (the “Equity Plan”). The Plan provides for granting of stock options (“Options”), restricted stock units (“RSUs”), and other equity-based awards tied to the value of shares of common stock to key personnel, including directors, officers, employees, consultants, and advisors of the Company and its subsidiaries. The Plan provides for the grant of options (which may include “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”)), stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other stock-based awards. As of June 30, 2024, 40,000,000 shares are authorized for issuance pursuant to the Equity Plan. As of June 30, 2024, an aggregate 100,000

shares have been awarded and 39,900,000 shares remain available

for issuance under the Equity Plan; 20 percent of the 100,000 awarded shares which will vest on an annual basis beginning April 1, 2025.

| 19 |

| --- |

ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

The following table summarizes the Company’s employee and non-employee Option activity under the Equity Plan for the following periods:

Schedule Employee and Non-employee Option Activity

		Weighted<br> average exercise price			Aggregate<br> intrinsic value (in thousands)
Outstanding<br> as of March 31, 2024	—	$	—	—	$	—
Options<br> granted	100,000		0.88	4.8		88
Outstanding<br> as of June 30, 2024	100,000	$	0.88	4.8	$	88
Options<br> vested and exercisable as of June 30, 2024	—	$	—	—	$	—

On May 1, 2024, the Company issued 100,000

common stock options

to an employee with a total fair value of $67,000, which is unvested stock-based compensation to be amortized over the remaining term of the option.

During

the three months ended June 30, 2024 the Company issued 25,000 common shares valued at $40,000 to a consultant.

During

the three months ended June 30, 2024 the Company made a distribution of $0.7 million to certain related party shareholders and one director shareholder for taxes due as a result of the Company converting from an S corporation to a C corporation. $0.3 million of this distribution was in cash and the remaining $0.4 million is recorded in accrued expenses on the balance sheet.

13.Warrants

At

the closing of the Merger, the Company issued certain consultants and advisors warrants to purchase an aggregate of 217,184 shares of Company common stock (the “Advisor Warrants”). The Advisor Warrants are exercisable any time ten years from the date of issuance, have an exercise price of $0.20 per share, and are classified within equity. The Company determined the fair value of the Advisor Warrants of $0.3 million using the intrinsic value method based on a stock price established in the Merger of $1.60 per share.

The following table provides the activity for all warrants for three months ended June 30, 2024:

Schedule of Warrants Activity

	Total Warrants		Weighted Average Remaining Term		Weighted Average Exercise Price
Outstanding as of March 31, 2024		217,184		9.2	$	0.20
Outstanding as of June 30, 2024		217,184		9.0	$	0.20

14.Commitments and Contingencies

LegalProceedings

Zircon is engaged in procedures to protect its proprietary rights and has filed complaints with the Federal Trade Commission and the Customs and Border Patrol.

ZirconCorporation v. Stanley Black & Decker, Inc.

Zircon appealed an adverse ruling by the International Trade Commission (“ITC”) in an investigation before the ITC in which Zircon sought an injunction to prevent Stanley, Black & Decker, Inc. and its wholly owned subsidiary, Black & Decker (U.S.), Inc. (together “SBD”) from importing and selling in the United States certain products alleged by Zircon to infringe its patents. The appeal was initiated by Zircon following the ruling by the ITC overturning the decision by Judge Charles Bullock, Presiding Judge of the ITC issued on October 7, 2021, finding that three patents at issue in the investigation were both valid and practiced by Zircon and that SBD infringed Zircon’s auto recalibration patent. The Commission found that while Zircon’s auto recalibration patent met all objective requirements for validity, it reversed the Presiding Judge on the subjective requirement of non-obviousness. Zircon then timely appealed to the Federal Circuit Court of Appeal (“FCCA”) and the matter was heard de novo before the FCCA on January 9, 2024. On May 8, 2024, the FCCA denied Zircon’s request for an order from the ITC excluding importation of certain SBD products. However, Zircon’s action against SBD for damages filed December 9, 2019 in the Fed District Court in the Northern District of California, under stay pending the disposition of the FCCA matter between Zircon and the ITC, may now move forward and Zircon is reviewing and considering its options. All charges in connection with the litigation versus SBD have been expensed to date and no damage claim against Zircon has been filed in this matter. The parties involved in the matter have met and conferred as required by the Court, and are scheduled to take part in a mediation on September 18, 2024.

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ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

ClaimAsserted by Mr. Michael Green

In April 2024, Mr. Michael Green, an individual in Great Britain, asserted violation by Zircon in its U.S. website of certain privacy protections under the laws of Great Britain. The Company believes its U.S. website has not violated the laws of Great Britain and that, in any event, has responded stating such laws do not apply outside Great Britain. As of the date of filing these financial statements, Mr. Green has not responded to the Company and has not asserted any claim for damages.

Leases

The

Company’s corporate headquarters in Campbell, California are leased from the trust of one of the former shareholders of Corporation 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 $58,000 for both the three months ended June 30, 2024, and 2023, respectively.

The Company leases office equipment through a lease that expires in June 2026 and requires monthly lease payments of $1,000 for a period of five years. The total lease expense for three months ended June 30, 2024 and 2023 amounted to $

3,000

in each respective period.

The Company leases a vehicle through a lease that expires in July 2024 and requires monthly lease payments of less than $1,000 for a period of three years. The total lease expense for three months ended June 30, 2024 and 2023 amounted to $

1,000

in each respective period.

As

of June 30, 2024, the Company had an operating lease right-of-use assets of $0.7 million.

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

(In thousands)	June 30, 2024		June 30, 2023
Components of lease cost:	(Unaudited)
Operating lease expense	$	52	$	52
Short-term lease cost		—
Total lease cost	$	52	$	52

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ZRCN

Inc.

CONDENSED

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR

THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

The following table provides the weighted average lease term and weighted average discount rate as of June 30, 2024 and 2023, respectively:

Schedule of Weighted Average Remaining Lease Terms and Discount Rate

	June 30, 2024
	(Unaudited)
Weighted average remaining lease term (in years)		3.65		4.43
Weighted average discount rate		7.00	%	7.00	%

Future minimum lease payment under non-cancellable lease as of June 30, 2024 are as follows:

Schedule of Future Minimum Lease Payment Under Non-cancellable Lease

Maturities of lease liabilities (In thousands):	Operating Leases
Year ending March 31,
Remainder of fiscal 2025	$	148
2026		208
2027		215
2028		150
2029 and thereafter		—
Total Minimum Lease Payments		721
Less effects of discounting		(43	)
Present value of future minimum lease liabilities		678
Less current portion of operating lease liability		(197	)
Operating lease liability, net of current portion	$	481

15.Related Party Transactions

Zircon is a member of a controlled group of companies and has revenue and cost-sharing activities with other members of the controlled group. Results of operations and financial condition may not represent amounts that would have been reported if Zircon operated as an unaffiliated entity.

Zircon has an exclusive manufacturing and technical assistance agreement with Zircon de Mexico S.A. de C.V. (the “Contractor”), an entity which is owned by certain shareholders of Zircon. Under the terms of the agreement, Zircon provides materials, technical assistance, and expertise to the Contractor, and the Contractor assembles certain of Zircon’s products.

In September 2017, an affiliated company, Zircon Corporation Limited, was established in the United Kingdom to facilitate the sale of Zircon’s products to European customers and operations began during the year ended March 31, 2019. The ownership structure of the affiliate is similar to the ownership of the premerger ownership of Zircon.

The

Company leases a 14,000 square foot facility from a trust owned by the Stauss Family Administrative Trust.

The

Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of March 31, 2024, principal balance of $0.7 million is due and payable in December 2025. 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 the bank and no payment is to be made on the note without prior approval from the bank. 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 $0.2 million.

For

the three months ended June 30, 2024 and 2023 the interest expense on notes payable to the Stauss Family Administrative Trust totaled $9,000 and $13,000 respectively.

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.

During the three

months ended June 30, 2024 the Company made a distribution of $0.7 million to certain related party shareholders and one director shareholder for taxes due as a result of the Company converting from an S corporation to a C corporation. $0.3 million of this distribution was in cash and the remaining $0.4 million is recorded in accrued expenses on the balance sheet.

16.Subsequent Events

Please refer to the Company’s Report on Form 8-K filed on July 24, 2024 referencing the Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers*.*

On July 5, 2024 the Company received a federal tax refund of approximately $0.2 million reducing the Federal Tax

Deposit asset to $0.

On August 14, 2024 the Company added Joe Bronson to it Board of Directors replacing Ronald Bourque.

As of August 14, 2024 the Company issued an additional 8,329 common shares and had 10,050,265

common shares outstanding.

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MANAGEMENT’S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Thefollowing management discussion and analysis of the financial position and results of operations (“MD&A”) should be readin conjunction with the audited consolidated financial statements and related notes to the financial statements included elsewhere inthis Report. This discussion contains forward-looking statements that relate to future events or our future financial performance. Thesestatements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performanceor achievements to be materially different from any future results, levels of activity, performance or achievements expressed or impliedby these forward-looking statements. These risks and other factors include, among others, those listed under “Forward-Looking Statements”and “Risk Factors” and those included elsewhere in this report.

OVERVIEW

Zircon is a Silicon Valley-based company operating in Northern California since 1977. leveraging its proprietary sensor-based technology across a mix of global markets, including commercial and residential buildings, government infrastructure and building information modeling. Zircon is focused on creating new, technical solutions for global applications in the areas of home and workplace safety, project efficiency, and structural data analysis.

Zircon benefits from a multi-generational customer base of professional contractors and do-it-yourselfers who rely on Zircon’s innovative and easy-to-use products to get the job done.

RESULTS

OF OPERATIONS

During the three months ended June 30, 2024, and at March 31, 2024, Zircon’s selected financial information is the following (in thousands):

FinancialPosition Analysis

The information presented below as of June 30, 2024 as compared to March 31, 2024 for ZRCN Inc (in thousands):

	June 30, 2024		March 31, 2024
In thousands	(Unaudited)
Assets	$	24,209	$	27,615
Liabilities	$	16,370	$	18,688
Equity	$	7,839	$	8,927

Assets

Total assets on June 30, 2024 were $24.2 million compared to $27.6 million on March 31, 2024, which was a decrease of approximately $3.5 million. This decrease was driven primarily by a decrease in accounts receivable of $2.8 million and a decrease in inventories of $0.9 million offset by an increase in deferred expenses of $0.3 million.

Liabilities

Total liabilities on June 30, 2024 were $16.4 million compared to $18.7 million on March 31, 2024, which was a decrease of approximately $2.3 million. This decrease was driven primarily by a decrease in accounts payable of $1.8 million, a decrease in our line of credit of $0.5 million, offset by an increase in accrued expenses of $0.1 million, a decrease in notes payable of $75,000 and a decrease in our operating lease liability of $62,000.

Equity

Total equity on June 30, 2024 was $7.8 million compared to $8.9 million on March 31, 2024, which was a decrease of approximately $1.1 million. This decrease was driven primarily by a net loss attributable to ZRCN shareholders of $0.6 million and an accrued distribution to shareholders of $0.4 million.

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OperatingResults Analysis

	For the Three Months Ended June 30,
(In thousands)	2024			2023
Net Sales	$	5,811		$	6,567
Cost of goods sold		3,460			3,623
Gross Profit		2,351			2,944
Operating Expenses
General & administrative		1,461			1,669
Marketing & selling		903			1,140
Research and development		425			485
Total Operating Expenses		2,789			3,294
Operating Income (Loss)		(438	)		(350	)
Other Expenses
Interest expense		223			157
Other loss		7			9
(Income) loss on foreign currency translation		(103	)		49
Total other expenses		127			215
Loss before income taxes		(565	)		(565	)
Income tax benefit (expense)		(21	)		100
Net income (loss)	$	(586	)	$	(465	)
Less: Net income (loss) attributable to non-controlling interests		78			(83	)
Net loss attributable to ZRCN Inc. common stockholders	$	(664	)	$	(382	)
Foreign currency translation adjustment		117			117
Comprehensive loss	$	(469	)	$	(348	)

Salesrevenue and gross margin

Revenue for the three months ended June 30, 2024 was $5.8 million compared to $6.6 million for the three months ended June 30, 2023 which was a decrease of $0.8 million, or 11%. This decrease was driven primarily by decreased sales in the United States and Asia. Gross profit for the three months ended June 30, 2024 was $2.4 million, or 40.4% compared to $2.9 million, or 44.8%, during the three months ended June 30, 2023, which was an decrease of $0.5 million, or 20% and 4.4%, respectively. The decrease in gross profit was driven by reduced unit volumes and the decrease in gross margin was driven by an unfavorable produce mix, reduced volumes and stable manufacturing expenses.

Researchand development

Research and development expenses for the three months ended June 30, 2024 were $0.4 million compared to $0.5 million for the three months ended June 30, 2023. This decrease of $60,000, or 12%, and was driven primarily by reduced consulting expenses.

Generaland Administrative expenses

General and administrative expenses for the three months ended June 30, 2024 were $1.5 million compared to $1.7 million for the three months ended June 30, 2023 which was a decrease of $0.2 million, or 12%. This decrease was driven primarily by reduced consulting and legal expenses associated with the Harmony merger which closed during fiscal Q1 2024.

Marketingand Selling expenses.

Marketing and selling expenses for the three months ended June 30, 2024 were $0.9 million compared to $1.1 million for the three months ended June 30, 2023 which was a decrease of $0.2 million, or 21%. This decrease was driven primarily by a reduction in the use of consulting services and reduced advertising.

Stockbased compensation.

During the three months ended June 30, 2024, and June 30, 2023, Zircon did not record any stock-based compensation. Warrants with a fair value of $0.3 million were issued during the year ended March 31, 2024.

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Otherexpenses

Other expenses for the three months ended June 30, 2024 were approximately $0.1 million compared to $0.2 million for the three months ended June 30, 2023 which was a decrease of approximately $87,000, or 40%. This decrease was driven primarily by an increase in interest expense of $66,000 and a decrease in foreign exchange losses of $0.2 million.

Zircon has notes payable to the Stauss Family Administrative Trust to repay loans made to Zircon. The principal balance of $0.7 million is due and payable in December 2025. Interest accrued at 5.5% per annum is paid quarterly and included in accrued expenses. The note is subordinated to the line of credit payable to the bank and no payment is to be made on the note without prior approval from the bank. 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.

Interest expense on these notes for the three months ended June 30, 2024 and 2023, respectively, was approximately $9,000 and $13,000, respectively.

Provisionfor income taxes

The provision for income taxes for the three months ended June 30, 2024 was approximately $21,000 compared to a benefit of approximately $0.1 million for the three months ended June 30, 2023 which was an unfavorable change of approximately $0.1 million. This unfavorable change was driven primarily by changes in our deferred tax asset position.

Othercomprehensive income (loss)

Comprehensive income (loss) for all periods presented is comprised primarily of net income (loss) and foreign currency translation adjustments. The change in foreign currency translation adjustment was income of approximately $0.1 million for both the three months ended June 30, 2024 and 2023.

CashFlow Analysis

	For the Three Months Ended June 30,
(In thousands)	2024			2023
Operating activities	$	983		$	536
Investing activities		(285	)		(777	)
Financing activities		(853	)		531
Effect of exchange rate changes		27			4
Net increase (decrease) in cash	$	(128	)	$	294

OperatingActivities

During the three months ended June 30, 2024, net cash provided by operating activities was $1.0 million. This increase was due to a net loss of $0.6 million offset by non-cash expenses for depreciation, amortization, and inventory obsolescence impairment of $0.4 million, common stock issued for advisory services of $40.000 million, a decrease in accounts receivable of $2.8 million and a decrease in inventories of $0.8 million, offset by an decrease in accounts payable and accrued expenses of $1.8 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 $62,000, and a provision for bad debt and foreign currency losses of $0.1 million

During the year ended June 30, 2023, net cash provided by operating activities was $0.5 million. This increase was due to a net loss of $0.5 million being offset by non-cash expenses for depreciation and amortization, inventory obsolescence impairment, and provisions for bad debt and currency losses of $1.0 million, a decrease in accounts receivable of $0.8 million, a decrease in prepaids of $96,000, an increase in accounts payable and accrued expenses of $66,000, offset by an increase in inventory of $0.8 million, an increase in the federal tax deposit of $0.1 million, and a decrease in operating lease liabilities of $45,000.

InvestingActivities

During the three months ended June 30, 2024, net cash used in investing activities was $0.3 million. This decrease was due to purchases of property and equipment of $0.3 million.

During the three months ended June 30, 2023, net cash used in investing activities was $0.8 million. This decrease was due to the impact of the Harmony merger, net of cash acquired of $0.5 million and purchases of property and equipment of $0.3 million.

FinancingActivities

During the three months ended June 30, 2024, net cash used in financing activities was $0.9 million. This decrease was due to repayments on lines of credit of $0.5 million, shareholder distributions of $0.3 million and repayment of debt assumed as part of the Harmony merger of $75,000.

During the three months ended June 30, 2023, net cash provided by financing activities was $0.5 million. This increase was due to net borrowings under the Company’s line of credit of $0.9 million offset by repayments of debt assumed as part of the Harmony merger of $0.3 million, and repayment of notes payable of $75,000.

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Liquidity,Capital Resources and Sources of Financing

As of June 30, 2024 the Company had a cash balance of $0.4 million and working capital of $12.1 million. Working capital as of March 31, 2024 was $14.1 million. The decrease of $2.0 million was driven primarily by a decrease in accounts receivable of $2.8 million and a decrease in inventories of $0.9 million offset by a decrease in accounts payable of $1.8 million and a increase in accrued expenses of $0.1 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 Company believes that it has sufficient liquidity and access to loans and credit lines to fund its operations and working capital requirements for the next 12 months.

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 current US Bank loan of $8,750,000 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.

The Credit Agreement requires the Company to comply with maximum total net leverage and minimum fixed charge coverage ratios.

Informationon Outstanding Securities

The following table sets out the number of common shares and warrants outstanding as of the date hereof:

Information on Outstanding<br> Securities as of June 30, 2024
Common shares issued and outstanding	10,041,936
Potential issuance of common shares
Warrants	217,184
Stock options	100,000
Fully diluted shares	10,359,120

As of August 14, 2024 the Company had 10,050,265 common shares outstanding.

RelatedParty Transactions

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The Company leases a 14,000 square foot facility from a trust owned by the Stauss Family Administrative Trust.

The Company has notes payable to the Stauss Family Administrative Trust to repay loans made to the Company. As of March 31, 2024, principal balance of $0.7 million is due and payable in December 2025. 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 the bank and no payment is to be made on the note without prior approval from the bank. 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 $0.2 million.

For the three months ended June 30, 2024 and 2023 the interest expense on notes payable to the Stauss Family Administrative Trust totaled $9,000 and $13,000 respectively.

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.

During the three months ended June 30, 2024 the Company made a distribution of $0.7 million to certain related party shareholders and one director shareholder for taxes due as a result of the Company converting from an S corporation to a C corporation. $0.3 million of this distribution was in cash and the remaining $0.4 million is recorded in accrued expenses on the balance sheet.

Off-BalanceSheet Arrangements

ZRCN has no off-balance sheet arrangements.

Estimates,Judgments and Assumptions

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 months ended June 30, 2024, for details.

QUANTITATIVE

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

InterestRate and Foreign Currency Risk

InterestRate Risk

ZRCN’s exposure to changes in interest rates relates primarily to Zircon’s cash, cash equivalents and outstanding debts.

ForeignCurrency & Exchange Risk

ZRCN sources parts from foreign vendors and sells its products in various foreign markets around the world. Changes in foreign currency exchange for the purchase of components from vendors and the sale of products in foreign markets can have a material impact on the Company’s results of operations and liquidity. The Company hedge or take other steps to mitigate the impact from foreign currency exchange rates, but there is no guarantee that these efforts will be successful in every instance.

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Controlsand Procedures

We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive officer and principal accounting and financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal accounting and financial officer has concluded that as of March 31, 2024, our disclosure controls and procedures were not effective as of such date as a result of material weaknesses in our internal control over financial reporting due to inadequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping. Under the direction of our principal executive officer and principal financial and accounting officer, we are developing a plan to remediate the material weaknesses.

Management’sReport on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

As of June 30, 2024, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of June 30, 2024, our internal control over financial reporting had material weaknesses that lack adequate segregation of duties within account processes due to limited personnel and insufficient written policies and procedures for accounting, IT and financial reporting and record keeping and we are implementing plans to improve such internal control.

Changesin Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART

II OTHER INFORMATION

Item1. Legal Proceedings

From time to time and in the normal course of operations, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Other than as indicated below, we are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.

Zircon is engaged in procedures to protect its proprietary rights and Zircon has filed complaints with the Federal Trade Commission and the Customs and Border Patrol.

ZirconCorporation v. Stanley Black & Decker, Inc et al.

ClaimAsserted by Mr. Michael Green

In April 2024, Mr. Michael Green, an individual in Great Britain, asserted violation by Zircon in its U.S. website of certain privacy protections under the laws of Great Britain. The Company believes its U.S. website has not violated the laws of Great Britain and that, in any event, has responded stating such laws do not apply outside Great Britain. As of the date of filing this Annual Report on Form 10-K, Mr. Green has not responded to the Company and has not asserted any claim for damages.

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Item1A. 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 2024 Form 10-K filed with the Securities and Exchange Commission on July 16, 2024. There have been no material changes from the risk factors set forth in our Form 10-K filed on July 16.

Item2. Unregistered Sales of Equity Securities and Use of Proceeds

We have not made any sales of unregistered securities of our common stock during the period from April 1, 2024, through June 30, 2024.

Item3. Defaults Upon Senior Securities

Not applicable.

Item4. Mine Safety Disclosures

Not applicable.

Item5. Other Information

During the last fiscal quarter, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated by any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any “non-Rule 10b5-1 trading arrangement.”

Item6. Exhibits

Exhibit<br><br> <br>Number	Description
3.1	Certificate<br> of Incorporation, dated June 19, 2018 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed by<br> the Company on December 27, 2021)
3.2	Certificate<br> of Amendment to Certificate of Incorporation, dated August 28, 2020 (incorporated by reference to Exhibit 3.2 to the Registration<br> Statement on Form 10 filed by the Company on December 27, 2021)
3.3	Certificate<br> of Amendment to Certificate of Incorporation, dated July 9, 2021 (incorporated by reference to Exhibit 3.3 to the Registration Statement<br> on Form 10 filed by the Company on December 27, 2021)
3.4	Certificate<br> of Amendment to Certificate of Incorporation, dated June 17, 2022 (incorporated by reference to Exhibit 3.5 to the Current Report<br> on 8-K filed by the Company on June 21, 2022)
3.5	Certificate<br> of Amendment to Certificate of Incorporation, dated June 17, 2023 (incorporated by reference to Exhibit 3.1 to the Current Report<br> on 8-K filed by the Company on June 27, 2023)
3.6	Bylaws<br> of the Company (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form 10 filed by the Company on December<br> 27, 2021)
4.1	Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities and Exchange Act
10.1	Union<br> Bank Loan Agreement (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K/A filed by the Company on August 22,<br> 2023)
10.2+	ZRCN<br> Inc. 2024 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 4.7 to the Registration Statement filed on Form S-8<br> filed by the Company on March 6, 2024)
10.3+	Form<br> of Stock Option Agreement under the Plan (Incorporated by reference to Exhibit 4.8 to the Registration Statement filed on Form S-8<br> filed by the Company on March 6, 2024)
10.4†	Revolving Credit, Security And Guaranty Agreement, dated as of May 31, 2024, by and among Zircon Corporation, Zrcn Inczircon De Mexico, S.A. DE C.V.,, Zircon Corporation Limited, And FGI Worldwide LLC, As Agent For Lenders
21.1	List of Subsidiaries
24	Power of Attorney (included on signature page hereto).
31.1	Certification<br> of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant<br> to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification<br> of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant<br> to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification<br> of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of<br> 2002
32.2	Certification<br> of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of<br> 2002
101.INS	Inline<br> XBRL Instance Document
101.SCH	Inline<br> XBRL Taxonomy Extension Schema Document
101.CAL	Inline<br> XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline<br> XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline<br> XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline<br> XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover<br> Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ZRCN<br> INC.
Date:<br> August 19, 2024	By:	/s/ John Stauss
	Name:	John<br> Stauss
	Title:	Chairman<br> and Chief Executive Officer
Date:<br> August 19, 2024	By:	/s/ Jeff Parsons
	Name:	Jeff<br> Parsons
	Title:	Chief<br> Financial Officer

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Exhibit31.1

Certificationof Chief Executive Officer of ZRCN Inc.

Pursuantto Section 302 of the Sarbanes-Oxley Act of 2002

I, John Stauss, certify that:

1.	I<br> have reviewed this Quarterly Report on Form 10-Q of ZRCN Inc.;
2.	Based<br> on my knowledge and belief, this report does not contain any untrue statement of a material fact or omit to state a material fact<br> necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect<br> to the period covered by this report;
3.	Based<br> on my knowledge and belief, the financial statements, and other financial information included in this report, fairly present in<br> all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods<br> presented in this report;
4.	The<br> registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures<br> (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange<br> Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a.	Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others<br> within those entities, particularly during the period in which this report is being prepared;
---	---
b.	Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
d.	Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The<br> registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial<br> reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing<br> the equivalent functions):
---	---
a.	All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
---	---
b.	Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
Date:<br> August 19, 2024	/s/ John Stauss
---	---
	John<br> Stauss
	Chief<br> Executive Officer (Principal Executive Officer)

Exhibit31.2

Certificationof Chief Financial Officer of ZRCN Inc.

Pursuantto Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeff Parsons, certify that:

1.	I<br> have reviewed this Quarterly Report on Form 10-Q of ZRCN Inc.;
2.	Based<br> on my knowledge and belief, this report does not contain any untrue statement of a material fact or omit to state a material fact<br> necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect<br> to the period covered by this report;
3.	Based<br> on my knowledge and belief, the financial statements, and other financial information included in this report, fairly present in<br> all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods<br> presented in this report;
4.	The<br> registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures<br> (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange<br> Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a.	Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others<br> within those entities, particularly during the period in which this report is being prepared;
---	---
b.	Designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;<br> and
d.	Disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,<br> or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The<br> registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial<br> reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing<br> the equivalent functions):
---	---
a.	All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
---	---
b.	Any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal control over financial reporting.
Date:<br> August 19, 2024	/s/ Jeff Parsons
---	---
	Jeff<br> Parsons
	Chief<br> Financial Officer
	(Principal<br> Financial and Accounting Officer)

Exhibit32.1

Certificationof Chief Executive Officer

Pursuantto 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, John Stauss, Chief Executive Officer of ZRCN Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge and belief:

1.	The<br> Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024 (the “Report”) fully complies with the<br> requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The<br> information contained in the Report fairly presents, in all material respects, the financial condition and results of operations<br> of the Company.
Date:<br> August 19, 2024	/s/ John Stauss
---	---
	John<br> Stauss
	Chief<br> Executive Officer
	(Principal<br> Executive Officer)

Exhibit32.2

Certificationof Chief Financial Officer

Pursuantto 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Jeff Parsons, Chief Financial Officer of ZRCN Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge and belief:

1.	The<br> Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024 (the “Report”) fully complies with the<br> requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The<br> information contained in the Report fairly presents, in all material respects, the financial condition and results of operations<br> of the Company.
Date:<br> August 19, 2024	/s/ Jeff Parsons
---	---
	Jeff<br> Parsons
	Chief<br> Financial Officer
	(Principal<br> Financial and Accounting Officer)