UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10−Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2024
or
☐ 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: 001-42033
| CleanCore Solutions, Inc. |
| (Exact name of registrant as specified in its charter) |
| Nevada | | 88-4042082 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| 5920 S 118th Circle, Omaha, NE | | 68137 |
| (Address of principal executive offices) | | (Zip Code) |
| (877) 860-3030 |
| (Registrant’s telephone number, including area code) |
| 13714 A Street, Omaha, NE 68144 |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Class B Common Stock, par value $0.0001 per share | | ZONE | | NYSE American LLC |
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 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, a 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 accelerated filer ☐ | | Accelerated filer ☐ |
| Non-accelerated filer ☒ | | Smaller reporting company ☒ |
| | | Emerging 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 November 12, 2024, there were 8,244,251 shares of class B common stock of the registrant issued and outstanding.
CleanCore Solutions, Inc.
Quarterly Report on Form 10-Q
Period Ended September 30, 2024
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CLEANCORE SOLUTIONS, INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
CLEANCORE SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
| | | September 30,
2024 | | | June 30,
2024 | |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 1,210,382 | | | $ | 2,016,611 | |
| Accounts receivable, net | | | 492,126 | | | | 467,286 | |
| Inventory, net | | | 719,247 | | | | 672,326 | |
| Prepaid expenses and other current assets | | | 197,449 | | | | 55,365 | |
| Total current assets | | | 2,619,204 | | | | 3,211,588 | |
| Property and equipment, net | | | 15,713 | | | | 10,572 | |
| Right of use assets | | | 493,015 | | | | 524,818 | |
| Intangibles, net | | | 1,448,424 | | | | 1,486,923 | |
| Goodwill | | | 2,237,910 | | | | 2,237,910 | |
| Other assets | | | 9,440 | | | | 9,440 | |
| Total assets | | $ | 6,823,706 | | | $ | 7,481,251 | |
| Liabilities and Stockholders’ Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 644,595 | | | $ | 573,956 | |
| Deferred revenue | | | - | | | | 10,395 | |
| Lease liability - current | | | 135,077 | | | | 131,887 | |
| Note payable - current | | | 759,019 | | | | 698,149 | |
| Due to related parties | | | 78,849 | | | | 91,119 | |
| Total current liabilities | | | 1,617,540 | | | | 1,505,506 | |
| Lease liability – non current | | | 383,077 | | | | 418,104 | |
| Note payable – non current | | | 1,760,314 | | | | 1,821,184 | |
| Total liabilities | | | 3,760,931 | | | | 3,744,794 | |
| | | | | | | | | |
| Commitments and contingencies (Note 13) | | | | | | | | |
| | | | | | | | | |
| Stockholders’ Equity | | | | | | | | |
| Class A Common Stock; $0.0001 par value, 50,000,000 shares authorized; 270,000 shares issued and outstanding as of September 30, 2024 and June 30, 2024, respectively | | | 27 | | | | 27 | |
| Class B Common Stock; $0.0001 par value, 250,000,000 shares authorized; 7,970,085 and 7,960,919 shares issued and outstanding as of September 30, 2024 and June 30, 2024, respectively | | | 797 | | | | 796 | |
| Additional paid-in capital | | | 11,222,982 | | | | 11,040,583 | |
| Accumulated deficit | | | (8,161,031 | ) | | | (7,304,949 | ) |
| Total stockholders’ equity | | | 3,062,775 | | | | 3,736,457 | |
| Total liabilities and stockholders’ equity | | $ | 6,823,706 | | | $ | 7,481,251 | |
The accompanying notes are an integral part of these condensed unaudited financial statements.
CLEANCORE SOLUTIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | Three Months Ended
September 30, | |
| | | 2024 | | | 2023 | |
| Revenue, net | | $ | 364,900 | | | $ | 325,684 | |
| Cost of sales (exclusive of depreciation shown separately below) | | | 179,401 | | | | 152,575 | |
| Gross profit | | | 185,499 | | | | 173,109 | |
| Operating expenses: | | | | | | | | |
| General and administrative | | | 916,214 | | | | 509,876 | |
| Advertising expense | | | 46,210 | | | | 823 | |
| Depreciation and amortization expense | | | 39,823 | | | | 38,562 | |
| Loss from operations | | | (816,748 | ) | | | (376,152 | ) |
| Interest expense, net | | | 39,334 | | | | 61,142 | |
| Net loss | | $ | (856,082 | ) | | $ | (437,294 | ) |
| | | | | | | | | |
| Net loss per share Class A and Class B stock, basic and diluted | | $ | (0.10 | ) | | $ | (0.13 | ) |
| Weighted average shares used in computing net loss per Class A share, basic and diluted | | | 270,000 | | | | 443,956 | |
| Weighted average shares used in computing net loss per Class B share, basic and diluted | | | 7,965,818 | | | | 2,847,149 | |
The accompanying notes are an integral part of these condensed unaudited financial statements.
CLEANCORE SOLUTIONS, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| | | For the Three Months Ended September 30, 2024 | |
| | | Class A
Common Stock | | | Class B
Common Stock | | | Additional
Paid in | | | Accumulated | | | Total
Stockholders’ | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | |
| Balance at June 30, 2024 | | | 270,000 | | | $ | 27 | | | | 7,960,919 | | | $ | 796 | | | $ | 11,040,583 | | | $ | (7,304,949 | ) | | $ | 3,736,457 | |
| Issuance of class B common stock upon vesting of restricted stock units – 2022 Equity Incentive Plan | | | - | | | | - | | | | 9,166 | | | | 1 | | | | 21,514 | | | | - | | | | 21,515 | |
| Stock based compensation – 2022 Equity Incentive Plan | | | - | | | | - | | | | - | | | | - | | | | 160,885 | | | | - | | | | 160,885 | |
| Net loss for the period | | | - | | | | - | | | | - | | | | - | | | | - | | | | (856,082 | ) | | | (856,082 | ) |
| Balance at September 30, 2024 | | | 270,000 | | | $ | 27 | | | | 7,970,085 | | | $ | 797 | | | $ | 11,222,982 | | | $ | (8,161,031 | ) | | $ | 3,062,775 | |
| | | For the Three Months Ended September 30, 2023 | |
| | | Series Seed Preferred Stock | | | Class A Common Stock | | | Class B Common Stock | | | Additional
Paid in | | | Accumulated | | | Total
Stockholders’ | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | |
| Balance at June 30, 2023 | | | 4,000,000 | | | $ | 400 | | | | 660,000 | | | $ | 66 | | | | 1,795,940 | | | $ | 180 | | | $ | 6,768,775 | | | $ | (5,023,207 | ) | | $ | 1,746,214 | |
| Conversion of class A common stock into class B common stock | | | - | | | | - | | | | (1,310,000 | ) | | | (131 | ) | | | 1,310,000 | | | | 131 | | | | - | | | | - | | | | - | |
| Conversion of series seed preferred stock into class A common stock | | | (1,000,000 | ) | | | (100 | ) | | | 1,000,000 | | | | 100 | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Stock based compensation – 2022 Equity incentive plan | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 63,960 | | | | - | | | | 63,960 | |
| Net loss for the period | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (437,294 | ) | | | (437,294 | ) |
| Balance at September 30, 2023 | | | 3,000,000 | | | $ | 300 | | | | 350,000 | | | $ | 35 | | | | 3,105,940 | | | $ | 311 | | | $ | 6,832,735 | | | $ | (5,460,501 | ) | | $ | 1,372,880 | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
CLEANCORE SOLUTIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | Three Months Ended
September 30, | |
| | | 2024 | | | 2023 | |
| Cash flows from operating activities | | | | | | |
| Net loss | | $ | (856,082 | ) | | $ | (437,294 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | | 39,823 | | | | 38,562 | |
| Accretion of note payable discount | | | - | | | | 4,500 | |
| Non cash interest expense | | | 56,331 | | | | 208,248 | |
| Stock based compensation | | | 182,400 | | | | 63,960 | |
| Non cash lease expense | | | (34 | ) | | | 492 | |
| Provision for bad debt and write-off of on uncollectable accounts | | | 5,563 | | | | 7,130 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (30,403 | ) | | | (66,233 | ) |
| Inventory | | | (46,921 | ) | | | (77,026 | ) |
| Prepaid expenses | | | (142,084 | ) | | | 93,550 | |
| Deferred revenue | | | (10,395 | ) | | | - | |
| Due to related parties | | | (12,270 | ) | | | - | |
| Accounts payable and accrued liabilities | | | 14,308 | | | | (144,224 | ) |
| Net cash used in operating activities | | | (799,764 | ) | | | (308,335 | ) |
| | | | | | | | | |
| Investing activities | | | | | | | | |
| Purchase of property and equipment | | | (6,465 | ) | | | (1,015 | ) |
| Net cash used in investing activities | | | (6,465 | ) | | | (1,015 | ) |
| | | | | | | | | |
| Financing activities | | | | | | | | |
| Repayment of loans from related parties | | | - | | | | (6,203 | ) |
| Payments for deferred offering costs | | | - | | | | (13,523 | ) |
| Net cash used in financing activities | | | - | | | | (19,726 | ) |
| | | | | | | | | |
| Net decrease in cash | | | (806,229 | ) | | | (329,076 | ) |
| Cash and cash equivalents at beginning of period | | | 2,016,611 | | | | 393,194 | |
| Cash and cash equivalents at the end of period | | $ | 1,210,382 | | | $ | 64,118 | |
| | | | | | | | | |
| Supplementary cash flow disclosure | | | | | | | | |
| Interest paid | | $ | - | | | $ | - | |
| Unpaid deferred offering costs | | $ | - | | | $ | 212,801 | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
1. Organization and Business
CC Acquisition Corp. was incorporated in the State of Nevada on August 23, 2022 for the sole purpose of acquiring substantially all of the assets of CleanCore Solutions, LLC, TetraClean Systems, LLC, and Food Safety Technologies, LLC, pursuant to an asset purchase agreement entered into by CC Acquisition Corp. with these three entities and their owners on October 17, 2022. On November 21, 2022, CC Acquisition Corp. changed its name to CleanCore Solutions, Inc. (the “Company”). Since the Company acquired substantially all of the assets of each of CleanCore Solutions, LLC, TetraClean Systems, LLC, and Food Safety Technologies, LLC, the business of these three entities is now operated by the Company, with no subsidiaries.
The Company specializes in the development and production of cleaning products that produce pure aqueous ozone products for professional, industrial, or home use. The Company has a patented nanobubble technology using aqueous ozone that it believes is highly effective in cleaning, sanitizing, and deodorizing surfaces and high-touch areas.
The Company offers products and solutions that are marketed for janitorial and sanitation, ice machine cleaning, laundry, and industrial industries. Its products are used in many types of environments including retail establishments, distribution centers, factories, warehouses, restaurants, schools and universities, airports, healthcare, food service, and commercial buildings such as offices, malls, and stores.
The headquarters, principal address and records of the Company are located at 5920 South 118th Circle, Suite 2, Omaha, Nebraska.
Initial Public Offering
On April 30, 2024, the Company closed its initial public offering of 1,250,000 shares of class B common stock at a price to the public of $4.00 per share for gross offering proceeds of $5,000,0000, before deducting underwriting discounts, commissions, and offering expenses payable by the Company. After deducting underwriting discounts, commissions and other offering costs, the Company received net proceeds of $3,343,547.
Liquidity
The Company has incurred losses and negative cash flows from operations. From October 17, 2022 (the date of the acquisition) through September 30, 2024, the Company has financed its operations primarily through investor funding. As of September 30, 2024, the Company had cash of $1,210,382, a net loss of $856,082, and cash used in operating activities of $799,764. In accordance with Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements - Going Concern, management is required to perform a two-step analysis over the Company’s ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the date the financial statements are issued. If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt.
Despite the initial public offering described above, management believes that currently available resources will not be sufficient to fund the Company’s planned expenditures over the next 12 months. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial doubt about the Company’s ability to continue as a going concern for 12 months from the date of issuance of these financial statements.
The Company will be dependent upon the raising of additional capital through equity and/or debt financing in order to implement its business plan and generate sufficient revenue in excess of costs. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. There is no assurance that the Company will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on the Company’s financial condition. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The accompanying financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim financial statements as of and for the three months ended September 30, 2024 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The interim financial statements are condensed and should be read in conjunction with the Company’s latest annual audited 2024 financial statements, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on September 20, 2024 (the “Form 10-K”). The results of operations for interim periods are not necessarily indicative of results to be expected for the fiscal year ending June 30, 2025 or for any other future annual or interim period.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.
The fiscal 2024 year-end balance sheet data was derived from audited financial statements, and certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules or regulations; however, the Company believes the disclosures made are adequate to make the information presented not misleading.
A complete listing of the Company’s significant accounting policies is discussed in Note 2 – Summary of Significant Accounting Policies in the Notes to Financial Statements included in the Form 10-K.
Risks and Uncertainties
The Company is subject to a number of risks similar to other early-stage companies including, but not limited to, profitability, the need for additional financing to achieve its business strategy, ability to obtain regulatory approval, significant competition, and dependence on key individuals.
Inventory
Inventory consists of parts, work in progress and finished goods. The Company values parts and finished goods at the lower of the actual costs or net realizable value. The Company values work in progress at cost. The Company periodically reviews inventory for obsolete and potentially impaired items. As of September 30, 2024 and June 30, 2024, the Company had an allowance for inventory obsolescence of $15,471 and $14,791, respectively.
Intangible Assets
Intangible assets primarily consist of existing technology, customer relationships, and trademarks obtained as a result of the acquisition on October 17, 2022. Intangible assets with definite lives are amortized based on their pattern of economic benefit over their estimated useful lives and reviewed periodically for impairment. The Company’s trademarks are deemed to have an indefinite life. The estimated useful life of the acquired technology is 15 years while the estimated useful life of the customer relationships is 5 years.
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Impairment of Goodwill
The Company evaluates goodwill for impairment annually, as of June 30, or more frequently when indicators of impairment exist. The Company considers qualitative factors including market conditions, legal factors, operating performance indicators, and competition, among others, to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill. If the Company concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company performs a quantitative impairment test. In performing the quantitative impairment test, the Company compares the fair value of its reporting unit to the carrying amount including the goodwill of the reporting unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, the Company will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value.
The Company performed its annual evaluation of goodwill on June 30, 2024. Based on the analysis, the Company did not recognize an impairment loss during the year ended June 30, 2024. Subsequent evaluations will be performed annually on June 30, per the Company’s policy.
Fair Value Measurements
The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of an asset in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels:
Level 1 – Quoted prices in active markets for identical assets and liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets.
Level 3 – Unobservable inputs.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The Company’s financial assets are subject to fair value measurements on a recurring basis. The Company’s remaining carrying amounts reported in the condensed balance sheets of these financial assets are a reasonable estimate of fair value due to their short-term nature or because their stated interest rates are indicative of market interest rates.
Stock-based Compensation
Compensation expense is recognized for all stock-based payments to employees and nonemployees, including stock options, restricted stock awards, and warrants, in the statements of operation based on the fair value of the awards that are granted. As necessary, the Company’s stock price at the date of grant was estimated using an acceptable valuation technique such as the probability-weighted expected return model. The fair value of stock options and warrants are estimated at the date of grant using the Black-Scholes option-pricing model. The fair value of restricted stock awards is based on the fair market value of the Company’s class B common stock on the date of grant. Compensation expense for restricted stock awards with performance-based vesting conditions is calculated based on the number of awards that are expected to vest during the performance period if it is probable that the performance metrics will be achieved. Generally, measured compensation cost, net of actual forfeitures, is recognized on a straight-line basis over the vesting period of the related stock-based compensation award. The Company accounts for forfeitures of stock-based awards as they occur.
Net Loss per Share of Common Stock
Basic net loss per class A and class B common share is calculated by dividing the net loss distributed to class A and class B, respectively, by the weighted-average number of common shares of each respective class outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options, warrants and convertible debt are considered to be potentially dilutive securities. As of September 30, 2024 and June 30, 2024, there were 3,382,500 of potential common stock equivalents excluded from the diluted loss per share calculations as their effect is anti-dilutive. Because the Company has reported a net loss for the three months ended September 30, 2024 and 2023, diluted net loss per common share is the same as basic net loss per common share for such periods.
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
New Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid and effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the effects of this pronouncement on its financial statements and disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance in this update is effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effects of this pronouncement on its financial statement disclosures.
3. Disaggregated Revenue
The following table disaggregates revenue by product category for the following periods ended:
| | | Three Months Ended
September 30, | |
| | | 2024 | | | 2023 | |
| Janitorial and Sanitation | | $ | 341,363 | | | $ | 287,295 | |
| Ice System | | | 2,140 | | | | 2,441 | |
| Commercial and Residential Laundry | | | 4,764 | | | | 1,400 | |
| Other | | | 16,633 | | | | 34,548 | |
| Total revenue | | $ | 364,900 | | | $ | 325,684 | |
The “Other” category of revenue consists primarily of sales of parts, accessories, shipping and handling, and equipment rental income.
4. Accounts Receivable, net
Accounts receivable, net consists of the following at:
| | | September 30,
2024 | | | June 30,
2024 | |
| Trade accounts receivable | | $ | 500,113 | | | $ | 469,821 | |
| Allowance for doubtful accounts | | | (7,987 | ) | | | (2,535 | ) |
| Total accounts receivable, net | | $ | 492,126 | | | $ | 467,286 | |
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consists of the following at:
| | | September 30,
2024 | | | June 30,
2024 | |
| Prepaid inventory parts | | $ | 14,008 | | | $ | 5,277 | |
| Prepaid insurance | | | 22,014 | | | | 32,943 | |
| Prepaid certification and fees | | | 100,681 | | | | 3,172 | |
| Prepaid other | | | 60,746 | | | | 13,973 | |
| Total prepaid expenses and other current assets | | $ | 197,449 | | | $ | 55,365 | |
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
6. Inventory
Inventory consists of the following at:
| | | September 30,
2024 | | | June 30, 2024 | |
| Parts | | $ | 512,130 | | | $ | 503,004 | |
| Finished goods | | | 222,588 | | | | 184,112 | |
| Inventory reserve | | | (15,471 | ) | | | (14,790 | ) |
| Total inventory, net | | $ | 719,247 | | | $ | 672,326 | |
The Company values inventory at the balance sheet date using the weighted average method. The Company adjusted the inventory reserve to $15,471 for the three months ended September 30, 2024, from $14,790 for the year ended June 30, 2024.
7. Intangible Assets
Intangible assets consist of the following at:
| | | September 30,
2024 | | | June 30,
2024 | |
| Technology | | $ | 600,000 | | | $ | 600,000 | |
| Customer relationships | | | 570,000 | | | | 570,000 | |
| Trademarks | | | 580,000 | | | | 580,000 | |
| Total | | | 1,750,000 | | | | 1,750,000 | |
| Less: accumulated amortization | | | (301,576 | ) | | | (263,077 | ) |
| Total intangible assets, net | | $ | 1,448,424 | | | $ | 1,486,923 | |
The Company holds 14 patents, which are included in technology. These patents cover the functions of the Company’s products that allow its machines to produce the ozone in the form of nanobubbles.
Amortization expense related to intangibles was $38,499 for the three months ended September 30, 2024 and 2023, respectively.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at:
| | | September 30,
2024 | | | June 30,
2024 | |
| Accounts payable | | $ | 291,066 | | | $ | 176,077 | |
| Accrued interest | | | 76,965 | | | | 23,113 | |
| Accrued payroll and related expenses | | | 33,936 | | | | 59,943 | |
| Accrued pending litigation (Note13) | | | 108,242 | | | | 108,242 | |
| Warranty reserve | | | 68,373 | | | | 96,636 | |
| Accrued severance | | | 10,000 | | | | 70,000 | |
| Accrued legal | | | 39,581 | | | | 32,259 | |
| Other accrued expenses | | | 16,432 | | | | 7,686 | |
| Total accounts payable and other accrued expenses | | $ | 644,595 | | | $ | 573,956 | |
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
9. Debt
Burlington Promissory Note
In connection with the acquisition on October 17, 2022, the Company issued a promissory note in the principal amount of $3,000,000 to the seller, Burlington Capital, LLC (“Burlington”), which bore interest at 7% per annum and was to mature on October 17, 2023. On September 13, 2023, the parties signed an extension agreement, pursuant to which the interest rate was increased to 10% per annum and the maturity date was extended to the earlier of (a) the closing of a firm commitment initial public offering and concurrent listing on a national securities exchange or (b) December 17, 2023. On December 17, 2023, the parties signed a second extension agreement, pursuant to which the maturity date was extended to the earlier of (a) the closing of a firm commitment initial public offering and concurrent listing on a national securities exchange or (b) April 4, 2024. On April 30, 2024, the Company and Burlington entered into an extension agreement which extended the maturity date to May 9, 2024.
On May 31, 2024, Burlington and Walker Water LLC (“WW”) entered into an allonge, assignment and agreement (the “Assignment Agreement”), pursuant to which Burlington agreed to transfer $633,840 of the note to WW. The Assignment Agreement also provided that the Company make a payment of $900,000 on May 31, 2024 to Burlington to reduce the principal amount of the note by $480,667 and pay the outstanding accrued interest of $419,333 in full. Also on May 31, 2024, the Company issued an amended and restated promissory note to Burlington (the “Amended Note”). The Amended Note has a new principal amount of $2,366,160, accrues interest at 8.5% per annum from October 17, 2022 (the date of the original note), which shall increase to 10% upon an event of default, and requires quarterly payments in the amount of $100,000 over the course of the next two and a half years, with a final payment of $1,396,881 due on April 1, 2027. The Amended Note may be prepaid at any time with no pre-payment penalty and contains customary events of default for a note of this type. As of September 30, 2024, the outstanding principal balance of this note is $1,885,493 and it has accrued interest of $59,006.
Pursuant to the Assignment Agreement, the Company also issued a promissory note to WW in the principal amount of $633,840 (the “New Note”). The New Note accrues interest at 8.5% per annum from October 17, 2022 (the date of the original note), which shall increase to 10% upon an event of default and is due on December 31, 2024. The New Note may be prepaid at any time with no pre-payment penalty and contains customary events of default for a note of this type. As of September 30, 2024, the outstanding principal balance of this note is $633,840 and it has accrued interest of $17,959.
Line of Credit
On June 28, 2024, the Company entered into a loan agreement with Arbor Bank for a revolving line of credit in the amount of $100,000 with a variable interest rate tied to the U.S. Prime Rate. Monthly payments of accrued interest are due beginning July 28, 2024. The principal and any outstanding accrued interest are due in full on June 28, 2025. As of September 30, 2024, there was no outstanding principal on this line of credit, and no required accrued interest.
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
10. Related Party Transactions
The following due to related party balances were outstanding at:
| | | September 30,
2024 | | | June 30,
2024 | |
| Due to founder – credit card | | $ | 78,849 | | | $ | 91,119 | |
As of September 30, 2024 and June 30, 2024, the Company had a short term amount due to Clayton Adams, its Chief Executive Officer and founder, in the amount of $78,849 and $91,119, respectively for operational expenses paid by a credit card in his name. The Company has a verbal agreement with Mr. Adams to pay the credit card charges directly to the issuing financial institution as they become due and is current on these payments.
On October 4, 2022, the Company issued a promissory note to each of Matthew Atkinson, the Company’s Chief Executive Officer at such time, and Clayton Adams, the Company’s President at such time, in the principal amount of $104,450 each for a total of $208,900. These notes bore interest at a rate of 5% per annum beginning on the 30th day after issuance and were due on the 60th day following written demand from the holder. On May 29, 2024, the Company repaid these two promissory notes, including interest accrued of $8,506 each.
On October 17, 2022, the Company entered into a consulting agreement with Birddog Capital, LLC (“Birddog”), a limited liability company owned by Clayton Adams, a significant security holder at such time and the Company’s current Chief Executive Officer, pursuant to which the Company engaged Birddog to provide management services to the Company. Pursuant to the consulting agreement, the Company agreed to pay Birddog a monthly fee of $6,000 commencing on October 17, 2022. The Company also agreed to reimburse Birddog for all pre-approved business expenses. The term of the consulting agreement was for one (1) year. On April 1, 2024, the Company entered into a new consulting agreement with Birddog which provides for a monthly fee of $22,000. In addition, the Company agreed to pay Birddog $175,000 upon completion of the initial public offering and grant Birddog 500,000 restricted stock units, with 250,000 shares vesting immediately and 250,000 shares vesting eighteen months after issuance. The consulting agreement expires on October 23, 2025.
On July 27, 2023, the Company agreed to purchase approximately $105,000 worth of inventory from Nebraska C. Ozone, LLC, a related party business owned by Lisa Roskens, a significant stockholder and the principal officer of Burlington, due to an open purchase order that the Company’s predecessor had with an inventory vendor that was not included in the liabilities assumed from the predecessor per the terms of the acquisition purchase agreement. The inventory is to be purchased as needed, consistent with other inventory purchases. However, if the entire $105,000 amount is not purchased by March 31, 2024, the balance at that date begins accruing interest at a rate of seven percent (7%) per annum until it is paid in full. As of September 30, 2024, the Company has not purchased any of the inventory and as such, has accrued interest of $13,570.
On March 26, 2024, the Company entered into a loan agreement with Clayton Adams, a significant stockholder, pursuant to which the Company issued a revolving credit note to Mr. Adams in the principal amount of up to $500,000. Pursuant to the loan agreement and note, Mr. Adams agreed to provide advances to the Company upon request during the period commencing on April 25, 2024 and continuing until the second anniversary of such date, which is referred to as the maturity date. This note accrues simple interest on the outstanding principal amount at the rate of 8% per annum, with all principal and interest due on the maturity date; provided that upon an event of default (as defined in the note), such rate shall increase to 13%. The Company may prepay the note at any time without penalty or premium. The note is unsecured and contains customary events of default for a loan of this type. As of September 30, 2024, no advances have been made and the principal amount of this note is $0.
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
11. Stockholders’ Equity
Series Seed Preferred Stock
For the Three Months Ended September 30, 2023
On July 16, 2023, the Company issued 1,000,000 shares of class A common stock upon the conversion of 1,000,000 shares of series seed preferred stock.
As of September 30, 2023, 3,000,000 shares of series seed preferred stock were issued and outstanding.
For the Three Months Ended September 30, 2024
No shares of Series Seed Preferred Stock existed as of September 30, 2024.
Common Stock
For the Three Months Ended September 30, 2023
On July 17, 2023, the Company issued 940,000 shares of class B common stock upon the conversion of 940,000 shares of class A common stock. On July 24, 2023, the Company issued 370,000 shares of class B common stock upon the conversion of 370,000 shares of class A common stock.
As of September 30, 2023, there were 350,000 shares of class A common stock and 3,105,940 shares of class B common stock issued and outstanding.
For the Three Months Ended September 30, 2024
On July 12, 2024, the Company issued 5,000 shares of class B common stock upon vesting of a restricted stock unit award granted under the 2022 Plan (as defined below). On September 19, 2024, the Company issued 4,166 shares of class B common stock upon vesting of a restricted stock unit award granted under the 2022 Plan.
As of September 30, 2024, there were 270,000 shares of class A common stock and 7,970,085 shares of class B common stock issued and outstanding.
Stock Options
No options were issued during the three months ended September 30, 2024.
Warrants
No warrants were issued during the three months ended September 30, 2024.
Restricted Stock Awards
On September 19, 2024, the Company granted a restricted stock unit award under the 2022 Plan for 585,000 shares of class B common stock, of which 150,000 shares will vest in equal parts over the course of thirty-six (36) months, with 1/36th vesting each month commencing on the grant date and thereafter on the same day of the month as the grant date, and the remaining shares will vest as the Company achieves certain sales targets in a twelve-month period.
Stock-based Compensation
Total stock compensation expense for the three months ended September 30, 2024 was $182,400. Total stock compensation expense for the three months ended September 30, 2023 was $63,960. As of September 30, 2024, total unrecognized stock compensation expense was $1,014,374 with the weighted average period over which it is expected to be recognized of 2.11 years.
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
12. Net loss per share
The following tables set forth the computation of basic and dilutive net loss per share of common stock:
| | | Three Months Ended September 30, | |
| | | 2024 | | | 2023 | |
| Basic and diluted net loss per share | | Class A | | | Class B | | | Class A | | | Class B | |
| Numerator | | | | | | | | | | | | | | | | |
| Allocation of undistributed loss | | $ | (28,065 | ) | | $ | (828,017 | ) | | $ | (58,989 | ) | | $ | (378,305 | ) |
| Denominator | | | | | | | | | | | | | | | | |
| Weighted average number of shares used in per share computation | | | 270,000 | | | | 7,965,818 | | | | 443,956 | | | | 2,847,149 | |
| Basic and diluted net loss per share | | $ | (0.10 | ) | | $ | (0.10 | ) | | $ | (0.13 | ) | | $ | (0.13 | ) |
13. Commitments and Contingencies
Legal Proceedings
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is aware of one legal claim and has accrued approximately $108,000 for such claim.
On August 20, 2024, the Company’s former Chief Executive Officer, Matthew Atkinson, filed a lawsuit against the Company in the State of Nebraska claiming compensation, unreimbursed expenses and accrued and unpaid vacation owed to him prior to his resignation in February 2024.
The Company is currently not aware of any other such legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition or operating results.
Leases
The Company has a non-cancellable operating lease commitment for its office facility expiring in 2028. Rent expense totaled $40,416 and $28,813 for the three months ended September 30, 2024 and 2023, respectively.
The following table discloses the lease cost, discount rate, and remaining lease term for operating leases as of September 30, 2024 and 2023:
| | | September 30,
2024 | | | September 30,
2023 | |
| Operating lease cost | | $ | 40,416 | | | $ | 28,813 | |
| Remaining lease term | | | 3.4 years | | | | 4.4 years | |
| Discount rate | | | 6.56 | % | | | 6.00 | % |
The discount rate was determined using the Company’s external debt and was adjusted for collateralization, term and lease amount.
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
The following table discloses the undiscounted cash flows on an annual basis and a reconciliation of the undiscounted cash flows of operating lease liabilities recognized in the balance sheet as of September 30, 2024:
Year Ended June 30, | | | |
| 2025 (remainder) | | $ | 122,698 | |
| 2026 | | | 167,226 | |
| 2027 | | | 171,407 | |
| 2028 | | | 116,160 | |
| Total undiscounted cash flows | | | 577,490 | |
| Less amount representing interest | | | (59,336 | ) |
| Present value of lease liabilities | | | 518,154 | |
| Less current portion | | | (135,077 | ) |
| Noncurrent lease liabilities | | $ | 383,077 | |
On October 19, 2024, the Company issued 4,166 shares of class B common stock upon vesting of a restricted stock unit award granted under the 2022 Plan.
On October 30, 2024, the Company issued 270,000 shares of class B common stock upon the conversion of 270,000 shares of class A common stock.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our” and “our company” refer to CleanCore Solutions, Inc., a Nevada corporation.
Special Note Regarding Forward Looking Statements
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| ● | our goals and strategies; |
| ● | our future business development, financial condition and results of operations; |
| ● | expected changes in our revenue, costs or expenditures; |
| ● | growth of and competition trends in our industry; |
| ● | our expectations regarding demand for, and market acceptance of, our products and services; |
| ● | our expectations regarding our relationships with investors, institutional funding partners and other parties we collaborate with; |
| ● | fluctuations in general economic and business conditions in the market in which we operate; and |
| ● | relevant government policies and regulations relating to our industry. |
In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, or the Form 10-K, and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Overview
We specialize in the development and production of cleaning products that produce pure aqueous ozone for professional, industrial, or home use. We have a patented nanobubble technology using aqueous ozone that we believe is highly effective in cleaning, sanitizing, and deodorizing surfaces and high-touch areas.
We offer products and solutions that are marketed for janitorial and sanitation, ice machine cleaning, laundry, and industrial industries. Our products are used in many types of environments including retail establishments, distribution centers, factories, warehouses, restaurants, schools and universities, airports, healthcare, food service, and commercial buildings such as offices, malls, and stores.
Our mission is to become a leader in creating safe, clean spaces that are free from any chemical residue or skin irritants. We are currently expanding our distributor network, improving our production processes, and proving the effectiveness of our products in restaurants, airports, and hotels.
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
| ● | our ability to acquire new customers or retain existing customers; |
| ● | our ability to stay ahead of our value-proposition to end consumers; |
| ● | our ability to continue innovating our technology to meet consumer demand; |
| ● | industry demand and competition; and |
| ● | market conditions and our market position. |
Emerging Growth Company
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; |
| ● | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); |
| ● | submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and |
| ● | disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. |
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering, (ii) the last day of the first fiscal year in which our total annual gross revenues are $1.235 billion or more, (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our class B common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Results of Operations
The following table sets forth key components of our results of operations for the three months ended September 30, 2024 and 2023, both in dollars and as a percentage of our revenue.
| | | Three Months Ended September 30, | |
| | | 2024 | | | 2023 | |
| | | Amount | | | % of
Revenue | | | Amount | | | % of
Revenue | |
| Revenue | | $ | 364,900 | | | | 100.00 | % | | $ | 325,684 | | | | 100.00 | % |
| Cost of sales | | | 179,401 | | | | 49.16 | % | | | 152,575 | | | | 46.85 | % |
| Gross profit | | | 185,499 | | | | 50.84 | % | | | 173,109 | | | | 53.15 | % |
| Operating expenses: | | | | | | | | | | | | | | | | |
| General and administrative | | | 916,214 | | | | 251.09 | % | | | 509,876 | | | | 156.56 | % |
| Advertising expense | | | 46,210 | | | | 12.66 | % | | | 823 | | | | 0.25 | % |
| Depreciation and amortization expense | | | 39,823 | | | | 10.91 | % | | | 38,562 | | | | 11.84 | % |
| Loss from operations | | | (816,748 | ) | | | (223.83 | )% | | | (376,152 | ) | | | (115.50 | )% |
| Interest expense, net | | | 39,334 | | | | 10.78 | % | | | 61,142 | | | | 18.77 | % |
| Net loss | | $ | (856,082 | ) | | | (234.61 | )% | | $ | (437,294 | ) | | | (134.27 | )% |
Revenue. We generate revenue from sales of our cleaning products. Our revenue increased by $39,216, or 12.04%, to $364,900 for the three months ended September 30, 2024 from $325,684 for the three months ended September 30, 2023. The increase is primarily due to an increased number of customers.
Cost of sales. Our cost of sales consists of raw materials, components and labor. Our cost of sales increased by $26,826, or 17.58%, to $179,401 for the three months ended September 30, 2024 from $152,575 for the three months ended September 30, 2023. As a percentage of revenue, cost of sales increased from 46.85% for the three months ended September 30, 2023 to 49.16% for the three months ended September 30, 2024. This increase was primarily due to an increase in sales and increase in demo expenses due to a change in sales strategy of providing customers considering large orders demonstration equipment at no cost.
Gross profit. As a result of the foregoing, our gross profit increased by $12,390, or 7.16%, to $185,499 for the three months ended September 30, 2024 from $173,109 for the three months ended September 30, 2023. As a percentage of revenue, gross profit decreased from 53.15% for the three months ended September 30, 2023 to 50.84% for the three months ended September 30, 2024.
General and administrative expenses. Our general and administrative expenses consist primarily of personnel expenses, including employee salaries and bonuses plus related payroll taxes, stock based compensation expense, professional advisor fees, bad debts, rent expense, insurance and other expenses incurred in connection with general operations. Our general and administrative expenses increased by $406,338, or 79.69%, to $916,214 for the three months ended September 30, 2024 from $509,876 for the three months ended September 30, 2023. As a percentage of revenue, our general and administrative expenses increased from 156.25% for the three months ended September 30, 2023 to 251.09% for the three months ended September 30, 2024. This increase was primarily due to $118,440 stock related compensation expense, $106,720 external accounting fees, $74,600 in consulting fees and $69,200 increase in director and officer insurance.
Advertising expenses. Our advertising expenses consist of vendor trade shows and various trade publications. Our advertising expenses increased by $45,387, or 5,514.82%, to $46,210 for the three months ended September 30, 2024 from $823 for the three months ended September 30, 2023. As a percentage of revenue, our advertising expenses increased from 0.25% for the three months ended September 30, 2023 to 12.66% for the three months ended September 30, 2024. Such increase was primarily due to a significant increase in our public relations activities.
Depreciation and amortization expense. We incurred depreciation and amortization expense of $39,823, or 10.91% of revenue, for the three months ended September 30, 2024, as compared to $38,562, or 11.84% of revenue, for the three months ended September 30, 2023.
Interest expense, net. We incurred interest expense, net, of $39,334, or 10.78% of revenue, for the three months ended September 30, 2024, as compared to $61,142, or 18.77% of revenue, for the three months ended September 30, 2023. The decrease is primarily due to interest expense for the 2024 period being offset by interest income of $17,153 from an interest bearing money market account opened in the fourth quarter of fiscal 2024.
Net loss. As a result of the cumulative effect of the factors described above, we had a net loss of $856,082 for the three months ended September 30, 2024, as compared to $437,294 for the three months ended September 30, 2023, an increase in loss of $418,788, or 95.77%.
Liquidity and Capital Resources
Our company has incurred losses and negative cash flows from operations. From October 17, 2022 (the date of the acquisition) through September 30, 2024, we have financed our operations primarily through private investor funding and an initial public offering. As of September 30, 2024, we had cash and cash equivalents of $1,210,382, a net loss for the three months ended September 30, 2024 of $856,082 and cash used in operating activities of $799,764.
Despite our initial public offering, management believes that currently available resources will not be sufficient to fund our planned expenditures over the next 12 months. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial doubt about our company’s ability to continue as a going concern for 12 months from the date of issuance of the accompanying financial statements.
We will be dependent upon the raising of additional capital through equity and/or debt financing in order to implement our business plan and generate sufficient revenue in excess of costs. If we raise additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock. If we raise additional funds by issuing debt, we may be subject to limitations on its operations, through debt covenants or other restrictions. There is no assurance that we will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on our financial condition. Thes accompanying financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue as a going concern.
The accompanying financial statements have been prepared on a going concern basis under which our company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
Summary of Cash Flow
The following table provides detailed information about our net cash flow for the nine months ended September 30, 2024.
| | | Three Months Ended
September 30, | |
| | | 2024 | | | 2023 | |
| Net cash used in operating activities | | $ | (799,764 | ) | | $ | (308,335 | ) |
| Net cash used in investing activities | | | (6,465 | ) | | | (1,015 | ) |
| Net cash used in financing activities | | | - | | | | (19,726 | ) |
| Net decrease in cash | | | (806,229 | ) | | | (329,076 | ) |
| Cash at beginning of period | | | 2,016,611 | | | | 393,194 | |
| Cash at end of period | | $ | 1,210,382 | | | $ | 64,118 | |
Net cash used in operating activities was $799,764 for the three months ended September 30, 2024, as compared to $308,335 for the three months ended September 30, 2023. For the three months ended September 30, 2024, our net loss of $856,082 and a decrease in prepaid expenses of $142,084, offset by an increase in non-cash stock based compensation expense of $182,400, were the primary drivers of net cash used in operating activities. For the three months ended September 30, 2023, our net loss of $437,294, a decrease in accounts payable and accrued liabilities of $144,224, a decrease in inventory of $77,026, and a decrease in accounts receivable of $66,233, offset by a non-cash interest expense of $208,248, an increase in prepaid expenses of $93,550 and stock based compensation of $63,960, were the primary drivers of the net cash used in operating activities.
Net cash used in investing activities was $6,465 for the three months ended September 30, 2024, as compared to $1,015 for the nine months ended September 30, 2023. The net cash used in investing activities for both periods consisted entirely of purchases of property and equipment.
Net cash used in financing activities was $0 for the three months ended September 30, 2024, as compared to $19,726 for the three months ended September 30, 2023. Net cash used in financing activities for the three months ended September 30, 2023 consisted of payments for deferred offering costs of $13,523 and repayment of related party loans of $6,203.
Debt
Please see Note 9 to our unaudited condensed financial statements above for a description of the terms of our outstanding debt.
Contractual Obligations
Our principal commitments consist mostly of obligations under the loans described in Note 9 to our unaudited condensed financial statements above. We also have a non-cancellable operating lease commitment for our office facility expiring in 2028 as described in Note 13 to the unaudited condensed financial statements above. Other than the foregoing, at September 30, 2024, we did not have other long-term debt obligations, capital (finance) lease obligations, operating lease obligations, purchase obligations or other long-term liabilities reflected on our statements of financial position.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
The preparation of our unaudited condensed financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in the Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure information required to be disclosed in our reports that we file or furnish pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate to allow for timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were not effective at a reasonable assurance level due to material weaknesses identified related to (1) the lack of a sufficient number of trained professionals with the expertise to design, implement, and execute a formal risk assessment process and formal accounting policies, procedures, and controls over accounting and financial reporting to ensure the timely and accurate recording of financial transactions while maintaining a segregation of duties; and (2) the lack of a sufficient number of trained professionals with the appropriate technical expertise with United States generally accepted accounting principles, or U.S. GAAP, to identify, evaluate, and account for complex transactions, including identification of related party transactions, and review valuation reports prepared by external specialists.
Changes in Internal Control over Financial Reporting
In preparing our financial statements as of and for the three months ended September 30, 2024, management identified material weaknesses in our internal control over financial reporting. The material weaknesses we identified related to (1) the lack of a sufficient number of trained professionals with the expertise to design, implement, and execute a formal risk assessment process and formal accounting policies, procedures, and controls over accounting and financial reporting to ensure the timely and accurate recording of financial transactions while maintaining a segregation of duties; and (2) the lack of a sufficient number of trained professionals with the appropriate U.S. GAAP technical expertise to identify, evaluate, and account for complex transactions and review valuation reports prepared by external specialists.
As disclosed in the Form 10-K, our management has identified the steps necessary to address the material weaknesses, and in the first quarter of fiscal year 2025, we continued to implement the following remedial procedures. We are planning on implementing measures designed to improve our internal control over financial reporting to remediate these material weaknesses, including formalizing our processes and internal control documentation and strengthening supervisory reviews by our financial management and hiring additional qualified accounting and finance personnel and engaging financial consultants to enable the implementation of internal control over financial reporting and segregating duties amongst accounting and finance personnel.
While we are implementing these measures, we cannot assure you that these efforts will remediate our material weaknesses and significant deficiencies in a timely manner, or at all, or prevent restatements of our financial statements in the future. If we are unable to successfully remediate our material weaknesses, or identify any future significant deficiencies or material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, and the market price of our common stock may decline as a result.
In accordance with the provisions of the JOBS Act, we and our independent registered public accounting firm were not required to, and did not, perform an evaluation of our internal control over financial reporting as of September 30, 2024. Accordingly, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
On August 20, 2024, Matthew Atkinson, our former Chief Executive Officer and a significant stockholder, filed a complaint against our company in the District Court of Douglas County, Nebraska. In his complaint, he alleges that we failed to pay him compensation in the amount of $123,625.76, unreimbursed expenses in the amount of $1,815.25, and accrued and unpaid vacation in the amount of $6,153.84, or $131,594.85 in the aggregate. He alleges that we are obligated to pay him these amounts under an executive employment agreement between him and our company, and that he had become entitled to these amounts before he resigned his employment in February 2024. Based on these allegations, Mr. Atkinson asserts in his complaint causes of action for violation of the Nebraska Wage Payment and Collection Act, or the Act, breach of contract, and promissory estoppel. His complaints asks for a judgment that: (a) awards him damages in amount to be proved at trial but no less than $131,594.85, (b) assesses a penalty against our company pursuant to the Act in the amount of $263,189.70, and (c) awards Mr. Atkinson an amount for his reasonable costs and attorney’s fees incurred in litigating this matter and pre- and post-judgment interest.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We have not sold any unregistered equity securities during the three months ended September 30, 2024 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.
We did not repurchase any shares of our common stock during the three months ended September 30, 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibit No. | | Description of Exhibit |
| 3.1 | | Articles of Incorporation of CleanCore Solutions, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed on October 10, 2023) |
| 3.2 | | Bylaws of CleanCore Solutions, Inc. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed on October 10, 2023) |
| 4.1 | | Class B Common Stock Purchase Warrant issued to Boustead Securities, LLC on April 30, 2024 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on May 1, 2024) |
| 10.1 | | Sole Distributorship Contract, dated September 10, 2024, between CleanCore Solutions, Inc. and Consensus B.V. (incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed on September 20, 2024) |
| 10.2 | | Product Development Proposal, dated August 20, 2024, between CleanCore Solutions, Inc. and Business International Incorporation (incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed on September 20, 2024) |
| 31.1* | | Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2* | | Certifications of Principal Financial and Accounting Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1** | | Certifications of Principal Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2** | | Certifications of Principal Financial and Accounting Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS* | | Inline XBRL Instance Document |
| 101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements 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.
Date: November 13, 2024 | CLEANCORE SOLUTIONS, INC. |
| | |
| | /s/ Clayton Adams |
| | Name: | Clayton Adams |
| | Title: | Chief Executive Officer |
| | | (Principal Executive Officer) |
| | |
| | /s/ David Enholm |
| | Name: | David Enholm |
| | Title: | Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |
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