UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
or
For the transition period from ____________ to _____________
Commission File Number:
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As of May 13, 2025, there were
CleanCore Solutions, Inc.
Quarterly Report on Form 10-Q
Period Ended March 31, 2025
TABLE OF CONTENTS
| PART I | |||
| FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | 1 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 | |
| Item 4. | Controls and Procedures | 26 | |
| PART II | |||
| OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 28 | |
| Item 1A. | Risk Factors | 28 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 28 | |
| Item 3. | Defaults Upon Senior Securities | 28 | |
| Item 4. | Mine Safety Disclosures | 28 | |
| Item 5. | Other Information | 28 | |
| Item 6. | Exhibits | 29 | |
i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CLEANCORE SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
CLEANCORE SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2025 |
June 30, 2024 |
|||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use assets | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue | ||||||||
| Lease liability - current | ||||||||
| Subscription advance | ||||||||
| Note payable - current | ||||||||
| Note payable - related party | ||||||||
| Due to related parties | ||||||||
| Total current liabilities | ||||||||
| Lease liability – non-current | ||||||||
| Note payable – non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders’ Equity | ||||||||
| Class A Common Stock; $ |
||||||||
| Class B Common Stock; $ |
||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
2
CLEANCORE SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of sales (exclusive of depreciation shown separately below) | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Advertising expense | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense, net | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share of Class A and Class B stock, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares used in computing net loss per Class A share, basic and diluted | ||||||||||||||||
| Weighted average shares used in computing net loss per Class B share, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3
CLEANCORE SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| For the Three and Nine Months Ended March 31, 2025 | ||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of class B common stock upon vesting of restricted stock units – 2022 Equity Incentive Plan | ||||||||||||||||||||||||||||
| Stock based compensation – 2022 Equity Incentive Plan | - | - | ||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Conversion of class A common stock into class B common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of class B common stock upon vesting of restricted stock units – 2022 Equity Incentive Plan | ||||||||||||||||||||||||||||
| Stock based compensation – 2022 Equity Incentive Plan | - | - | ||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of class B common stock under separation agreement | ||||||||||||||||||||||||||||
| Issuance of class B common stock upon vesting of restricted stock units – 2022 Equity Incentive Plan | ||||||||||||||||||||||||||||
| Stock based compensation – 2022 Equity Incentive Plan | - | - | ||||||||||||||||||||||||||
| Modification of related party debt | - | - | ||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| For the Three and Nine Months Ended March 31, 2024 | ||||||||||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Conversion of class A common stock into class B common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Conversion of series seed preferred stock into class A common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Stock based compensation – 2022 Equity incentive plan | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock based compensation – 2022 Equity incentive plan | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||
| Conversion of class A common stock into class B common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Conversion of series seed preferred stock into class A common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Stock based compensation – 2022 Equity Incentive Plan | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CLEANCORE SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Accretion of note payable discount | ||||||||
| Non cash interest expense | ||||||||
| Stock based compensation | ||||||||
| Non cash lease expense | ( | ) | ||||||
| Provision for bad debt and write-off of on uncollectable accounts | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Due to related parties | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Payments for deferred offering costs | ( | ) | ||||||
| Proceeds from issuance of convertible debt notes | ||||||||
| Proceeds from related party loans | ||||||||
| Proceeds from subscription advance | ||||||||
| Payments of notes payable | ( | ) | ||||||
| Net provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at the end of period | $ | $ | ||||||
| Supplementary cash flow disclosure | ||||||||
| Interest paid | $ | $ | ||||||
| Unpaid deferred offering costs | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
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. (“CleanCore US”). Since CleanCore US 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 CleanCore US.
On January 29, 2025, CleanCore established CleanCore Global Limited (“CleanCore Global,” and together with CleanCore US, the “Company”) as a wholly owned subsidiary in Ireland.
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
Liquidity
The Company has incurred losses and negative cash
flows from operations. From October 17, 2022 (the date of the acquisition) through March 31, 2025, the Company has financed its operations
primarily through investor funding. As of March 31, 2025, the Company had cash of $
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.
6
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
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.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim financial statements as of and for the three and nine months ended March 31, 2025 and 2024 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.
Principles of Consolidation
The condensed consolidated financial statements are presented in US dollars and include the accounts of the Company and its majority-owned or controlled subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
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.
7
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
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 March 31,
2025 and June 30, 2024, the Company had an allowance for inventory obsolescence of $
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
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 consolidated 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.
8
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
Stock-based Compensation
Compensation expense is recognized for all stock-based payments to employees and non-employees, 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 March 31, 2025 and June 30, 2024, there were
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:
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Janitorial and Sanitation | $ | $ | $ | $ | ||||||||||||
| Ice System | ||||||||||||||||
| Commercial and Residential Laundry | ||||||||||||||||
| Rental/Service Income | ||||||||||||||||
| Other | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
9
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
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:
| March 31, 2025 | June 30, 2024 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total accounts receivable, net | $ | $ | ||||||
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consists of the following at:
| March 31, 2025 | June 30, 2024 | |||||||
| Prepaid inventory parts | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Prepaid certification and fees | ||||||||
| Prepaid other | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
6. Inventory
Inventory consists of the following at:
| March 31, 2025 | June 30, 2024 | |||||||
| Parts | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory reserve | ( | ) | ( | ) | ||||
| Total inventory, net | $ | $ | ||||||
The Company values inventory at the balance sheet date using the weighted
average method. The Company adjusted the inventory reserve to $
7. Intangible Assets
Intangible assets consist of the following at:
| March 31, 2025 | June 30, 2024 | |||||||
| Technology | $ | $ | ||||||
| Customer relationships | ||||||||
| Trademarks | ||||||||
| Total | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total intangible assets, net | $ | $ | ||||||
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
$
10
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at:
| March 31, 2025 |
June 30, 2024 |
|||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest | ||||||||
| Accrued payroll and related expenses | ||||||||
| Accrued pending litigation (Note 14) | ||||||||
| Warranty reserve | ||||||||
| Accrued severance | ||||||||
| Accrued legal | ||||||||
| Other accrued expenses | ||||||||
| Total accounts payable and other accrued expenses | $ | $ | ||||||
9. Subscription Advance
In January 2025, the Company launched a unit offering pursuant to which
the Company is offering to accredited investors, in a private placement transaction, up to
As of March 31, 2025, the Company received an aggregate of $
10. Debt
Promissory Notes
In connection with the acquisition on October
17, 2022, the Company issued a promissory note in the principal amount of $
11
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
On May 31, 2024, Burlington and Walker Water LLC
(“WW”) entered into an allonge, assignment and agreement (the “Burlington Assignment Agreement”), pursuant to
which Burlington agreed to transfer $
Pursuant to the Burlington Assignment Agreement,
the Company also issued a promissory note to WW in the principal amount of $
On December 24, 2024, the Company entered into
a note assignment and cancellation agreement (the “WW Assignment Agreement”) with WW, Gary Hollst, the Company’s Chief
Revenue Officer, and Gary Rohwer, a third party, pursuant to which WW assigned half of its right, title and interest in and to the WW
Note to Garry Hollst and the remaining half to Gary Rohwer. Accordingly, the WW Note was cancelled and the Company issued a promissory
note in the principal amount of $
The Hollst Note is due and payable on May 31,
2025 and does not accrue interest; provided that upon an event of default (as defined in the Hollst Note), interest shall accrue at a
rate of
The Rohwer Note was due and payable on December 31, 2024. On December 30, 2024, the Company repaid the Rohwer Note in full.
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 $
11. Related Party Transactions
As of March 31, 2025 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 $
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 $
12
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
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 $
On July 27, 2023, the Company agreed to purchase
approximately $
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 $
On December 24, 2024, the Company issued a
Following the assignment described above, the
Company issued a
Please also see the description of the Hollst Note under Note 10 above.
13
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
12. Stockholders’ Equity
Series Seed Preferred Stock
For the Nine Months Ended March 31, 2024
On July 16, 2023,
On February 5, 2024,
On February 7, 2024,
As of March 31, 2024,
For the Nine Months Ended March 31, 2025
No shares of Series Seed Preferred Stock existed during the nine months ended March 31, 2025.
Common Stock
For the Nine Months Ended March 31, 2024
On July 16, 2023, the Company issued
On July 17, 2023, the Company issued
On July 24, 2023, the Company issued
On February 5, 2024, the Company issued
On
February 6, 2024, the Company issued
On February 7, 2024, the Company issued
As of March 31, 2024, there were
For the Nine Months Ended March 31, 2025
On July 12, 2024, the Company issued
On September 19, 2024, the Company issued
On October 19, 2024, the Company issued
14
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
On October 30, 2024,
On November 19, 2024, the Company issued
On December 18, 2024, the Company issued
On December 19, 2024, the Company issued
On January 2, 2025, the Company issued
On January 2, 2025, the Company issued
On January 19, 2025, the Company issued
On February 19, 2025, the Company issued
On March 19, 2025, the Company issued
As of March 31, 2025, there were shares of
class A common stock and
Stock Options
options were issued during the nine months ended March 31, 2025.
Warrants
No warrants were issued during the nine months ended March 31, 2025.
Restricted Stock Awards
On September 19, 2024, the Company granted a restricted
stock unit award under the 2022 Plan for
On January 2, 2025, the Company granted a restricted
stock unit award under the 2022 Plan for
On March 20, 2025, the Company granted a restricted
stock unit award under the 2022 Plan for
Stock-based Compensation
Total stock compensation expense for the three
months ended March 31, 2025 and 2024 was $
15
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
13. 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 March 31, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Basic and Diluted Net Loss Per Share | Class A | Class B | Class A | Class B | ||||||||||||
| Numerator | ||||||||||||||||
| Allocation of undistributed loss | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominator | ||||||||||||||||
| Weighted average number of shares used in per share computation | ||||||||||||||||
| Basic and diluted net loss per share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Nine Months Ended March 31, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Basic and Diluted Net Loss Per Share | Class A | Class B | Class A | Class B | ||||||||||||
| Numerator | ||||||||||||||||
| Allocation of undistributed loss | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominator | ||||||||||||||||
| Weighted average number of shares used in per share computation | ||||||||||||||||
| Basic and diluted net loss per share | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
14. 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 $
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 legal proceedings or claims that are expected to 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 $
The following table discloses the lease cost, weighted average discount rate, and weighted average remaining lease term for operating leases as of March 31, 2025 and 2024:
| March 31, 2025 | March 31, 2024 | |||||||
| Operating lease cost | $ | $ | ||||||
| Remaining lease term | ||||||||
| Discount rate | % | % | ||||||
16
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
The discount rate was determined using the Company’s external debt and was adjusted for collateralization, term and lease amount.
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 March 31, 2025:
| Year Ended June 30, | ||||
| 2025 (remainder) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total undiscounted cash flows | ||||
| Less amount representing interest | ( | ) | ||
| Present value of lease liabilities | ||||
| Less current portion | ( | ) | ||
| Noncurrent lease liabilities | $ | |||
On February 21, 2025, CleanCore Global entered into an Asset Purchase Agreement, which was amended on April 15, 2025 (as so amended, the “Purchase Agreement”) with Sanzonate Europe Ltd., an Irish incorporated company (the “Seller”), and Sanzonate Global Inc., the majority stockholder of the Seller (the “Stockholder”), pursuant to which CleanCore Global agreed to acquire substantially all of the assets of the Seller used in the manufacturer and distribution of aqueous ozone products (the “Business”). See Note 15 below for a description of the terms of the Purchase Agreement.
15. Subsequent Events
Closing of Acquisition
On April 15, 2025, the closing of the transactions
contemplated by the Purchase Agreement was completed. Pursuant the Purchase Agreement, CleanCore Global acquired all of the assets of
the Seller used in the Business for an aggregate purchase price of $
As noted above, a portion of the purchase price
was paid by the issuance of a
The Seller is also entitled to receive the following payments (each, an “Earn-Out Payment”) to the extent that Net Sales (as defined in the Purchase Agreement) achieve the following milestones during the five-year period beginning on the closing date and ending on the fifth anniversary of the closing date (the “Earn-Out Period); provided that an Earn-Out Payment will be calculated for each year during the Earn-Out Period. If Net Sales:
| ● | are equal to or greater than € |
| ● | are equal to or greater than € |
| ● | are equal to or greater than € |
| ● | are equal to or greater than € |
| ● | are equal to or greater than € |
| ● | are equal to or greater than € |
Calculation of the annual Earn-Out Payment will be based upon cumulative Net Sales, meaning that for each year of the Earn-Out Period, the beginning balance of Net Sales will be the ending balance of Net Sales from the prior year of the Earn-Out Period.
17
CLEANCORE SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2025 AND 2024
No later than forth-five (45) days following each anniversary of the closing date during the Earn-Out Period, CleanCore Global shall prepare and deliver to the Seller a written statement (an “Earn-Out Statement”) setting forth in reasonable detail its determination of unaudited Net Sales within the annual Earn-Out Period and its determination of whether there is a resulting Earn-Out Payment due. To the extent the Seller is entitled to an Earn-Out Payment, the applicable Earn-Out Payment(s) shall be paid on the date that is five (5) business days after the date on which the Earn-Out Statement becomes final and binding on the parties, following resolution of any objections to the Earn-Out Statement pursuant to the terms of the Purchase Agreement.
The Purchase Agreement contains customary representations, warranties and covenants, including a covenant that the Seller and the Stockholder will not compete with the Business for a period of three (3) years following closing.
The Purchase Agreement also contains mutual indemnification for breaches of representations or warranties and failure to perform covenants or obligations contained in the Purchase Agreement. The Seller and the Stockholder also indemnified CleanCore Global for (i) any Excluded Liability (as defined in the Purchase Agreement) and (ii) any liability of the Seller which is not an Assumed Liability (as defined in the Purchase Agreement) and which is imposed upon CleanCore Global under any bulk transfer law of any jurisdiction or under any common law doctrine of de facto merger or successor liability so long as such liability arises out of the ownership, use or operation of the assets of the Seller, or the operation or conduct of the Business prior to the closing. CleanCore Global also indemnified the Seller and the Stockholder for (i) any Assumed Liability and (ii) any liability (other than any Excluded Liability) asserted by a third party against any of the Seller or the Stockholder which arises out of the ownership of the Purchased Assets (as defined in the Purchase Agreement) after the closing or the operation by CleanCore Global of the business conducted with the Purchased Assets after the closing.
In the case of the indemnification provided with
respect to breaches of certain non-fundamental representations and warranties, the party will only become liable for indemnified losses
if the amount exceeds an aggregate of $
Private Placement
On April 16, 2025, the Company entered into subscription
agreements with several accredited investors for the purchase of (i) promissory notes in the aggregate principal amount of $
The notes bear interest at a rate of twelve percent
(
Amendments to Promissory Notes
On May 2, 2025, the Hollst Note (See Note 10)
was amended and restated in its entirety and the Company issued to Mr. Hollst an amended and restated promissory note in the principal
amount of $
On May 2, 2025, the Company and Clayton Adams
entered into a note amendment agreement, pursuant to which the maturity date of the
On May 2, 2025, the Company and Mr. Buchanan entered
into a note amendment agreement, pursuant to which the maturity date the
Stock Issuances
On April 1, 2025, the Company issued
On April 1, 2025, the Company issued
On April 19, 2025, the Company issued
18
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, and its wholly owned subsidiary CleanCore Global Limited, an Irish company, or CleanCore Global.
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.
19
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.
Recent Developments
Closing of Acquisition
On February 21, 2025, CleanCore Global entered into an Asset Purchase Agreement, which was amended on April 15, 2025, or the Purchase Agreement, with Sanzonate Europe Ltd., an Irish incorporated company, or the Seller, and Sanzonate Global Inc., the majority stockholder of the Seller, or the Stockholder, pursuant to which CleanCore Global agreed to acquire substantially all of the assets of the Seller used in the manufacturer and distribution of aqueous ozone products (which we refer to as the Business).
On April 15, 2025, the closing of the transactions contemplated by the Purchase Agreement was completed. Pursuant the Purchase Agreement, CleanCore Global acquired all of the assets of the Seller used in the Business for an aggregate purchase price of $2,475,000, consisting of: (i) $425,000 in cash; (ii) the issuance of a promissory note in the principal amount of $800,000; and (iii) up to $1,250,000 in Earn-Out Payments (as defined below). As additional consideration, we issued to the Stockholder a five-year warrant to purchase 425,000 shares of our class B common stock at an exercise price of $1.25 per share.
As noted above, a portion of the purchase price was paid by the issuance of a 10% subordinated promissory note in the principal amount of $800,000 by CleanCore Global to the Seller. The note bears interest at a rate of ten percent (10%) per annum, payable quarterly, and is due and payable on April 15, 2027. The note may be prepaid at any time without premium or penalty, is unsecured, and contains customary events of default for a loan of this type.
The Seller is also entitled to receive the following payments (each is referred to below as an Earn-Out Payment) to the extent that Net Sales (as defined in the Purchase Agreement) achieve the following milestones during the five-year period beginning on the closing date and ending on the fifth anniversary of the closing date, or the Earn-Out Period; provided that an Earn-Out Payment will be calculated for each year during the Earn-Out Period. If Net Sales:
| ● | are equal to or greater than €2,000,000, CleanCore Global shall pay $200,000 to the Seller; |
| ● | are equal to or greater than €4,000,000, CleanCore Global shall pay an additional $200,000 to the Seller; |
| ● | are equal to or greater than €6,000,000, CleanCore Global shall pay an additional $200,000 to the Seller; |
| ● | are equal to or greater than €8,000,000, CleanCore Global shall pay an additional $200,000 to the Seller; |
| ● | are equal to or greater than €10,000,000, CleanCore Global shall pay an additional $200,000 to the Seller; and |
| ● | are equal to or greater than €12,000,000, CleanCore Global shall pay an additional $250,000 to the Seller. |
Calculation of the annual Earn-Out Payment will be based upon cumulative Net Sales, meaning that for each year of the Earn-Out Period, the beginning balance of Net Sales will be the ending balance of Net Sales from the prior year of the Earn-Out Period.
20
No later than forth-five (45) days following each anniversary of the closing date during the Earn-Out Period, CleanCore Global shall prepare and deliver to the Seller a written statement, or an Earn-Out Statement, setting forth in reasonable detail its determination of unaudited Net Sales within the annual Earn-Out Period and its determination of whether there is a resulting Earn-Out Payment due. To the extent the Seller is entitled to an Earn-Out Payment, the applicable Earn-Out Payment(s) shall be paid on the date that is five (5) business days after the date on which the Earn-Out Statement becomes final and binding on the parties, following resolution of any objections to the Earn-Out Statement pursuant to the terms of the Purchase Agreement.
The Purchase Agreement contains customary representations, warranties and covenants, including a covenant that the Seller and the Stockholder will not compete with the Business for a period of three (3) years following closing.
The Purchase Agreement also contains mutual indemnification for breaches of representations or warranties and failure to perform covenants or obligations contained in the Purchase Agreement. The Seller and the Stockholder also indemnified CleanCore Global for (i) any Excluded Liability (as defined in the Purchase Agreement) and (ii) any liability of the Seller which is not an Assumed Liability (as defined in the Purchase Agreement) and which is imposed upon CleanCore Global under any bulk transfer law of any jurisdiction or under any common law doctrine of de facto merger or successor liability so long as such liability arises out of the ownership, use or operation of the assets of the Seller, or the operation or conduct of the Business prior to the closing. CleanCore Global also indemnified the Seller and the Stockholder for (i) any Assumed Liability and (ii) any liability (other than any Excluded Liability) asserted by a third party against any of the Seller or the Stockholder which arises out of the ownership of the Purchased Assets (as defined in the Purchase Agreement) after the closing or the operation by CleanCore Global of the business conducted with the Purchased Assets after the closing.
In the case of the indemnification provided with respect to breaches of certain non-fundamental representations and warranties, the party will only become liable for indemnified losses if the amount exceeds an aggregate of $30,000. Notwithstanding the foregoing, this threshold limitation shall not apply to claims by CleanCore Global for breaches by the Seller or the Stockholder of certain fundamental representations. In addition, CleanCore Global’s aggregate remedy with respect to any and all indemnifiable losses shall in no event exceed, (i) with respect to claims related to breach of the fundamental representations, the final purchase price, or (ii) with respect to all other claims, 50% of the final purchase price. If, after providing the Seller with a written claim that specifically identifies the basis for indemnification and any relevant facts forming the basis for such claim, resolution of the claim between the parties and the Seller fails to indemnify CleanCore Global within thirty (30) days following the resolution of the claim, CleanCore Global shall have the right to recoup all or any part of any indemnifiable losses it may suffer by notifying the Stockholder that CleanCore Global is reducing the Earn-Out Payments by the amount of such indemnifiable losses.
Private Placement
On April 16, 2025, we entered into subscription agreements with several accredited investors for the purchase of (i) promissory notes in the aggregate principal amount of $1,010,000 and (ii) five-year warrants to purchase an aggregate of 134,666 shares of our class B common stock at an exercise price of $1.06 per share for an aggregate purchase price of $1,010,000.
The notes bear interest at a rate of twelve percent (12%) per annum, payable quarterly, and are due and payable on April 16, 2027. The notes may be prepaid at any time without premium or penalty, are unsecured, and contain customary events of default for a loan of this type.
Amendments to Promissory Notes
On May 2, 2025, the promissory note in the principal amount of $316,920 issued to Gary Hollst on December 24, 2024 was amended and restated in its entirety and we issued to Mr. Hollst an amended and restated promissory note in the principal amount of $342,154.57. This note is due and payable on May 31, 2026 and accrues interest at a rate of 8.5% per annum; provided that upon an event of default (as defined in the note), interest shall accrue at a rate of 10% per annum. The note may be prepaid at any time without premium or penalty, is unsecured, and contains customary events of default for a loan of this type. The note may be converted at the holder’s option at any time into shares of our class B common stock at a conversion price of $1.12 (subject to standard adjustments for stock splits, stock dividends, reclassifications and similar transactions).
On May 2, 2025, we and Clayton Adams, our Chief Executive Officer, entered into a note amendment agreement, pursuant to which the maturity date of the 20% original issue discount promissory note issued to Mr. Adams on January 27, 2025 was changed to require repayment with sixty (60) days of written demand from Mr. Adams.
21
On May 2, 2025, we and Travis Buchanan, our President, entered into a note amendment agreement, pursuant to which the maturity date the 20% original issue discount promissory note issued to Mr. Buchanan on January 27, 2025 was changed to require repayment with sixty (60) days of written demand from Mr. Buchanan.
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.
22
Results of Operations
Comparison of Three Months Ended March 31, 2025 and 2024
The following table sets forth key components of our results of operations for the three months ended March 31, 2025 and 2024, both in dollars and as a percentage of our revenue.
| Three Months Ended March 31, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | |||||||||||||
| Revenue | $ | 557,915 | 100.00 | % | $ | 313,920 | 100.00 | % | ||||||||
| Cost of sales | 246,783 | 44.23 | % | 173,184 | 55.17 | % | ||||||||||
| Gross profit | 311,132 | 55.77 | % | 140,736 | 44.83 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 968,264 | 173.55 | % | 520,899 | 165.93 | % | ||||||||||
| Advertising expense | 19,743 | 3.54 | % | 17,737 | 5.65 | % | ||||||||||
| Depreciation and amortization expense | 39,928 | 7.16 | % | 38,677 | 12.32 | % | ||||||||||
| Loss from operations | (716,803 | ) | (128.48 | )% | (436,577 | ) | (139.07 | )% | ||||||||
| Interest expense, net | 92,551 | 16.59 | % | 84,093 | 26.79 | % | ||||||||||
| Net loss | $ | (809,354 | ) | (145.07 | )% | $ | (520,670 | ) | (165.86 | )% | ||||||
Revenue. We generate revenue from sales of our cleaning products. Our revenue increased by $243,995, or 77.73%, to $557,915 for the three months ended March 31, 2025 from $313,920 for the three months ended March 31, 2024. The increase is primarily due to an increase of sales to our distributor in India.
Cost of sales. Our cost of sales consists of raw materials, components and labor. Our cost of sales increased by $73,599, or 42.50%, to $246,783 for the three months ended March 31, 2025 from $173,184 for the three months ended March 31, 2024. As a percentage of revenue, cost of sales decreased from 55.17% for the three months ended March 31, 2024 to 44.23% for the three months ended March 31, 2025. This decrease as a percentage of revenue was primarily due to the sale of higher margin units.
Gross profit. As a result of the foregoing, our gross profit increased by $170,396, or 121.07%, to $311,132 for the three months ended March 31, 2025 from $140,736 for the three months ended March 31, 2024. As a percentage of revenue, gross profit increased from 44.83% for the three months ended March 31, 2024 to 55.77% for the three months ended March 31, 2025.
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 $447,365, or 85.88%, to $968,264 for the three months ended March 31, 2025 from $520,899 for the three months ended March 31, 2024. As a percentage of revenue, our general and administrative expenses increased from 165.93% for the three months ended March 31, 2024 to 173.55% for the three months ended March 31, 2025. This increase was primarily due to a $185,956 increase in stock compensation expense, $54,197 of additional wage and benefit expense related to the addition of 4 employees, $46,249 of additional professional fees such as accounting and legal, and a $66,161 increase in director and officer insurance. This increase in professional fees and director and office insurance is related to our listing on NYSE American in the 2025 period.
Advertising expenses. Our advertising expenses consist of vendor trade shows and various trade publications. Our advertising expenses increased by $2,006, or 11.31%, to $19,743 for the three months ended March 31, 2025 from $17,737 for the three months ended March 31, 2024. As a percentage of revenue, our advertising expenses decreased from 5.65% for the three months ended March 31, 2024 to 3.54% for the three months ended March 31, 2025. The increase in advertising expenses was primarily due to an increase in product marketing materials.
Depreciation and amortization expense. We incurred depreciation and amortization expense of $39,928, or 7.16% of revenue, for the three months ended March 31, 2025, as compared to $38,677, or 12.32% of revenue, for the three months ended March 31, 2024.
Interest expense, net. We incurred interest expense, net, of $92,551, or 16.59% of revenue, for the three months ended March 31, 2025, as compared to $84,093, or 26.79% of revenue, for the three months ended March 31, 2024. The increase is primarily due to an increase in the note payable balance.
Net loss. As a result of the cumulative effect of the factors described above, we had a net loss of $809,354 for the three months ended March 31, 2025, as compared to $520,670 for the three months ended March 31, 2024, an increased loss of $288,684, or 55.44%.
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Comparison of Nine Months Ended March 31, 2025 and 2024
The following table sets forth key components of our results of operations for the nine months ended March 31, 2025 and 2024, both in dollars and as a percentage of our revenue.
| Nine Months Ended March 31, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | |||||||||||||
| Revenue | $ | 1,180,083 | 100.00 | % | $ | 898,010 | 100.00 | % | ||||||||
| Cost of sales | 621,441 | 52.66 | % | 457,495 | 50.95 | % | ||||||||||
| Gross profit | 558,642 | 47.34 | % | 440,515 | 49.05 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 2,863,998 | 242.69 | % | 1,351,097 | 150.45 | % | ||||||||||
| Advertising expense | 72,515 | 6.14 | % | 43,191 | 4.81 | % | ||||||||||
| Depreciation and amortization expense | 119,678 | 10.14 | % | 115,885 | 12.90 | % | ||||||||||
| Loss from operations | (2,497,549 | ) | (211.64 | )% | (1,069,658 | ) | (119.11 | )% | ||||||||
| Interest expense, net | 172,920 | 14.65 | % | 233,105 | 25.96 | % | ||||||||||
| Net loss | $ | (2,670,469 | ) | (226.30 | )% | $ | (1,302,763 | ) | (145.07 | )% | ||||||
Revenue. Our revenue increased by $282,073, or 31.41%, to $1,180,083 for the nine months ended March 31, 2025 from $898,010 for the nine months ended March 31, 2024. The increase is primarily due to an increase in sales with our largest customer, representing an 171% increase over the prior period.
Cost of sales. Our cost of sales increased by $163,946, or 35.84%, to $621,441 for the nine months ended March 31, 2025 from $457,495 for the nine months ended March 31, 2024. As a percentage of revenue, cost of sales increased from 50.95% for the nine months ended March 31, 2024 to 52.66% for the nine months ended March 31, 2025. This increase was 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. Additionally, a business decision was made to sell $46,000 of inventory at cost to a former customer placing their first purchase order in over 9 months.
Gross profit. As a result of the foregoing, our gross profit decreased by $118,127, or 26.82%, to $558,642 for the nine months ended March 31, 2025 from $440,515 for the nine months ended March 31, 2024. As a percentage of revenue, gross profit decreased from 49.05% for the nine months ended March 31, 2024 to 47.34% for the nine months ended March 31, 2025.
General and administrative expenses. Our general and administrative expenses increased by $1,512,901, or 111.98%, to $2,863,998 for the nine months ended March 31, 2025 from $1,351,097 for the nine months ended March 31, 2024. As a percentage of revenue, our general and administrative expenses increased from 150.45% for the nine months ended March 31, 2024 to 242.69% for the nine months ended March 31, 2025. This increase was primarily due to $409,786 stock compensation expense, an increase of $108,479 in payroll and benefits related to an increase in headcount, a $547,553 increase in professional and consulting fees, and a $204,465 increase in director and officer insurance. The increase in professional fees and director and officer insurance is directly related to our listing on NYSE American in the 2025 period.
Advertising expenses. Our advertising expenses increased by $29,324, or 67.89%, to $72,515 for the nine months ended March 31, 2025 from $43,191 for the nine months ended March 31, 2024. As a percentage of revenue, our advertising expenses increased from 4.81% for the nine months ended March 31, 2024 to 6.14% for the nine months ended March 31, 2025. Such an increase was primarily due to an increase in our marketing materials, including product videos and flyers.
Depreciation and amortization expense. We incurred depreciation and amortization expense of $119,678, or 10.14% of revenue, for the nine months ended March 31, 2025, as compared to $115,885, or 12.90% of revenue, for the nine months ended March 31, 2024.
Interest expense, net. We incurred interest expense, net, of $172,920, or 14.65% of revenue, for the nine months ended March 31, 2025, as compared to $233,105, or 25.96% of revenue, for the nine months ended March 31, 2024. The decrease is primarily due to interest expense for the 2024 period being offset by interest income of $29,921 from an interest-bearing money market account opened in May 2024.
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Net loss. As a result of the cumulative effect of the factors described above, we had a net loss of $2,670,469 for the nine months ended March 31, 2025, as compared to $1,302,763 for the nine months ended March 31, 2024, a loss increase of $1,367,706, or 104.99%.
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 March 31, 2025, we have financed our operations primarily through private investor funding and an initial public offering. As of March 31, 2025, we had cash and cash equivalents of $796,843, a net loss for the nine months ended March 31, 2025 of $2,670,469 and cash used in operating activities of $2,234,206.
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. The 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 March 31, 2025 and 2024.
| Nine Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net cash used in operating activities | $ | (2,234,206 | ) | $ | (485,530 | ) | ||
| Net cash used in investing activities | (18,857 | ) | (2,138 | ) | ||||
| Net cash provided by financing activities | 1,015,273 | 150,556 | ||||||
| Net decrease in cash | (1,237,790 | ) | (337,112 | ) | ||||
| Cash at beginning of period | 2,016,611 | 393,194 | ||||||
| Cash at end of period | $ | 778,821 | $ | 56,082 | ||||
Net cash used in operating activities was $2,234,206 for the nine months ended March 31, 2025, as compared to $485,530 for the nine months ended March 31, 2024. For the nine months ended March 31, 2025, our net loss of $2,670,469 and increase in accounts receivable of $191,509 and prepaid expenses of $150,982, offset by non-cash stock-based compensation of $561,767, depreciation and amortization of $119,678 and non-cash interest expense of $195,380, were the primary drivers of net cash used in operating activities. For the nine months ended March 31, 2024, our net loss of $1,302,763 and an increase in inventory of $103,569, offset by an increase in accounts payable and accrued liabilities of $386,279, a non-cash interest expense of $223,783, stock-based compensation of $151,981, and depreciation and amortization of $115,885, were the primary drivers of net cash used in operating activities.
Net cash used in investing activities was $18,857 for the nine months ended March 31, 2025, as compared to $2,138 for the nine months ended March 31, 2024. The net cash used in investing activities for both periods consisted entirely of purchases of property and equipment.
Net cash provided by financing activities was $1,015,273 for the nine months ended March 31, 2025, as compared to $150,556 for the nine months ended March 31, 2024. Net cash provided by financing activities for the nine months ended March 31, 2025 consisted of proceeds from an advance on subscription of $1,000,000 and proceeds from the issuance of related party notes of $332,193, offset by payments of notes payable of $316,920, while net cash provided by financing activities for the nine months ended March 31, 2024 consisted of proceeds from the issuance of convertible notes of $225,000 and proceeds from related party loans of $50,014, offset by payments for deferred offering costs of $124,458.
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Debt
Please see Notes 10 and 11 to our unaudited condensed consolidated 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 Notes 10 and 11 to our unaudited condensed consolidated financial statements above. We also have a non-cancellable operating lease commitment for our office facility expiring in 2028 as described in Note 14 to the unaudited condensed consolidated financial statements above. Other than the foregoing, at March 31, 2025, 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 consolidated 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.
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Changes in Internal Control over Financial Reporting
In preparing our financial statements as of and for the three months ended March 31, 2025, 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 third 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 March 31, 2025. 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.
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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 ask 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. On November 25, 2024, Mr. Atkinson filed an amended complaint to add our Chief Executive Officer, Clayton Adams, and Chief Financial Officer, David Enholm, as defendants.
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 March 31, 2025 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 March 31, 2025.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
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ITEM 6. EXHIBITS.
| * | Filed herewith |
| ** | Furnished herewith |
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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: May 14, 2025 |
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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