CleanCore Solutions, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. CLEANCORE SOLUTIONS, INC. UNAUDITED CONDENSED FINANCIAL STATEMENTS Page Condensed Balance Sheets as of September 30, 2024 and June 30, 2024 (Unaudited) 2 Condensed Statements of Operations for the Three Months Ended September 30, 2024 and 2023 (Unaudited) 3 Condensed Statements of Stockholders’ Equity for the Three Months Ended September 30, 2024 and 2023 (Unaudited) 4 Condensed Statements of Cash Flows for the Three Months Ended September 30, 2024 and 2023 (Unaudited) 5 Notes to Condensed Financial Statements (Unaudited) 6 1 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. 2 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. 3 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. 4 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. 5 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. 6 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. 7 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. 8 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 9 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 10 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. 11 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 . 12 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. 13 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. 14 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 14. Subsequent Events 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. 15