CleanCore Solutions, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this report. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report. Use of Terms Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our” and “our company” refer to CleanCore Solutions, Inc., a Nevada corporation. Special Note Regarding Forward Looking Statements This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about: ● our goals and strategies; ● our future business development, financial condition and results of operations; ● expected changes in our revenue, costs or expenditures; ● growth of and competition trends in our industry; ● our expectations regarding demand for, and market acceptance of, our products and services; ● our expectations regarding our relationships with investors, institutional funding partners and other parties we collaborate with; ● fluctuations in general economic and business conditions in the market in which we operate; and ● relevant government policies and regulations relating to our industry. In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, or the Form 10-K, and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. 16 In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. Overview We specialize in the development and production of cleaning products that produce pure aqueous ozone for professional, industrial, or home use. We have a patented nanobubble technology using aqueous ozone that we believe is highly effective in cleaning, sanitizing, and deodorizing surfaces and high-touch areas. We offer products and solutions that are marketed for janitorial and sanitation, ice machine cleaning, laundry, and industrial industries. Our products are used in many types of environments including retail establishments, distribution centers, factories, warehouses, restaurants, schools and universities, airports, healthcare, food service, and commercial buildings such as offices, malls, and stores. Our mission is to become a leader in creating safe, clean spaces that are free from any chemical residue or skin irritants. We are currently expanding our distributor network, improving our production processes, and proving the effectiveness of our products in restaurants, airports, and hotels. Principal Factors Affecting Our Financial Performance Our operating results are primarily affected by the following factors: ● our ability to acquire new customers or retain existing customers; ● our ability to stay ahead of our value-proposition to end consumers; ● our ability to continue innovating our technology to meet consumer demand; ● industry demand and competition; and ● market conditions and our market position. 17 Emerging Growth Company We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to: ● have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; ● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); ● submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and ● disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering, (ii) the last day of the first fiscal year in which our total annual gross revenues are $1.235 billion or more, (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our class B common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. Results of Operations The following table sets forth key components of our results of operations for the three months ended September 30, 2024 and 2023, both in dollars and as a percentage of our revenue. Three Months Ended September 30, 2024 2023 Amount % of Revenue Amount % of Revenue Revenue $ 364,900 100.00 % $ 325,684 100.00 % Cost of sales 179,401 49.16 % 152,575 46.85 % Gross profit 185,499 50.84 % 173,109 53.15 % Operating expenses: General and administrative 916,214 251.09 % 509,876 156.56 % Advertising expense 46,210 12.66 % 823 0.25 % Depreciation and amortization expense 39,823 10.91 % 38,562 11.84 % Loss from operations (816,748 ) (223.83 )% (376,152 ) (115.50 )% Interest expense, net 39,334 10.78 % 61,142 18.77 % Net loss $ (856,082 ) (234.61 )% $ (437,294 ) (134.27 )% 18 Revenue . We generate revenue from sales of our cleaning products. Our revenue increased by $39,216, or 12.04%, to $364,900 for the three months ended September 30, 2024 from $325,684 for the three months ended September 30, 2023. The increase is primarily due to an increased number of customers. Cost of sales . Our cost of sales consists of raw materials, components and labor. Our cost of sales increased by $26,826, or 17.58%, to $179,401 for the three months ended September 30, 2024 from $152,575 for the three months ended September 30, 2023. As a percentage of revenue, cost of sales increased from 46.85% for the three months ended September 30, 2023 to 49.16% for the three months ended September 30, 2024. This increase was primarily due to an increase in sales and increase in demo expenses due to a change in sales strategy of providing customers considering large orders demonstration equipment at no cost. Gross profit . As a result of the foregoing, our gross profit increased by $12,390, or 7.16%, to $185,499 for the three months ended September 30, 2024 from $173,109 for the three months ended September 30, 2023. As a percentage of revenue, gross profit decreased from 53.15% for the three months ended September 30, 2023 to 50.84% for the three months ended September 30, 2024. General and administrative expenses . Our general and administrative expenses consist primarily of personnel expenses, including employee salaries and bonuses plus related payroll taxes, stock based compensation expense, professional advisor fees, bad debts, rent expense, insurance and other expenses incurred in connection with general operations. Our general and administrative expenses increased by $406,338, or 79.69%, to $916,214 for the three months ended September 30, 2024 from $509,876 for the three months ended September 30, 2023. As a percentage of revenue, our general and administrative expenses increased from 156.25% for the three months ended September 30, 2023 to 251.09% for the three months ended September 30, 2024. This increase was primarily due to $118,440 stock related compensation expense, $106,720 external accounting fees, $74,600 in consulting fees and $69,200 increase in director and officer insurance. Advertising expenses . Our advertising expenses consist of vendor trade shows and various trade publications. Our advertising expenses increased by $45,387, or 5,514.82%, to $46,210 for the three months ended September 30, 2024 from $823 for the three months ended September 30, 2023. As a percentage of revenue, our advertising expenses increased from 0.25% for the three months ended September 30, 2023 to 12.66% for the three months ended September 30, 2024. Such increase was primarily due to a significant increase in our public relations activities. Depreciation and amortization expense . We incurred depreciation and amortization expense of $39,823, or 10.91% of revenue, for the three months ended September 30, 2024, as compared to $38,562, or 11.84% of revenue, for the three months ended September 30, 2023. Interest expense, net . We incurred interest expense, net, of $39,334, or 10.78% of revenue, for the three months ended September 30, 2024, as compared to $61,142, or 18.77% of revenue, for the three months ended September 30, 2023. The decrease is primarily due to interest expense for the 2024 period being offset by interest income of $17,153 from an interest bearing money market account opened in the fourth quarter of fiscal 2024. Net loss . As a result of the cumulative effect of the factors described above, we had a net loss of $856,082 for the three months ended September 30, 2024, as compared to $437,294 for the three months ended September 30, 2023, an increase in loss of $418,788, or 95.77%. 19 Liquidity and Capital Resources Our company has incurred losses and negative cash flows from operations. From October 17, 2022 (the date of the acquisition) through September 30, 2024, we have financed our operations primarily through private investor funding and an initial public offering. As of September 30, 2024, we had cash and cash equivalents of $1,210,382, a net loss for the three months ended September 30, 2024 of $856,082 and cash used in operating activities of $799,764. Despite our initial public offering, management believes that currently available resources will not be sufficient to fund our planned expenditures over the next 12 months. These factors, individually and collectively indicate that a material uncertainty exists that raises substantial doubt about our company’s ability to continue as a going concern for 12 months from the date of issuance of the accompanying financial statements. We will be dependent upon the raising of additional capital through equity and/or debt financing in order to implement our business plan and generate sufficient revenue in excess of costs. If we raise additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock. If we raise additional funds by issuing debt, we may be subject to limitations on its operations, through debt covenants or other restrictions. There is no assurance that we will be successful with future financing ventures, and the inability to secure such financing may have a material adverse effect on our financial condition. Thes accompanying financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis under which our company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business. Summary of Cash Flow The following table provides detailed information about our net cash flow for the nine months ended September 30, 2024. Three Months Ended September 30, 2024 2023 Net cash used in operating activities $ (799,764 ) $ (308,335 ) Net cash used in investing activities (6,465 ) (1,015 ) Net cash used in financing activities - (19,726 ) Net decrease in cash (806,229 ) (329,076 ) Cash at beginning of period 2,016,611 393,194 Cash at end of period $ 1,210,382 $ 64,118 Net cash used in operating activities was $799,764 for the three months ended September 30, 2024, as compared to $308,335 for the three months ended September 30, 2023. For the three months ended September 30, 2024, our net loss of $856,082 and a decrease in prepaid expenses of $142,084, offset by an increase in non-cash stock based compensation expense of $182,400, were the primary drivers of net cash used in operating activities. For the three months ended September 30, 2023, our net loss of $437,294, a decrease in accounts payable and accrued liabilities of $144,224, a decrease in inventory of $77,026, and a decrease in accounts receivable of $66,233, offset by a non-cash interest expense of $208,248, an increase in prepaid expenses of $93,550 and stock based compensation of $63,960, were the primary drivers of the net cash used in operating activities. 20 Net cash used in investing activities was $6,465 for the three months ended September 30, 2024, as compared to $1,015 for the nine months ended September 30, 2023. The net cash used in investing activities for both periods consisted entirely of purchases of property and equipment. Net cash used in financing activities was $0 for the three months ended September 30, 2024, as compared to $19,726 for the three months ended September 30, 2023. Net cash used in financing activities for the three months ended September 30, 2023 consisted of payments for deferred offering costs of $13,523 and repayment of related party loans of $6,203 . Debt Please see Note 9 to our unaudited condensed financial statements above for a description of the terms of our outstanding debt. Contractual Obligations Our principal commitments consist mostly of obligations under the loans described in Note 9 to our unaudited condensed financial statements above. We also have a non-cancellable operating lease commitment for our office facility expiring in 2028 as described in Note 13 to the unaudited condensed financial statements above. Other than the foregoing, at September 30, 2024, we did not have other long-term debt obligations, capital (finance) lease obligations, operating lease obligations, purchase obligations or other long-term liabilities reflected on our statements of financial position. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Critical Accounting Policies and Estimates The preparation of our unaudited condensed financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in the Form 10-K. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 21