Item 7. Management’s Discussion and Analysis
ITEM
7.
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 our 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, 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, particularly in the sections titled “Risk Factors” and “Special Note Regarding
Forward-Looking Statements.”
Overview
Zone
Frontier Inc., formerly CleanCore Solutions, Inc. (“the Company”, “we”, or “Zone”) is helping to build
the critical infrastructure that powers the AI economy. We aim to meet the increasing demand for compute capacity, power, and digital
infrastructure required by the world’s leading AI companies.
We specialize in providing powered land and facilities,
in conjunction with our development partners, to support over one gigawatt of computer power by 2030. With campuses being developed across
rural and industrial Minnesota and Texas, we expect to bring approximately 55 MW of utility power capacity and 40 MW of critical IT load
online and revenue generating during the first calendar quarter of 2027.
On
June 8, 2026, the Company announced a new focus on building critical AI infrastructure across the United States, led by newly hired CEO
Tyler Hassen, and plans to move away from its cleaning products business and Dogecoin treasury strategy.
On
July 9, 2026, the Company announced its first data center project. Located in West Texas, and with development platform provider HST Technologies,
Inc., it is projected to supply an initial 200-megawatts of utility power by 2029, with potential to expand to more than 500-megawatts
by 2030.
On
July 20, 2026, substantially all Dogecoin assets were sold. The proceeds will be used to fund the Company’s AI strategy.
On
July 29, 2026, the Company announced its second data center project, its flagship campus located in Minnesota. The site is already powered
and under exclusive pre-leased occupancy with Cerebras Systems, a leading AI compute company. It is expected to generate revenue beginning
in the first calendar quarter of 2027, offering 55-megawatts of utility power and 40-megawatts of critical load, once fully built out.
On June 8, 2026, the Company announced plans
to sell or dispose substantially all assets of the cleaning products business, including the wholly owned Irish subsidiary, CleanCore
Global Inc. The Company is in the process of selling this business unit but is not under binding contract with any party as of September
28, 2026. The segment did not meet the criteria as Held for Sale as of June 30, 2026 and is included in this Report. On August 31, 2026,
the Company changed its name from CleanCore Solutions Inc. to Zone Frontier Inc.
During
the twelve months ended June 30, 2026, the Company operated three Segments:
●
CleanCore, which specializes in the development
and production of cleaning products that produce pure aqueous ozone using patented nanobubble technology that is highly effective in cleaning,
sanitizing, and deodorizing surfaces and high-touch areas
●
Treasury, established on September 5, 2025 when
the Company adopted a Digital Asset Trading strategy focused on Dogecoin as part of a $175 million private placement offering.
●
Critical AI Infrastructure, announced on June 8,
2026, focused on building data centers to meet the increasing compute needs of AI companies
28
The
Treasury segment included dedicated resources assigned to execute on our digital asset strategy, unrealized gain or loss on digital assets,
and other third-party costs associated with our digital assets holdings, and income tax effects generated from our Dogecoin holdings to
better align with their activities and utilization.
The
AI Critical Infrastructure segment includes costs related to the development of data centers. This segment has not generated any revenue
as of June 30, 2026.
Principal
Factors Affecting the Financial Performance of our AI Critical Infrastructure Business, which was announced on June 8, 2026
The
operating results for our AI Critical Infrastructure operations are primarily affected by the following factors:
●
our ability to secure suitable land and power for
development of future data centers
●
our ability to attract tenants to lease our facilities
●
our ability to raise funding with investors to
meet the capital demands of our data campus projects
Principal
Factors Affecting the Financial Performance of our Cleaning Solutions Business
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.
Principal
Factors Affecting the Financial Performance of our Cryptocurrency Treasury Operations, which the Company exited on July 20, 2026 by selling
all remaining digital assets
The
operating results for our Treasury operations were primarily affected by the following factors:
●
the market value of Dogecoin tokens;
●
the trading volume of Dogecoin tokens; and
●
investor understanding and willingness to purchase
and use Dogecoin.
The
Company’s chief operating decision maker (“CODM”) is the Company’s Chief Executive Officer, Tyler Hassen, who
was appointed on March 16, 2026, who managed the Company as three discrete segments as well as on a consolidated basis, in conjunction
with the Company’s General Manager, Clayton Adams, who was the former Chief Executive Officer. The CODM uses net income (loss) to
assess the profitability of the CleanCore Segment by comparing actual to budgeted results on a quarterly basis. In doing so, he focused
on revenue, gross profit, and operating profit (loss) of the CleanCore Segment. The CODM assessed the Treasury Segment using the value
of the Dogecoin and number of tokens held. The CODM assesses the AI Critical segment using actual vs. budgeted expenses and progress towards
construction completion. All segments allocate personnel and budget accordingly to maximize potential profitability. The CODM also uses
net income (loss) to understand the impact from income taxes and financing costs for general tax and liquidity planning purposes.
29
Emerging
Growth Company
We
qualify as an “emerging growth company” under 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;
●
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 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 Exchange Act, which would occur
if the market value of our 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 years ended June 30, 2026 and 2025, both in dollars and
as a percentage of our revenue.
Years
Ended June 30,
2026
2025
Amount
%
of
Revenue
Amount
%
of
Revenue
Revenue
$
3,406,434
100.00
%
$
2,072,834
100.00
%
Cost of sales
2,118,487
62.19
%
1,086,369
52.41
%
Gross profit
1,287,947
37.81
%
986,465
47.59
%
Operating expenses:
General and administrative
56,492,928
1,658.42
%
7,081,299
341.62
%
Advertising expense
276,231
8.11
%
92,598
4.47
%
Depreciation and amortization
expense
259,598
7.62
%
198,909
9.60
%
Goodwill
impairment
2,237,910
65.70
%
-
0.00
%
Total
operating expenses
59,266,667
1,739.84
%
7,372,806
355.69
%
Loss from operations
(57,978,720
)
(1,702.04
)%
(6,386,341
)
(308.10
)%
Other income (expense)
Interest income (expense),
net
140,365
4.12
%
(356,054
)
17.18
%
Change in fair value of digital
assets
(116,318,363
)
(3,414.67
)%
-
-
Foreign
exchange gain
(4,146
)
(0.12
)%
120
0.01
%
Total other income (expense)
(116,182,144
)
(3,410.67
)%
(355,933
)
(17.17
)%
Net loss
$
(174,160,864
)
(5,112.70
)%
$
(6,742,275
)
(325.27
)%
30
Revenue .
All of our revenue is generated by the CleanCore segment, which generates revenue from sales of our cleaning products. Our revenue increased
by $1,333,600, or 64.34%, to $3,406,434 for the year ended June 30, 2026 from $2,072,834 for the year ended June 30, 2025. The primary
increase is from an increase in revenue from the Ireland location of approximately $817,000 due to a full-year of sales from Ireland.
Cost
of sales . Our cost of sales consists of raw materials, components, labor, demo expenses and warranty reserves. Our cost of
sales increased by $1,032,118, or 95.01%, to $2,118,487 for the year ended June 30, 2026 from $1,086,369 for the year ended June 30, 2025.
As a percentage of revenue, cost of sales increased from 52.41% for the year ended June 30, 2025 to 62.19% for the year ended June 30,
2026. The increase is the result of higher year-over-year revenue, and an increase in indirect sales costs, primarily inventory reserve.
Inventory reserve expense increased by approximately $414,000 as the company has shifted some unit production overseas resulting in a
one-time increase in the reserve.
Gross
profit . As a result of the foregoing, our gross profit increased by $301,482, or 30.56%, to $1,287,947 for the year ended June
30, 2026 from $986,465 for the year ended June 30, 2025. As a percentage of revenue, gross profit decreased from 47.59% for the year ended
June 30, 2025 to 37.81% for the year ended June 30, 2026. The decrease is primarily attributed to the increased indirect inventory reserve
expense of $414,000.
General
and administrative expenses . In the CleanCore segment, 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, impairment expense, rent expense, insurance and other expenses incurred in connection with general operations. In the Treasury
segment, our general and administrative expenses consist primarily of professional advisor fees, stock-based compensation expense, insurance
expense, and employee salaries and bonuses plus related payroll taxes. In the AI Critical Infrastructure segment, our costs primary consists
of legal fees. Our general and administrative expenses increased by $49,411,629, or 697.78%, to $56,492,928 for the year ended June 30,
2026 from $7,081,299 for the year ended June 30, 2025. As a percentage of revenue, our general and administrative expenses increased from
341.62% for the year ended June 30, 2025 to 1,658.42% for the year ended June 30, 2026. The year-over-year increase is primarily due to
a full year of Treasury segment expenses, a full year of Ireland operations, impairment of intangibles, and increased payroll related
to the new data-center focus. The most significant increases were $23,252,313 of non-cash professional fees from the Treasury segment,
$14,539,737 of Treasury management related expenses, $6,023,783 in non-cash stock option expense and $1,748,969 of intangibles impairment.
Advertising
expenses . In the CleanCore segment, advertising expenses consist of vendor trade shows and various trade publications. Our
advertising expenses increased by $183,633, or 198.31%, to $276,231 for the year ended June 30, 2026 from $92,598 for the year ended June
30, 2025. As a percentage of revenue, our advertising expenses increased from 4.47% for the year ended June 30, 2025 to 8.11% for the
year ended June 30, 2026. Such an increase was primarily due to increased expenses related to crypto marketing, offset by lower marketing
expenses for the CleanCore segment.
Depreciation
and amortization expense . Depreciation and amortization expense, all of which is generated by the CleanCore segment,
was $259,598, or 7.62% of revenue, for the year ended June 30, 2026, as compared to $198,909, or 9.60% of revenue, for the year ended
June 30, 2025. The increase is due to amortization expense associated with additional intangibles acquired with the asset acquisition
of Sanzonate in April 2025.
Goodwill
impairment. In connection with the proposed sale of the CleanCore segment, the Company obtained a third party valuation of
the business and performed a quantitative impairment test. The test indicated that the fair value of the reporting unit was less than
the carrying amount. As a result, the Company fully impaired its goodwill balance as of June 30, 2026.
Total
Other income (expense), net . We had $116,182,144 in Total other expense, net, or (3,410.67)% of revenue, for the
year ended June 30, 2026, as compared to $355,934 Other expense, net, or 17.17% of revenue, for the year ended June 30, 2025. Total other
expense, net, for the year ended June 30, 2026 consisted of a change in fair value of digital assets held of $(116,318,363), interest
income, net, of $140,365, and a foreign exchange loss of $4,146, while other expense, net, for the year ended June 30, 2025, consisted
entirely of interest expense. The increase in change in fair value of digital assets is driven by the adoption of our digital asset treasury
and a decrease in fair value of Dogecoin, and the increase in interest income is driven by cash from pre-funded warrants and issuance
of ATM in the bank earning interest.
31
Net
loss . As a result of the cumulative effect of the factors described above, we had a net loss of $174,160,864 for
the year ended June 30, 2026, as compared to $6,742,275 for the year ended June 30, 2025, an increase in loss of $167,418,589, or 2,483.12%.
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 June
30, 2026, we have financed our operations primarily through private investor funding. As of June 30, 2026, we had cash and cash equivalents
of $15,435,213. For the year ended June 30, 2026, we had a net loss of $174,160,864 and cash used in operating activities of $18,157,390.
Despite
our recent offerings described below, management believes that currently available resources will not be sufficient to fund our planned
capital 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 consolidated 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 our 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 consolidated 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 consolidated 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 years ended June 30, 2026 and 2025.
Years
Ended June 30,
2026
2025
Net cash used in operating activities
$
(18,157,390
)
$
(2,337,659
)
Net cash used in investing activities
(130,274,845
)
(614,181
)
Net cash provided by financing
activities
162,383,965
2,374,967
Effect of exchange rate changes
on cash and cash equivalents
22,486
21,259
Net increase (decrease) in cash
13,974,216
(555,614
)
Cash at beginning of year
1,460,997
2,016,611
Cash at end of year
$
15,435,213
$
1,460,997
Net
cash used in operating activities was $18,157,390 for the year ended June 30, 2026, as compared to $2,337,659 for the year ended June
30, 2025. For the year ended June 30, 2026, our net loss of $174,160,864, offset by a change in fair value of digital assets of $116,318,363,
non-cash professional fees of $26,482,428, stock-based compensation of $9,227,013, goodwill impairment of $2,237,910 and intangibles impairment
of $1,748,969, were the primary drivers of net cash used in operating activities. For the year ended June 30, 2025, our net loss of $6,742,275,
offset by non-cash stock-based compensation of $3,203,230, were the primary drivers of net cash used in operating activities.
Net
cash used in investing activities was $130,274,845 for the year ended June 30, 2026, as compared to $614,181 for the year ended June 30,
2025. The net cash used in investing activities for the year ended June 30, 2026 consisted of net purchases of digital assets of $148,605,650
and purchases of property and equipment of $37,555, offset by the sale of digital assets of $18,368,360, while the net cash used investing
activities for the year ended June 30, 2025 consisted of $581,792 cash used in the acquisition of the assets of Sanzonate and purchases
of property and equipment of $32,389.
32
Net
cash provided by financing activities was $162,383,965 for the year ended June 30, 2026, as compared to $2,374,967 for the year ended
June 30, 2025. Net cash provided by financing activities for the year ended June 30, 2026 consisted of proceeds from the private placement
described below of $137,907,255, proceeds from the Sales Agreement described below of $27,270,267, and proceeds from the exercise of warrants
of $370,288, offset by repayments of notes payable of $660,000, payments for deferred offering costs of $1,078,967, funds provided for
a note receivable of $1,000,000 and repayments of related party loans of $425,241, while net cash provided by financing activities for
the year ended June 30, 2025 consisted of proceeds from the issuance of promissory notes and warrants of $1,510,000, proceeds from the
issuance of original issue discount notes of $500,000, proceeds from the exercise of warrants of $403,171 and proceeds from related party
loans of $332,193, offset by payments of notes payable of $316,920 and payments for deferred offering costs of $53,477.
On
August 29, 2025, we entered into an amended and restated sales agreement, or the Prior Sales Agreement, with Maxim Group LLC and Curvature
Securities LLC, or the Prior Sales Agents, pursuant to which we could, from time to time, in transactions that are deemed to be “at
the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended, issue and sell through or to the Prior
Sales Agents up to a maximum aggregate amount of $1,150,000,000 of shares of common stock. During the year ended June 30, 2026,
we issued an aggregate of 10,915,474 shares of common stock under the Prior Sales Agreement for gross proceeds of $28,111,924 and net
proceeds of approximately $27,270,267. In May 2026, the Prior Sales Agreement was terminated, and the Company entered into a new sales
agreement with Cantor Fitzgerald & Co., and Curvature Securities LLC, or the Sales Agents, pursuant to which we may offer and sell
shares of common stock from time to time through the Sales Agents, acting as agent for up to $750,000,000 of shares of common stock.
On
September 5, 2025, we completed an offering of pre-funded warrants to purchase an aggregate of 175,000,420 shares of common stock for
aggregate gross proceeds of $175,000,420, of which $148,650,530 was paid in cash and $26,349,890 was paid in cryptocurrency. After deducting
placement agent fees, reimbursed expenses, and other offering expenses from the total gross proceeds, including both cash and cryptocurrency
gross proceeds, we received net proceeds of approximately $164,257,145. Of this amount, approximately $1,075,000 was used to pay off outstanding
indebtedness and $4,400,000 was to be used for working capital and general corporate purposes, with the balance of the net proceeds used
to acquire Dogecoin. The Company sold its Dogecoin holdings on July 20, 2026 and allocated the cash proceeds to the AI Critical Infrastructure.
As of June 30, 2026, none of our cash is classified as restricted.
Debt
Please
see Notes 14 and 15 to the accompanying consolidated financial statements for a description of the terms of our outstanding debt.
Contractual
Obligations
Pursuant
to the terms of the Asset Management Agreement, we agreed to pay the Asset Manager and 21Shares a monthly fee in arrears computed at an
annual rate as follows: (i) 2% in the aggregate on amounts up to and including $1,000,000,000 in Treasury Account value, with 1.75% paid
to the Asset Manager and 0.25% paid to 21Shares; (ii) 1.75% in the aggregate on amounts above $1,000,000,000 up to and including $1,500,000,000
in Treasury Account value, with 1.5% paid to the Asset Manager and 0.25% paid to 21Shares; and (iii) 1.5% in the aggregate on amounts
above $1,500,000,000 in Treasury Account value, with 1.25% paid to the Asset Manager and 0.25% paid to 21Shares. Such payments may be
made, in the sole discretion of the Asset Manager or 21Shares, in shares of common stock, cash, or Dogecoin and shall be pro-rated for
partial periods. These agreements were terminated on February 27, 2026.
On
November 17, 2025, we entered into a strategic advisor agreement with Dogecoin Ventures LLC (which, for the avoidance of doubt, is not
related to the Asset Manager), pursuant to which we engaged Dogecoin Ventures LLC to provide certain advisory services relating to our
digital asset treasury business in exchange for, among other things, a monthly advisory fee of $83,333. This agreement was terminated
on February 27, 2026.
Our
other principal commitments consist mostly of obligations under the loans described in Note 20 to our audited consolidated financial statements.
We also had a non-cancellable operating lease commitment for our office facility expiring in 2028 as described in Note 20 to the audited
consolidated financial statements.
Other
than the foregoing, at June 30, 2026, 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.
33
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
The
following discussion relates to critical accounting policies for our company. The preparation of financial statements in conformity with
United States generally accepted accounting principles, or GAAP, requires our management to make assumptions, estimates and judgments
that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have
identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies
are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are
most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective,
or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements
and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.
We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of
our financial statements:
Revenue
Recognition . We generate revenues from sales of our products and recognize revenue as control of the products is transferred
to customers, which is generally at the time of shipment based on the contractual terms with our customers. We provide customer programs
and incentive offerings, including growth incentives and volume-based incentives. These customer programs and incentives are considered
variable consideration. We include in revenue variable consideration only to the extent that it is probable that a significant reversal
in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made
based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to our
volume-based incentives. This determination is updated every reporting period. For the years ended June 30, 2026 and 2025, customer growth
and volume-based incentives were minimal. Certain product sales include a 2-year manufacturer’s warranty that provides the customer
with assurance that the product performs as intended. Such warranties are assurance-type warranties and are accounted for as contingencies
under ASC 460-10.
Asset
Acquisitions . Acquisitions of assets that do not meet the definition of a business are accounted for using the cost accumulation
and allocation model. The cost accumulation and allocation model requires us to measure the assets acquired based on their cost, which
is then allocated to the assets on a relative fair value basis. The cost of the assets includes direct acquisition-related costs such
as fees paid to external advisors, attorneys, and accountants. When the cost of the acquired assets is greater than the fair value of
the group, the excess cost is allocated to the nonfinancial assets acquired. Contingent consideration included in an asset acquisition
is first assessed as to whether it qualifies as a derivative instrument. If it does, we would measure the contingent consideration at
fair value with changes in fair value reported in earnings. If the contingent consideration is not a derivative instrument, we will recognize
the contingent consideration when it is probable and estimable and subsequent changes are recorded as adjustments to the carrying amount
of the assets acquired. Determining the fair value of assets acquired, for purposes of allocating cost based on their relative fair values,
requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future
revenue and cash flows, discount rates, and selection of comparable companies. Estimates of fair value are based on assumptions believed
to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from those estimates.
Intangible
Assets . Intangible assets primarily consisted 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. Our 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.
In connection with the proposed sale of the CleanCore segment, we have fully impaired our intangible assets as of June 30, 2026. See Note
12 for additional details. During the year ended June 30, 2025, as a result of the analysis, we recognized an impairment loss of $261,250
on our customer relationship intangible asset.
Impairment
of Long-Lived Assets . Long-lived assets consist primarily of property and equipment and intangible assets. Long-lived assets
are tested for impairment when events and circumstances indicate the assets might be impaired by first comparing the estimated future
undiscounted cash flows of the asset or asset group to the carrying value. If the carrying value exceeds the estimated future undiscounted
cash flows, an impairment loss is recognized based on the amount that the carrying value exceeds the fair value of the asset or asset
group.
34
In
connection with the proposed sale of the CleanCore segment, we fully impaired our intangible assets during the year ended June 30, 2026.
We compared the estimated future undiscounted cash flows of property and equipment noting that the undiscounted future cash flows were
greater than the carrying amount. Therefore, we concluded that property and equipment is not impaired for the years ended June 30, 2026
and 2025. See Note 12 for additional details. Subsequent evaluations will be performed annually on June 30, per our policy.
Impairment
of Goodwill . We evaluate goodwill for impairment annually, as of June 30, or more frequently when indicators of impairment
exist. We consider 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 we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying
amount, we perform a quantitative impairment test. In performing the quantitative impairment test, we compare 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, we will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s
fair value.
In
connection with the proposed sale of the CleanCore segment, we obtained a third party valuation of the business and performed a quantitative
impairment test. The test indicated that the fair value of the reporting unit was less than the carrying amount. As a result, we fully
impaired our goodwill balance as of June 30, 2026. Subsequent evaluations will be performed annually on June 30, per our policy.
Digital
Assets
In
December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets
(“ASU 2023-08”). ASU 2023-08 requires in-scope crypto assets (including the Company’s dogecoin holdings) to be measured
at fair value in the statement of financial position, with gains and losses from changes in the fair value of such crypto assets recognized
in the statement of operations each reporting period. ASU 2023-08 also requires certain interim and annual disclosures for crypto assets
within the scope of the standard. The Company adopted this guidance effective September 2025.
The
Company accounts for its digital assets, which were comprised solely of Dogecoin, as indefinite-lived intangible assets in accordance
with ASC 350-60 (Intangibles – Goodwill and Other – Crypto Assets). The Company had ownership and control over its digital
assets and uses well-known crypto custodians to secure it.
The
Company’s digital assets were initially recorded at cost, with the cost basis determined using the weighted average cost (“WAC”)
method. Upon disposal, the cost basis of the digital assets sold is determined using the WAC method.
Digital
assets were measured at fair value at each reporting period. The Company determined the fair value of Dogecoin in accordance with ASC
820 (Fair Value Measurement), based on the period-end quoted (unadjusted) prices in the Company’s principal market. Changes in fair
value are recognized at each reporting date within the change in fair value of digital assets line item in the statement of operations.
Upon disposal, the net cash received was subtracted from the cost basis of assets sold to determine the change in fair value of digital
assets for the disposed assets.
The
vast majority of the Company’s assets were concentrated in its Dogecoin holdings until all Dogecoin tokens were sold on July 20,
2026. Dogecoin is a digital asset, which is a novel asset class that is subject to significant legal, commercial, regulatory and technical
uncertainty. Holding Dogecoin did not generate any cash flows and involves custodial fees and other costs. Additionally, the price of
Dogecoin has historically experienced significant price volatility, and a significant decrease in the price of Dogecoin adversely affected
the Company’s financial condition and results of operations. The Company’s strategy of acquiring and holding Dogecoin also
exposed it to counterparty risks with respect to the custody of its Dogecoin, cybersecurity risks, and other risks inherent to holding
a digital asset. In particular, the Company was subject to the risk that, if its private keys with respect to its digital assets were
lost or destroyed or other similar circumstances or events occur, the Company may have lost some or all of its digital assets, which could
materially adversely affect the Company’s financial condition and results of operations.
35
Stock-based
Compensation . Compensation expense is recognized for all share-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, our 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 our 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 share-based compensation
award. We account for forfeitures of stock-based awards as they occur.
ITEM
7A.
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not
applicable.
ITEM
8.
FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA.
The
full text of our audited consolidated financial statements begins on page F-1 of this annual report.
ITEM
9.
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.