CleanCore Solutions Inc

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” or “Successor”). 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 combined results of CleanCore Solutions, LLC, TetraClean Systems, LLC and Food Safety Technologies, LLC presented in these financial statements represent the predecessor entity of the Company (the “Predecessor”).

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 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 acquisition through June 30, 2024, the Company has financed its operations primarily through investor funding. As of June 30, 2024, the Company had cash of $2,016,611, a net loss of $2,281,742, and cash used in operating activities of $1,547,880. 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.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying condensed financial statements 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”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The financial statements of the Company (Successor) are presented since the date of acquisition (October 17, 2022) through the period ended June 30, 2023.

The results of the Predecessor represent the combined financial statements of the accounts of CleanCore Solutions, LLC, TetraClean Systems, LLC and Food Safety Technologies, LLC. These combined financial statements include the accompanying combined statements of operation, combined statement of members’ equity and combined statement of cash flows for the period July 1, 2022 through October 16, 2022. All intercompany balances and transactions among the combined entities have been eliminated. In the opinion of predecessor management, all adjustments considered necessary for a fair presentation have been included.

Use of Estimates

The preparation of the Company’s and Predecessor’s financial statements require management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure in the Company’s combined financial statements and accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates. Significant estimates and assumptions made by the Company are allowance for bad debt, useful lives of fixed assets, warranty liabilities, accrued contingent liabilities, and allowance for inventory obsolescence.

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.

Cash and Cash Equivalents

Cash consists of cash in readily available checking and money market accounts. Cash is recorded at cost, which approximates fair value. As of June 30, 2024 and 2023, cash balances were deposited at a major financial institution. Cash balances are subject to minimal credit risk as the balances are with high credit quality financial institutions.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist of cash. The Company maintains deposits in federally insured financial institutions in excess of respective insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Major Customers

The Company had one customer that accounted for of 14% of its revenues for the year ended June 30, 2024 and two customers that accounted for a total 66% of revenue for the year ended June 30, 2023. Collateral is not required for customer accounts receivable balances. The Company maintains an allowance for doubtful accounts as described in “Accounts Receivable” below. The Company had two customers that accounted for 28% each of total accounts receivable at June 30, 2024, and two customers that accounted for 43% and 12%, respectively, of total accounts receivable at June 30, 2023.

Major Vendors

The Company has one vendor each that it exclusively purchases a major component of its two main products. The Company expects to maintain this relationship with the vendor; however, it does have a contingency plan in place to use other vendors if necessary, which would result in minor production delays.

Accounts Receivable

Accounts receivable is comprised of trade accounts receivables from the Company’s customers. Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company established an allowance for bad debt of accounts receivables based on a percentage assigned to aged days outstanding categories. The Predecessor established the allowance for bad debt based on various factors including credit profiles of the Company’s customers, historical payments, outstanding balances and current economic trends, and performed this analysis periodically. The Company recorded an allowance for doubtful accounts of $2,535 and $4,419 as of June 30, 2024 and 2023, respectively.

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 June 30, 2024 and 2023, the Company had an allowance for inventory obsolescence of $14,791 and $14,940, respectively.

Leases

The Company accounts for leases in accordance with ASC Topic 842 (Topic 842),Leases. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The lease liability is measured as the present value of the unpaid lease payments, and the right-of-use asset value is derived from the calculation of the lease liability. Operating leases are included in right-of-use assets, current lease liabilities, and noncurrent lease liabilities in the balance sheet.

Lease payments include fixed and in-substance fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, and probable amounts the lessee will owe under a residual value guarantee. Variable lease payments are recognized as lease expenses as incurred, and generally relate to variable payments made based on the level of services provided by the landlords of our leases. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term within general and administrative expenses in the statement of operations.

The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments because the Company does not have the information necessary to determine the rate implicit in the lease. The Company’s lease term includes any option to extend the lease when it is reasonably certain to be exercised based on consideration of all relevant factors. Leases with an initial term of 12 months or less are not recorded on the balance sheets and the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Business Combinations

Business combinations are accounted for using the acquisition method. The fair value of total purchase consideration is allocated to the fair values of identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount being classified as goodwill. All assets, liabilities and contingent liabilities acquired or assumed in a business combination are recorded at their fair values at the date of acquisition. Determining the fair value of assets acquired and liabilities assumed 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. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. At the conclusion of the measurement period, any subsequent adjustments are reflected in the statements of operations. Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in the Company’s statements of operations.

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.

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.

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. The Company did not recognize impairment losses during the periods ended June 30, 2024 and 2023.

Deferred Offering Costs

In accordance with ASC 340-10-S99-1 and SEC Accounting Bulletin Topic 5A, specific incremental costs incurred by the Company directly attributable to a proposed offering of securities were deferred. As the initial public offering closed on April 30, 2024, a total of $890,453 deferred costs were charged against the gross proceeds of the offering for the year ended June 30, 2024. These offering costs included fees paid to underwriters, attorney, accountants as well as printers and other third parties directly related to the offering. Costs such as management salaries or other general administrative expenses that are not incremental to the offering are not included in the deferred costs.

Patent Costs

Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. These costs are included in general and administrative expenses.

Advertising Costs

The Company reports as expense the cost of advertising and promoting its services as incurred. Such amounts totaled $116,007 for the year ended June 30, 2024, and $4,621 and $14,944 for the period and year ended October 16, 2022 and June 30, 2023, respectively.

Stock-based Compensation

Compensation expense is recognized for all share-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 share-based compensation award. The Company accounts for forfeitures of stock-based awards as they occur.

Revenue Recognition

The Company generates revenues from sales of its products and recognizes revenue as control of its products is transferred to its customers, which is generally at the time of shipment based on the contractual terms with the Company’s customers.

The Company provides customer programs and incentive offerings, including growth incentives and volume-based incentives. These customer programs and incentives are considered variable consideration. The Company includes 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 the Company’s volume-based incentives. This determination is updated every reporting period. For the years ended June 30, 2024 and 2023, 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. Refer to Note 10 for warranty reserve.

Income Taxes

The Company accounts for income tax on the basis of the tax laws enacted at the balance sheet date in accordance with FASB ASC 740,Income Taxes. The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized.

Tax positions are recognized if it is more-likely-than-not, based on technical merits, that the tax position will be realized or sustained upon examination. The term “more-likely-than-not” means a likelihood of more than 50%; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.

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 and warrants are considered to be potentially dilutive securities. As of June 30, 2024 and 2023, there were 3,382,500 and 2,816,263, respectively, 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 years ended June 30, 2024 and 2023, diluted net loss per common share is the same as basic net loss per common share for such years.

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, with early adoption permitted. The Company is currently evaluating the effects of this pronouncement on its financial statements and disclosures.

3. Disaggregated Revenue

The following table disaggregates revenue by product category for the following periods ended:

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:

5. Business Combinations

On October 17, 2022, the Company acquired substantially all of the assets of the Predecessor and accounted for this transaction as a business combination under ASC 805 as it falls under the definition. The purpose of the transaction was to acquire and further develop and manufacture patented cleaning products. Total consideration for the acquisition consisted of a $2,000,000 payment made at closing and a $3,000,000 note payable, bearing interest at 7% per annum, to the seller. In addition, if the Company reaches certain metrics as defined in the purchase agreement, in the 12-month period following the closing date, the Company shall make a one-time payment of $500,000 as an adjustment to the purchase price. However, due to forecasted net income being negative, the contingent consideration was valued at $0.

The following table summarizes the fair value of the consideration paid and the fair value of assets acquired and liabilities assumed on October 17, 2022, the acquisition date.

The acquired technology consisted of patented nanobubble technology that produces an aqueous ozone solution that requires no additives, filters, or advanced chemicals. The pure aqueous ozone product is a natural cleaner, sanitizer, and deodorizer produced through the infusion of ozone into water using electricity. The technology was valued using the multi-period excess earnings method. Under this method, the fair value of the asset reflects the present value of the projected stream of net cash flows that will be generated by the asset over the projection period. Key inputs and assumptions in determining the fair value include projected cash flows and the discount rate used to calculate the present value of such cash flows. The developed technology will be amortized over a useful life of 15 years. Customer relationships relate to contracts with distributors that were acquired while the trademarks refer to the predecessor’s trademarks that continue to be used. The trademarks are deemed to have an indefinite life.

The goodwill of $2,237,910 arising from the acquisition consists largely of the synergies, cost savings, and economies of scale expected from combining the operations of the acquired assets and the Company and further developing its products. The goodwill is deductible over 15 years for tax purposes.

The Company incurred $31,676 of acquisition-related costs which have been recorded within general and administrative expenses in the statement of operations for the period ended June 30, 2023.

6. Fair Value Measurements

ASC Topic 820,Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing an asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

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 combined balance sheets of these financial assets are a reasonable estimate of fair value due to their short-term nature.

7. Inventory

Inventory consists of the following at:

The Company values inventory at the balance sheet date using the weighted average method. The Company recorded an inventory reserve of $14,790 and $14,940 for the years ended June 30, 2024 and 2023, respectively.

8. Property and Equipment, Net

Property and equipment, net, consist of the following at:

Depreciation expense related to property and equipment was $1,063 and $63 for the years ended June 30, 2024 and 2023, respectively.

9. Intangible Assets

Intangible assets consist of the following at:

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 $153,996 and $109,081 for the years ended June 30, 2024 and 2023, respectively.

10. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at:

11. Debt

Burlington Promissory Note

In connection with the acquisition of the Predecessor 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 June 30, 2024, the outstanding principal balance of this note is $1,885,493 and it has accrued interest of $13,673.

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 June 30, 2024, the outstanding principal balance of this note is $633,840 and it has accrued interest of $4,490.

Convertible Promissory Notes

On January 30, 2024, the Company issued three 10% original issue discount convertible promissory notes to three separate accredited investors in the principal amounts of $27,778, $111,111, and $111,111. The purchase prices of the notes were $25,000, $100,000 and $100,000, respectively. These notes accrued simple interest on the outstanding principal amount at the rate of 12% per annum. On May 2, 2024, the Company issued an aggregate of 257,479 shares of class B common stock upon the conversion of these notes, which included principal of $225,000 and accrued interest of $37,479.

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. No interest was required to be accrued as of June 30, 2024.

12. Related Party Transactions

The following due to related party balances were outstanding at:

At June 30, 2024, the Company had a short term amount due to Clayton Adams, its Chief Executive Officer and founder, in the amount of $91,119 for operational expenses paid by a credit card in his name. At June 30, 2023, that amount was $12,402. 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. As of June 30, 2023, the Company recorded this as a short-term note payable on the balance sheet, due to the demand terms of the agreement, and recorded related accrued interest of $7,698. 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 October 17, 2022, the Company entered into a consulting agreement with Elev8, a business consulting company owned by Matthew Atkinson, the Company’s President and a significant security holder at such time, pursuant to which the Company engaged Elev8 to provide management services to the Company. Pursuant to the consulting agreement, the Company agreed to pay Elev8 a monthly fee of $6,000 commencing on October 17, 2022. The Company also agreed to reimburse Elev8 for all pre-approved business expenses. The Company has no outstanding balances related to this agreement as of June 30, 2024.

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 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 June 30, 2024, the Company has not purchased any of the inventory and as such, has accrued interest of $2,471.

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 June 30, 2024, no advances have been made and the principal amount of this note is $0.

13. Stockholders’ Equity

The Company’s authorized capital stock as of June 30, 2024 consists of 350,000,000 shares, consisting of (i)300,000,000 shares of common stock, par value $0.0001 per share, of which 50,000,000 shares are designated class A common stock and 250,000,000 shares are designated as class B common stock; and (ii)50,000,000 shares of “blank check” preferred stock, par value $0.0001 per share, of which 4,000,000 are designated as series seed preferred stock.

Series Seed Preferred Stock

Below is a summary of the terms of the series seed preferred stock.

Ranking. The series seed preferred stock ranks, as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, senior to the common stock.

Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any deemed liquidation event (as defined in the certificate of designation), before any payment shall be made to the holders of common stock by reason of their ownership thereof, the holders of shares of series seed preferred stock shall be entitled to be paid out of the funds and assets available for distribution to its stockholders, an amount per share equal to the greater of (a) $0.25 per share, plus any dividends declared but unpaid thereon, or (b) such amount per share as would have been payable had all shares of series seed preferred stock been converted into class A common stock immediately prior to such liquidation, dissolution or winding up or deemed liquidation event.

Dividends. All dividends shall be declared pro rata on the common stock and series seed preferred stock on a pari passu basis according to the number of shares of common stock held by such holders. For this purpose, each holder of shares of series seed preferred stock is to be treated as holding the greatest whole number of shares of common stock then issuable upon conversion of all shares of series seed preferred stock held by such holder.

Voting Rights. The holders of series seed preferred stock shall have the right toone vote for each share of class A common stock into which such series seed preferred stock could then be converted, and with respect to such vote, the holders shall have full voting rights and powers equal to the voting rights and powers of the holders of class A common stock, and shall be entitled to vote together with holders of class A common stock with respect to any question upon which holders of class A common stock have the right to vote.

Conversion Rights. Each share of series seed preferred stock shall be convertible at the option of the holder thereof into such number of shares of class A common stock as is determined by dividing $0.25 per share by the conversion price in effect at the time of conversion. The conversion price is initially $0.25 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, recapitalization, or merger or consolidation). In addition, all outstanding shares of series seed preferred stock shall automatically be converted into shares of common A common stock upon (a) the closing of the sale of shares of class A common stock to the public in a public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (or a qualified offering statement under Regulation A of the Securities Act, as amended), (b) the date that the Company or a successor to the Company becomes an issuer with a class of securities registered under Section 12 or subject to Section 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and is subject to the periodic and current reporting requirements of Section 13 or 15(d) of the Exchange Act or is required to file reports under Regulation A of the Securities Act of 1933, as amended, or (c) the date and time, or the occurrence of an event, specified by vote or written consent of holders of at least a majority of the outstanding shares of series seed preferred stock at the time of such vote or consent, voting as a single class on an as-converted basis.

For the Year Ended June 30, 2023

In September 2022, the Company issued an aggregate of 4,000,000 shares of series seed preferred stock at a purchase price of $0.25 per share.

As of June 30, 2023,4,000,000 shares of series seed preferred stock were issued and outstanding.

For the Year Ended June 30, 2024

During the year ended June 30, 2024, a total of 4,000,000 shares of series seed preferred stock were converted into 4,000,000 shares of class A common stock.

As of June 30, 2024, no shares of series seed preferred stock were issued and outstanding.

Common Stock

The Company has two classes of authorized common stock — class A common stock and class B common stock. The rights of the holders of the class A common stock and class B common stock are identical, except with respect to voting and conversion. Each share of class A common stock is entitled to ten votes per share and is convertible into one share of class B common stock. Each share of class B common stock is entitled to one vote per share. As of June 30, 2024, all of the outstanding class A common stock was held by one of the Company’s founders, which is also the current Chief Executive Officer.

For the Year Ended June 30, 2023

On August 26, 2022, the Company issued an aggregate of 1,000,000 shares of class A common stock at a purchase price of $0.0001 per share. In October and November 2022, the Company issued an aggregate of 660,921 shares of class B common stock at a purchase price of $1.74 per share. On November 29, 2022, the Company issued 777,778 shares of class B common stock upon the exercise of a warrant for an aggregate exercise price of $500,000. On April 1, 2023, the Company issued 17,241 shares of class B common stock to a professional firm in exchange for services at $1.74 per share. Accordingly, stock compensation expense in the amount of $29,999 was recorded by the Company. On June 1, 2023, an aggregate of 340,000 shares of class A common stock were converted into an aggregate of 340,000 shares of class B common stock.

As of June 30, 2023, there were 660,000 shares of class A common stock and 1,795,940 shares of class B common stock issued and outstanding.

For the Year Ended June 30, 2024

In July 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. In addition, the Company issued a total of 1,310,000 shares of class B common stock upon the conversion of 1,310,000 shares of class A common stock. In February 2024, the Company issued a total of 2,000,000 shares of class A common stock upon the conversion of 2,000,000 shares of series seed preferred stock, which were immediately converted into 2,000,000 shares of class B common stock upon issuance. On February 6, 2024, the Company issued 200,000 shares of class B common stock upon the conversion of 200,000 shares of class A common stock. On April 30, 2024, 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. In addition, upon closing of the initial public offering, the Company sold 1,250,000 shares of class B common stock for proceeds of $3,343,547, net of $1,656,453 of issuance and deferred offering costs. On April 30, 2024, the Company issued 175,000 shares of class B common stock pursuant to restricted stock award and 87,500 shares of class B common stock upon vesting of a restricted stock unit award granted under the 2022 Plan (as defined below). On May 2, 2024, the Company issued an aggregate of 257,479 shares of class B common stock upon the conversion of the 10% original issue discount convertible promissory notes issued on January 30, 2024 (see Note 11), which included principal of $225,000 and accrued interest of $37,479. On May 15, 2024, the Company issued 880,000 shares of class B common stock upon the conversion of 880,000 shares of class A common stock. On June 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 of June 30, 2024, there were 270,000 shares of class A common stock and 7,960,919 shares of class B common stock issued and outstanding.

2022 Equity Incentive Plan

On September 16, 2022, the Company’s board of directors adopted the Company’s 2022 Equity Incentive Plan (as amended, the “2022 Plan”), which was adopted by stockholders on November 18, 2022, which reserved a total of 1,736,819 share of the Company’s class B common stock for issuance. On January 3, 2024, the Company adopted an amendment to the 2022 Plan, which increased the total shares of class B common stock available for grant to 3,240,000. Additionally, the number of shares of class B common stock available for issuance under the 2022 Plan will automatically increase on January 1 of each calendar year during the term of the 2022 Plan by an amount equal to 5% of the total number of shares of class B common stock issued and outstanding on December 31 of the immediately preceding calendar year.

Incentive awards authorized under the 2022 Plan include, but are not limited to, nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and stock appreciation rights. If an incentive award granted under the 2022 Plan expires, terminates, is unexercised or forfeited, the surrendered shares will become available for future awards under the 2022 Plan.

The Company’s employees and advisors were granted awards under the 2022 Plan. Therefore, an allocation of the share-based compensation was made to the Company.

Stock Options

During the year ended June 30, 2023, the Company had issued options to purchase an aggregate of 2,000,000 shares of class A common stock at an exercise price of $0.25 per share outside of the 2022 Plan and 770,000 shares of class B common stock at an average price of $2.21 per share under the 2022 Plan.

During the year ended June 30, 2024, the Company issued additional options to purchase 525,000 shares of class B common stock at a weighted average exercise price of $3.31 per share under the 2022 Plan.

All of the class A options and 75,000 of the class B options were fully vested as of the grant date. The remaining class B options have a graded vesting term based on continuous service during the vesting period.

Warrants

On October 14, 2022 and November 29, 2022, the Company issued warrants for the purchase of 42,241 and 4,022 shares of class B common stock, respectively, to a third party as part of their compensation earned. The warrants are exercisable for a period of five years at an exercise price of $1.74 (subject to adjustments for stock dividends, stock splits, mergers, consolidations and similar transactions). On March 5, 2024, the Company cancelled these warrants without issuing a replacement award. As the warrants were already vested, previously recognized compensation cost was not reversed.

On October 17, 2022, the Company issued a warrant for the purchase of 777,778 shares of class B common stock for an aggregate exercise price of $500,000 to Burlington. On November 29, 2022, Burlington exercised this warrant in full.

On April 30, 2024, the Company issued a warrant for the purchase of 87,500 shares of class B common stock at an exercise price of $5.00, subject to adjustments, to the representative of the underwriters in the initial public offering. The warrant will be exercisable at any time and from time to time, in whole or in part, during the period commencing on April 30, 2024 and ending on April 25, 2029 and may be exercised on a cashless basis under certain circumstances.

Restricted Stock Awards

On April 30, 2024, the Company granted a restricted stock award under the 2022 Plan for 175,000 shares of class B common stock, of which 15,000 shares vested on the date of grant,10,625 shares will vest quarterly through June 30, 2026 and the remaining 75,000 shares will vest as the grantee reaches certain sales targets in a twelve month period.

On April 30, 2024, the Company granted a restricted stock unit award under the 2022 Plan for 1,300,000 shares of class B common stock, of which 87,500 shares vested and were issued on the date of grant. In June 2024, the participant and the Company agreed to separate. As a result, the participant kept the 87,500 shares that were vested and forfeited all other shares available under the award. In addition to the 87,500 shares, the participant will also receive 20,000 shares of class B common stock on January 2, 2025.

On June 12, 2024, the Company granted a restricted stock unit award under the 2022 Plan for 188,000 shares of class B common stock, of which 5,000 shares vested and were issued on the date of grant and,5,000 will vest on July 12, 2024. In addition,18,000 shares vest upon completion of tasks as outlined between the Company and grantee and an additional 160,000 shares will vest as the Company achieves certain sales targets in a twelve-month period.

The information presented in the following table represents the restricted stock awards, including performance-based awards, granted and outstanding during the period:

Stock-based Compensation

Stock options and warrants are granted at the fair market value of the underlying common stock on the date of grant. The Company recognizes compensation expense for these awards using the straight-line recognition method over the vesting period.

The fair value of stock options and warrants was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions for the years ended June 30, 2024 and 2023:

The risk-free interest rate is based on U.S. government issues with a remaining term equal to the expected life of the awards. The determination of expected volatility is based on historical volatility of an appropriate industry sector index. The weighted average expected term was estimated for options using the average of the vesting term and contractual term of the awards. The weighted-average fair value per share of total awards granted during the years ended June 30, 2024 and 2023 was $1.35 and $0.90, respectively.

The aggregate intrinsic value of the 2,738,472 shares exercisable at June 30, 2024 was $3,668,019. The intrinsic value and total cash received of awards exercised for the period ending June 30, 2023 was $855,556 and $500,000, respectively. No cash awards were exercised during the year ended June 30, 2024.

Total stock compensation expense for the year ended June 30, 2024 was $670,958. In addition, $94,850 of warrants issued to representative of the underwriters in the initial public offering during the year ended June 30, 2024 were recorded as an offset to equity. Total stock compensation expense for the period ended June 30, 2023 consists of $3,231,443 related to stock options and $857,889 of warrants. In addition, $42,835 of warrants issued to representative of the underwriters in the initial public offering were recorded as an offset to equity as of June 30, 2024. As of June 30, 2024, total unrecognized stock compensation expense was $930,433 with the weighted average period over which it is expected to be recognized of 2.01 years.

14. Net Loss Per Share

The following table sets forth the computation of basic and dilutive net income per share of class A and class B common stock:

15. Income Taxes

The Company files income tax returns in the U.S. federal and applicable state jurisdictions.

Management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes federal and certain states. The fiscal year ended June 30, 2023 was the entity’s initial year of existence, and is not subject to federal or state tax examinations prior to this period.

The Company’s provision for income taxes is comprised of the following components for the year ended June 30, 2024:

The Company’s income tax expense from continuing operations for the year ended June 30, 2024 differed from the statutory federal rate of 21% as follows:

Deferred tax assets and liabilities consist of the following at June 30, 2024:

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

As of June 30, 2024, the Company recognized a full valuation allowance on its net deferred tax asset to reflect the fact it is not more-likely-than-not to realize any portion of the asset.

At June 30, 2024 and 2023, the Company had net operating loss carryforwards for Federal income tax purposes of $2,715,784 and $808,741, respectively, which would be available to offset future federal taxable income, if any, and would not be subset to expiration. At June 30, 2024 and 2023, the Company has net operating loss carryforwards for state income tax purposes of $2,715,784 and $808,741, which are available to offset future state taxable income, which is subject to expiration beginning in 2043.

16. 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 (Note 17). 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.

Retirement Plans

The Successor does not maintain a defined contribution plan or any other type of retirement plan for its employees.

For the period of July 1, 2022 through October 16, 2022, the Predecessor maintained a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. Matching contributions to the 401(k) plan are made for certain eligible employees to meet the non- discrimination provisions of the plan. During this period, the Predecessor made a contribution of $1,512.

Leases

The Company has a non-cancellable operating lease commitment for its office facility expiring in 2028. Rent expense totaled $130,723 and $57,626 for the years ended June 30, 2024 and 2023, respectively.

The following table discloses the lease cost, discount rate, and remaining lease term for operating leases as of June 30, 2024 and 2023:

The discount rate was determined using the Company’s external debt and was adjusted for collateralization, term and lease amount.

The following table discloses the undiscounted cash flows on an annual basis and a reconciliation of the undiscounted cash flows of operating lease liabilities recognized in the balance sheet as of June 30, 2024:

17. Subsequent Events

The Company has evaluated events subsequent to June 30, 2024, to assess the need for potential recognition or disclosure. Such events were evaluated through September 20, 2024, the date the financial statements were available to be issued. The following were noted:

Lawsuit

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 has accrued approximately $108,000 for such claim (see Note 16).

Product Development Proposal

On August 20, 2024, the Company entered into a product development proposal with E-Business International Incorporation, pursuant to which Business International Incorporation, an engineering company, will look for more efficient ways to assemble some of the Company’s units, and will then take over assembly of certain products using overseas facilities.

Distributor Agreement

On September 10, 2024, the Company entered into a sole distributorship agreement with Consensus B.V., pursuant to which Consensus B.V. will act as sole distributor of the Company’s products in the European Union, United Kingdom, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates. The agreement is for a term offive years and may be terminated by either party upon not less than four months’ notice; provided that either party may terminate the agreement immediately upon a substantial breach of the agreement, as more particularly described in the agreement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.