CleanCore Solutions, Inc. (ZONE) - 10-K Summary
Business Context and Reporting Period
Company: CleanCore Solutions, Inc.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended June 30, 2024
Business Overview: The Company develops and produces cleaning products utilizing patented nanobubble technology to create pure aqueous ozone for professional, industrial, and home use. Products include janitorial fill stations, ice machine cleaning systems, laundry units, and sanitizing tablets. The Company operates as a "Successor" entity following an asset acquisition in October 2022 of CleanCore Solutions, LLC, TetraClean Systems, LLC, and Food Safety Technology L.L.C.
Key Financial Metrics (Year Ended June 30, 2024)
| Metric | 2024 (Successor) | 2023 (Pro Forma Combined) |
|---|---|---|
| Revenue | $1,604,973 | $2,441,356 |
| Gross Profit | $795,812 | $730,215 |
| Gross Margin | 49.58% | 29.91% |
| Net Loss | $(2,281,742) | $(5,343,271) |
| Cash and Cash Equivalents | $2,016,611 | $393,194 |
| Working Capital | $1,706,082 | N/A |
| Operating Cash Flow | $(1,547,880) | $(354,121) |
Debt Obligations: As of June 30, 2024, the Company held approximately $2.52 million in total note payable principal ($1.89 million to Burlington Capital, LLC and $0.63 million to Walker Water LLC). Interest rates range from 8.5% to 10% depending on default status.
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased by 34.26% ($836,383) compared to the prior year. This was primarily driven by a 96% revenue drop from a major customer (Sanzonate) who began manufacturing their own units, accounting for over 80% of the total revenue decline.
- Margin Expansion: Despite lower revenue, Gross Margin improved significantly from 29.91% to 49.58%. This was achieved by shifting strategy from low-margin regional distribution to higher-margin direct sales to end-users.
- Expense Reduction: General and Administrative (G&A) expenses decreased by 56.22% ($3.17 million), largely due to a reduction in stock-based compensation expense.
- Net Loss Improvement: Net loss decreased by 57.30% year-over-year, driven by the reduction in G&A expenses and improved gross margins.
Guidance, Outlook, Risks, and Unusual Items
Going Concern Warning: The Company's independent auditors have issued a "going concern" opinion. Management believes current resources (including $2.0 million in cash) are insufficient to fund planned expenditures for the next 12 months. The Company requires additional equity or debt financing to continue operations.
Recent Developments:
- International Expansion: On September 10, 2024, the Company entered a sole distributorship agreement with Consensus B.V. for the EU, UK, and several Middle Eastern countries.
- Manufacturing: On August 20, 2024, a proposal was signed with E-Business International to optimize assembly and potentially move production overseas.
Legal Proceedings: On August 20, 2024, former CEO Matthew Atkinson filed a lawsuit alleging unpaid compensation, expenses, and vacation totaling approximately $131,595, plus penalties. The Company has accrued approximately $108,000 for this claim.
Internal Controls: The Company identified material weaknesses in internal controls over financial reporting, specifically regarding the lack of sufficient trained professionals for risk assessment, accounting policies, and complex transaction evaluation.
Investor Verification Checklist
- Liquidity Runway: Verify the timeline and terms of any new financing required to address the "going concern" warning.
- Customer Concentration: Assess the risk of further revenue volatility given the loss of the largest customer (Sanzonate) and the reliance on a few major distributors (Pro-Link, Consensus Group, Tharaldson Hospitality).
- Legal Exposure: Monitor the status of the Matthew Atkinson litigation and potential additional penalties or legal fees.
- Debt Servicing: Review the ability to meet quarterly debt payments ($100,000) on the Burlington note and the maturity of the Walker Water note (December 31, 2024).
- Internal Controls: Evaluate the progress of remediation plans for the identified material weaknesses in financial reporting.