Executive Summary / Key Takeaways

• CleanCore Solutions ($ZONE) leverages patented nanobubble aqueous ozone technology as a chemical-free, cost-effective cleaning and sanitizing solution across diverse industries, positioning itself as an eco-friendly innovator.
• The company is executing a growth strategy marked by significant recent revenue increases (77.7% YoY in Q3 FY2025), driven by key customer and distributor expansion, and strategic moves like the acquisition of Sanzonate Europe and major airport/government contract rollouts.
• Despite revenue growth and strategic progress, CleanCore faces substantial financial challenges, including widening net losses ($809,354 in Q3 FY2025, $2.67M in 9M FY2025), negative operating cash flow ($2.23M used in 9M FY2025), and a material uncertainty regarding its ability to continue as a going concern without securing additional financing.
• Operational and financial control weaknesses persist, with management identifying material weaknesses in internal controls related to accounting expertise and segregation of duties, alongside ongoing legal proceedings that add complexity and cost.
• Investors should weigh the potential of CleanCore's differentiated technology and market expansion against its critical need for capital, execution risks in integrating acquisitions and scaling operations, and the challenges highlighted by control deficiencies and liquidity constraints.

The Promise of Aqueous Ozone: CleanCore's Technological Foundation

CleanCore Solutions is carving out a niche in the vast cleaning and sanitation market by championing a chemical-free approach powered by its patented nanobubble aqueous ozone technology. At its core, the company's offering centers on devices that transform ordinary tap water into a potent cleaner, sanitizer, and deodorizer using ozone, delivered via microscopic nanobubbles. This technology, protected by 14 patents covering the ozone generation and nanobubble formation process, represents CleanCore's primary differentiator.

The tangible benefits of this technology are compelling. By replacing traditional, often harsh, chemicals, CleanCore's solutions promise a safer environment for users and occupants, eliminating chemical residues and skin irritants. From an operational perspective, the technology aims to be a low-cost alternative, potentially reducing the ongoing expense associated with purchasing, storing, and disposing of conventional cleaning agents. While specific, comprehensive quantitative metrics on cost savings or efficiency gains across all applications were not detailed in the latest filing, the company's focus on this value proposition suggests a strategic intent to compete on both environmental friendliness and economic advantage compared to traditional chemical-based cleaning methods. Despite lacking proprietary, quantifiable technology differentiators, this technological moat is foundational to CleanCore's strategy to disrupt established segments within the cleaning industry.

Strategic Expansion and Market Traction

CleanCore's strategy centers on expanding its reach and proving the effectiveness of its technology across various professional, industrial, and commercial settings. Recent initiatives underscore this ambition. A significant development occurred on April 15, 2025, subsequent to the reporting period, with the acquisition of Sanzonate Europe Ltd. through CleanCore Global Limited, its Irish subsidiary established in January 2025. This acquisition was explicitly aimed at strengthening the company's international presence and accelerating global growth, notably by acquiring a "multi-million-dollar sales pipeline" and "significant working capital without an equity raise or dilution." The deal structure includes potential earn-out payments of up to $1.25 million tied to cumulative net sales milestones over five years, starting at $2.0 million and escalating up to $12.0 million, signaling management's belief in the acquired business's revenue potential.

Domestically, CleanCore has also made inroads into significant markets. The company was awarded a GSA Multiple Award Schedule contract, positioning it as a preferred vendor for U.S. federal, state, and local government agencies. Furthermore, a product rollout commenced in January 2025 at a major international New York airport. This deployment, part of a collaboration with the airport's facility management company, targets high-traffic areas like terminals and restrooms, demonstrating the technology's scalability and effectiveness in demanding, large-scale environments and is anticipated to generate significant monthly recurring revenue.

These strategic moves appear to be contributing to the company's top-line growth. For the three months ended March 31, 2025, total revenue increased by 77.7% to $557,915, up from $313,920 in the prior-year quarter. This growth was primarily attributed to increased sales to a distributor in India. For the nine months ended March 31, 2025, revenue grew by 31.4% to $1.18 million, compared to $898,010 in the same period of 2024, driven mainly by a 171% increase in sales with the company's largest customer.

Examining revenue by category reveals varied performance. Janitorial and Sanitation, the largest segment, saw robust growth (93.8% in Q3, 35.5% in 9M). The Ice System category experienced explosive growth (673.2% in Q3, 509.5% in 9M), albeit from a smaller base. Conversely, Commercial and Residential Laundry and the "Other" category (parts, accessories, shipping, equipment rental) saw significant declines in both periods. This indicates that while core and specific niche segments are gaining traction, other areas are contracting, suggesting a focused or perhaps uneven market penetration strategy.

Financial Performance and Liquidity Challenges

Despite the encouraging revenue growth in key areas, CleanCore's financial health remains precarious. The company has consistently incurred losses and negative cash flows from operations since its acquisition in October 2022. For the three months ended March 31, 2025, the net loss widened to $809,354, a 55.4% increase from the $520,670 loss in the prior-year quarter. The nine-month period showed a similar trend, with the net loss more than doubling to $2.67 million from $1.30 million.

The widening losses are largely attributable to a significant increase in operating expenses, particularly General and Administrative (G&A) costs. G&A expenses surged by 85.88% in Q3 and 111.98% in the nine-month period. This substantial increase was driven by higher stock compensation expense, increased payroll and benefits due to headcount additions, and a notable rise in professional fees (accounting, legal) and director and officer insurance costs directly linked to the company's listing on NYSE American in April 2024. While these costs are associated with operating as a public company and scaling the business, they currently outpace revenue growth, negatively impacting the bottom line.

Gross profit performance was mixed. In Q3 FY2025, gross profit increased significantly (121.07%) and improved as a percentage of revenue (55.77% vs. 44.83%), primarily due to the sale of higher-margin units. However, for the nine-month period, gross profit decreased by 26.82% and declined as a percentage of revenue (47.34% vs. 49.05%). This nine-month decline in gross margin percentage was attributed to increased sales, higher demo expenses as part of a sales strategy change, and a decision to sell inventory at cost to a former customer. This suggests that while the potential for higher margins exists with certain product mixes, overall cost management and sales strategies are impacting profitability.

Liquidity is a critical concern. As of March 31, 2025, CleanCore had cash and cash equivalents of $796,843. For the nine months ended March 31, 2025, cash used in operating activities totaled $2.23 million, a significant increase from $485,530 in the prior-year period, driven by the larger net loss and increases in accounts receivable and prepaid expenses, partially offset by non-cash expenses. Management explicitly states that currently available resources are not expected to be sufficient to fund planned expenditures over the next 12 months, raising "substantial doubt" about the company's ability to continue as a going concern.

The company remains highly dependent on raising additional capital through equity or debt financing. While it successfully raised $1.00 million from a subscription advance prior to March 31, 2025, and closed a private placement on April 16, 2025, raising an additional $1.01 million through promissory notes and warrants, these inflows must be viewed against ongoing cash burn and existing debt obligations. As of March 31, 2025, the company had total liabilities of $4.74 million, including current liabilities of $2.79 million. Notable debt includes the Burlington Note ($1.86M outstanding principal, final payment due April 1, 2027), the Hollst Note ($316,920 outstanding, due May 31, 2025, subsequently amended), and related party OID notes ($253,897 to Adams, $109,322 to Buchanan, subsequently amended to be due within 60 days of demand). The need for future financing poses risks of dilution to existing shareholders or restrictive debt covenants.

Competitive Landscape and Positioning

CleanCore operates in a competitive cleaning and sanitation market populated by large, established players and smaller, specialized firms. Major competitors like Ecolab (ECL), The Clorox Company (CLX), and Steris plc (STE) possess significant scale, extensive distribution networks, and substantial financial resources. These companies offer broad product portfolios, often including traditional chemical solutions, and have deep-rooted customer relationships across various industries.

CleanCore's primary competitive advantage lies in its patented aqueous ozone technology, which offers a differentiated, chemical-free solution. This technology allows CleanCore to position itself as an innovator providing safer, potentially more cost-effective, and environmentally friendly alternatives. While larger competitors are increasingly investing in sustainability, CleanCore's core offering is inherently aligned with growing demand for green cleaning solutions. Its technology's potential for lower operating costs per unit and improved efficiency could allow it to capture market share in specific segments, particularly where chemical reduction is a priority (e.g., food service, healthcare, schools, airports).

However, CleanCore's smaller scale presents significant disadvantages. It faces higher customer acquisition costs and lacks the extensive global distribution and marketing power of giants like Ecolab or Clorox. Its sales cycles can be lengthy, particularly for large institutional customers like airports or government agencies, requiring significant upfront investment in demonstrations and relationship building (as evidenced by increased demo expenses). The company's current financial state, marked by losses and liquidity concerns, also limits its ability to invest heavily in R&D, marketing, and infrastructure compared to its well-capitalized rivals.

The Sanzonate Europe acquisition and the GSA contract are strategic steps to address these scale and market access challenges, aiming to leverage existing pipelines and preferred vendor status to accelerate growth and reduce reliance on lengthy direct sales cycles. The airport rollout serves as a high-profile validation of the technology's effectiveness in large, demanding environments, providing a valuable case study against competitors.

Operational Challenges and Risks

Beyond financial liquidity, CleanCore faces operational and governance challenges. Management has identified material weaknesses in internal control over financial reporting as of March 31, 2025. These weaknesses stem from a lack of sufficient trained professionals with expertise in formal risk assessment, accounting policies, procedures, controls, segregation of duties, and U.S. GAAP technical expertise for complex transactions and valuation report review. While the company is implementing remedial procedures, including formalizing documentation, strengthening reviews, and hiring/engaging additional personnel, there is no assurance these efforts will remediate the weaknesses in a timely manner or prevent future financial reporting issues. These control deficiencies pose risks to the accuracy and reliability of financial reporting and could impact investor confidence.

Furthermore, the company is involved in legal proceedings, notably a lawsuit filed by its former CEO in August 2024 (amended November 2024 to include the current CEO and CFO as defendants) claiming unpaid compensation and seeking significant damages and penalties. The company has accrued approximately $108,000 for this claim. Such litigation diverts management attention and financial resources, adding another layer of risk and uncertainty.

The reliance on related party debt, some of which was recently amended to be payable within 60 days of demand, introduces potential short-term liquidity risk depending on when and if such demands are made.

Outlook and Conclusion

CleanCore Solutions presents a compelling narrative centered on an innovative, patented technology addressing the growing demand for sustainable and cost-effective cleaning solutions. Recent strategic moves, including the Sanzonate Europe acquisition, GSA contract, and major airport rollout, demonstrate tangible progress in expanding market reach and validating the technology's potential in large-scale applications. The significant revenue growth in key segments underscores that the company's offerings are gaining traction with customers.

However, the investment thesis is significantly tempered by the company's critical financial situation. The widening losses and substantial negative operating cash flow highlight the challenges of scaling the business while managing costs, particularly those associated with being a public company and investing for growth. The explicit going concern warning necessitates that securing additional financing is an immediate and paramount priority. The success of future financing efforts, and the terms under which capital is raised, will be crucial determinants of the company's ability to execute its business plan and achieve profitability.

Investors considering CleanCore must weigh the long-term potential of its differentiated technology and market expansion strategy against the very real and immediate risks related to liquidity, the need for external funding, operational control deficiencies, and ongoing litigation. The ability of management to successfully remediate internal control weaknesses, effectively integrate the Sanzonate acquisition, continue driving revenue growth while improving cost management, and secure necessary financing will be key factors to monitor in assessing the future trajectory of $ZONE. The story of CleanCore is one of promising technology and strategic ambition, currently overshadowed by the fundamental challenge of achieving financial sustainability.