I agree entirely with the comments @Maaxweell made about the Jun 31 quarterly report.

Over the last five quarterly reports Zoono customer receipts have decreased by 85%:

• Jun 20: $21 million
• Oct 20: $15 million
• Jan 21: $5.5 million
• Mar 21: $6.8 million
• Jun 21: $3.1 million 

Going back to the Jan 21 quarterly report Zoono CEO, Paul Hyslop, started turning our attention away from 'customer receipts' to 'SALES ORDERS' (Ordered but not receipted), as follows:

• Jan 21: $14 million
• Mar 21: $6.4 million
• Jun 21: $7.0 million*

*referred to as 'Unaudited June Quarter sales'

That's OK, but shouldn't the sales orders convert to customer receipts in the following quarter? It would appear that ZNO is either double counting, or about half of sales orders don't convert to sales receipts? What happened to the $6.4 million in Sales Orders from the March 21 quarter? I might be confused or missing something...or perhaps this is just all Smoke & Mirrors?

While sales have been dwindling Zoono has been slowly burning cash. Here are the end of quarter cash balances:

• Jun 20: $10 million
• Oct 20: $7.5 million
• Jan 21: $7.3 million
• Mar 21: $6.8 million
• Jun 21: $4.8 million

The Zoono narrative of growing sales and creating new partnerships that we read about in each successive report does not appear to be gaining any traction. Instead the financial performance seems to be getting worse...is this all just Smoke and Mirrors too?

 Prior to establishing Zoono, Paul Hyslop owned a successful car sales business, and co-established the Business Brokerage Division at Bayley's Real Estate (one of the largest in NZ) where he was twice awarded 'Salesman of the Year'. Paul is a very skilled salesman.

On the 8 June Zoono announced Paul Hyslop had sold 2 million shares at 70c per share to UK based Sterling Investment Management Limited  totalling $1.4 million, and 5 million shares to Aussie based Regal Funds Management at 70c per share totalling $3.5 million. A total sell-off of 7 million shares representing over 10% of the CEOs holding seems to be very fortuitous timing given the latest quarterly result. Not a bad sale in hindsight!

While I think Zoono is an excellent product, it is becoming clearer each quarter that promised growth of the company's earnings is unfortunately nothing more than 'smoke and mirrors'.

Disc: Sold

Summary of Pilot

In February 2021, the Operations Leadership at Microsoft, CBRE and SBM executed a trial of Zoono’s Microbe Shield Surface Protectant on its newly renovated Redmond, WA campus, which spans over 15M square feet and houses 125 buildings.

In this trial, the parties were seeking to determine if Zoono could deliver a superior result and keep surfaces “cleaner longer” than their current protocol of cleaning and disinfecting.

This trial used ATP as the standard of measurement. Environmental contamination is measured through the detection of Adenosine triphosphate (ATP), which is found in the cellular make-up of living organisms.

SBM, who led ATP testing with an independent third-party, identified two Microsoft buildings for testing – Building 36, which serves as traditional employee office space and call center, and Building 33, a highly- trafficked public Mass Vaccination Center.

Within each building, test locations included high-touch surfaces, such as: door handles, light switches, chairs, tables, podiums, kitchen counters, toilet seats, toilet flush switches, and bathroom stall door handles.

In both Buildings, an initial pre-treatment ATP reading was captured to determine the baseline – or “normal” – level of contamination. The surfaces were cleaned, then treated with Zoono via an electrostatic sprayer. Zoono was only applied once, at the beginning of the test cycle, and treated surfaces received regular cleaning/disinfecting throughout. ATP readings were collected twice a day for five full weeks.

Results

The addition of Zoono decreased contamination levels by roughly 75% at Buildings 33 and 36 to levels considered “Clean” and “Food Safe.” With just one application of Zoono, Microsoft surfaces stayed, on average, well within the “Safe Zone” throughout the entire test period.

 The much awaited news has finally come through:

• Zoono Microbe Shield successfully tested in the USA against Human Coronavirus 229E

Other good news in today's announcement:

• New Distributors appointed / New Supply Agreements.
• Update on December Quarter
• Boeing partners with Zoono to distribute Microbe Shield to airlines globally.
• Fine Hygienic Paper LLC on track to meet projected US$7M sales over next 6 months.
• Production & IP Protection Update

Microbe Shield successfully tests against Human Coronavirus 229E
While Zoono's Microbe Shield surface sanitiser and GermFree24 hand sanitiser products have previously been successfully tested against the nominated COVID surrogate feline coronavirus, Zoono is pleased to advise that its flagship product, Zoono Microbe Shield, has now been successfully tested against the Human Coronavirus 229E and now meets the US EPA Standard ASTM E1053.
Testing was completed by New Jersey based Nelson Laboratories – an independent Laboratory operating under US FDA (GMP) regulations.
New Distributors / New Supply Agreement

Subsequent to gaining regulatory approvals, Zoono has appointed new distribution partners in Norway, Luxembourg, Greece and Poland. Initial orders are pending in each country.
After an extensive market evaluation, Microsoft has invited Zoono to become an approved supplier to their office network. The initial purchase has been received for their Redmond Campus (comprising 125 buildings and 53,500 staff in Washington State, USA), with the US rollout to commence following the return of staff to the Campus in May.
The initial shipment of Zoono products to Russia has also been completed. Significant monthly orders are scheduled to follow, in line with their contract.

Update on December Quarter Zoono had previously reported that, as at 31 December 2020, it had invoiced sales on hand of $7 Milliion. Despite global freight and logistic challenges, in excess of $5 Million (unaudited) has now been shipped in Q3 FY21. This is in addition to new sales in the quarter.

Boeing partners with Zoono to distribute Microbe Shield to airlines globally.
Aircraft manufacturer Boeing has partnered with Zoono to offer Zoono products to airlines globally. Microbe Shield meets Boeing Specification Standard BSS7434 for use in aircraft interiors and is now available from the official Boeing on-line store.
FHH on track to meet US$7M sales projections for 6 months.

Fine Hygiene Group LLC (FHH) is on track to meet its sales projections of US$7 Million over the next 6 months. 
 

Currently selling in three countries only, FHH is scheduled to expand into new territories (including Europe, USA and Australia) as soon as the relevant regulatory requirements are satisfied.

Production & IP Protection Update:
Zoono has now brought the production of its plastic bottles ‘inhouse’. This will reduce its dependence on global suppliers and remove one of the production bottlenecks experienced during 2020. Zoono expects to commence the production of 1 Million bottles in the near future.
In order to further protect Zoono’s unique technology, Zoono has recently lodged further global patent applications in relation to formulations / specialised applications.
To keep up to date with what is happening globally on a day-to-day basis, follow Zoono Global on Linkedin at https://www.linkedin.com/company/zoono/.

1 See announcement dated 16 December 2020 for further information.
2 Zoono refers to “invoiced sales” when an order is received from a customer. A sale is only recorded as revenue once the product is despatched to the customer.
3 See announcement dated 16 December 2020 for further information.
Zoono Group Limited (ASX:ZNO) · Level 12, 225 George Street, Sydney NSW 2000 · ABN: 73 006 645 754 · www.zoono.com
     
 Zoono Group Limited is a global biotech company that develops, manufactures and distributes a suite of scientifically validated, long-lasting and environmentally friendly antimicrobial solutions. Zoono’s mission is to improve health and well-being through innovative, safe, non- toxic and durable germ protection. Zoono produces sprays, wipes and foams suited for skin care, surface sanitisers, and mould remediation treatments. The products are based on the ‘Zoono molecule’, a unique antimicrobial molecule that bonds to any surface and kills pathogens including bacteria, viruses, algae, fungi and mould.

 

The CEO of Zoono are looking at providing a guidance update.
On the 25 February Zoono reported $7m of Invoiced Sales for Dec 2020. $6 million of these sales were shipped during Jan/Feb this year.

See the Zoono Global Linked In for recent posts from Zoono partners.

Disc: own shares

As the vaccines roll out around the world, increased travel and flight bookings should further increase Zoono's B2B revenues, at least with the airlines. Every Qantas and Jetstar passenger receives a FlyWell kit which includes 2 x Zoono hand & surface wipes. I received 2 kits (4 wipes) this week on my first company flight since COVID began. The airports are starting to look busy again as life starts to return to normality in Australia! :)

In a visit to Specsavers today I used their hand sanitiser  Clear Protect 24 and noticed it had 24hr protection. I thought for a minute Zoono had some competition until I googled and found it was powered by Zoono. Evidence of Zoono's B2B strategy at work! :)

Today Allan Kohler interviewed Paul Hyslop, CEO of ZNO. I made some key points from the interview. For more details, or to listen to the podcast, you'll have to subscribe to InvestSmart! ;-)

On Cash Flow

• $21.5m for six months
• Shipped $14.5m. Under reporting rules can only recognise what is shipped. This is where the market is confused
• Not like a supermarket, we take orders, blend the liquid, print the labels and somtimes don't ship in the same quarter
• Eg. Over $7m in sales in December alone, started shipping this in Janurary 
• Allan 'Is cash flow now permanent?' - Paul says 'Oh yeah! We've got $8m in the bank today after paying $6m in dividends
• Most orders are paid up front (money in advance)
• Bigger customers like QANTAS, Amazon and London Underground and some large pharmaceutical companies are on 60 day terms
• Won't have to raise any money in the forseeable future

How are the lockdowns affecting Zoono?

• Really hurting our business in Northern Hemisphere because when businesses send their staff home there is no need for disinfection. 
• We had a contract with a company in England buying 20,000L per month at 15 pounds per litre. When the lockdown started they postponed orders. Clients include government, schools, councils etc.
• A lot of customers are signing up 5 year contracts, like the London Underground

London Underground contract

• Via a company called Bunzl who have a long term agreement with the Underground
• Been working with since 2015
• Zoono in every train, under and above ground. It is fogged inside all the carriages every 7 days (10,000L per month @ 11 pounds per L)
• We're going into trains in Belgium, France, Germany, Spain and Portugal and more because of the London experience

It all comes down to Litres and Price

• Now selling around 350 to 500 thousand litres per month @ $11 US a litre
• Premium in UK @ 11 pounds per litre, hence the focus on UK
• We give some people volume breaks and rebates if they hit their targets

Whats in the Pipeline?

• We have some huge deals in the pipeline, eg. local software companies, government busnesses, transportation
• Japan - Signing up new distributors 
• China - all government approvals, set up a company there
• Middle East - doing a lot with Fine Group (B2C market), spending $500K to $700K per month

How is Zoono applied?

• Spraying, wiping and fogging
• Big volume businesses are buying 1000L IBCs for fogging machines see London Underground YouTube 
• Animal health -  fogging poultry sheds, pig pens

What about the Profits?

• $2.7M (up $3.4M on previous loss)  
• Expect higher in second half, $7M sales in December to come in yet?

Are you spread to thin?

• Allan: your selling all over the world - China, Russia, Middle East, UK, US and so on...but you're not a big company!
• Sales offices -  New Jersey, servicing Canada, Mexico and South America, UK office, NZ office, people in Middle East, people in China. Also partnering with companies like Bunzl, Atalian Servest and Compass group in UK. They have sales teams and business development managers. Better model than employing hundreds of people all around the world.

Customers want a guarantee the Aircraft are clean 

• Allan: do you have evidence for this?
• United Airlines are fogging inside aircraft with robots: https://simpleflying.com/united-airlines-using-robots-to-sanitize-aircraft-surfaces/  
• We have Zoono on Korean Airlines, Cathay Pacific, QANTAS and many of the Middle Eastern airlines. Have approval to go on Chinese airlines.
• Airlines will be a big ongoing part of our business, as will trains and busses. We've just started into the cruise industry. Also talking to Uber and big cab companies.

What about the story that appeared in Independant Australia about you and the company?

• Paul: I won't waste oxygen on that article
• Allan: I was going to ask you questions about that article, but I couldn't find anything in there worth putting to you, to be honest!

I find valuing a company like Zoono very difficult, after all company valuations are based on future earnings. For Zoono there are a lot of factors at play with the potential to influence future earnings. 
I liked the valuation elpaso96 stepped through in the post following the ZNO 1H report ($1.14). I think this is a very conservative valuation and the likely value is North of this! 

ZNO first caught my attention in a Simply Wall Street screener. I screen for companies with PEG < 1, ROE >20%, Growth >20% and DCF > 25% discount, no or low debt (See Simply Wall Street for their DCF formula). 

Simply Wall Street DCF valuation is $3.37 and a PEG ration of 0.4 . There is only 1 analyst contributing and the future full year revenue data has not been updated after the 1H report, still based on full year revenue of $58m and net income of $20m. I think revenue is more likely to be $38 - $40m based on $20m cash receipts in H1 and similar for H2. So valuation all comes down to future earnings and whatever formula use it is only as useful as the earnings figure you plug into it. As they say BS in = BS out.

For companies like Zoono, I like to do a SWAT (Strengths, Weakness, Opportunities and Threats). A SWOT helps to weigh up ALL the factors at play and to evaluate the risk to future earnings. Here is a start to the SWOT, but you might have more to add?

Strengths:
- ZNO produces  unique, highly effective, long-lasting antibacterial products that have a distinct competitive advantage
- Intellectual Property,  the “Zoono Molecule”
- a unique antibacterial molecule that bonds to any surface 
- A non-toxic molecule that is effective for up to 24 hrs on hands and skin, 30 days on surfaces. (Imagine what this means for a kindergartens or schools, and the potential market here alone).
- Rapidly expanding world wide, including government approvals 
- Customers include big corporates and governments e.g. United Airways, Qantas, London Underground, G8 childcare, and more... 
- Becoming a household name, my granddaughter who attends the local Kindy saw our Zoono hand sanitiser (yes we use it) and said "Hey Pop, you've got Zoono"!
- Alternative for sufferers of dry hands and dermatitis. My 84yr old Mum avoids using alcohol based hand sanitiser because continued use is drying her hands and aggravating her dermatitis.
- A great marketing site. I ordered the Zoono combination pack, got a 10% discount and the products arrived quickly with Australia Post. My wife (School Principle) loves it and is using far more than she needs to because it feels great on her hands. She likes the idea that it is non-toxic and does not require a SDS (Safety Data Sheet) to be used in schools.
- Potential for disease control in chickens and pigs not factored into the price yet
- Potential takeover target, a highly profitable company with a PEG<1, no debt and a promising future with a large competitive edge if the intellectual property proves successful globally.
- Good liquidity
- no debt

Weaknesses
- Small company, so the share price can be easily manipulated (e.g. short sellers)
- There is research and regulatory approval in several countries, however still waiting for regulatory approvals to come through for some key markets e.g. US EPA and Canada Health. The US EPA outcome is expected any time. I think this will be turning point for the outlook for the company, positive or negative. There is enough research to prove Zoono, I don't expect a negative outcome.
- The company is based on one unique patented molecular formula. They have a lot of eggs in one basket. if this fails ZNO has nothing. (Its true, but I think these are golden eggs).
- Risk of mutation. Pathogens can evolve and mutate over time and develop resistance to chemical formulae, however the action of the zoono molecule is physical, i.e. it punctures the cell of the pathogen. This is unlike chemical formulas (eg. pesticides) and over time pathogens can evolve and develop resistance to the chemicals. Paul likened the action to alcohol which burns the cellular wall, and highly unlikely to develop resistance.
- Not a household name yet, but childcare centres could change that.

Opportunities 
- Endless opportunities will open up after US EPA approval
- Vaccinations will increase demand for zoono. Airlines and Cruise Ships are likely to be in full swing with an increase in COVID 19 herd immunity. Sanitisers will remain  an important strategy to stop the spread of  viruses not just COVID 19. United Airlines, Qantas already using zoono. The distinct advantage of zoono is it significantly reduces the spread of harmful bacteria, viruses, fungi, mould and yeast. The innovative technology lasts up to 30 days on treated surfaces and up to 24 hours on skin.
- Huge application in pigs and chickens to prevent the spread of disease in agriculture

Threats
- Discovery of another unique product with similar advantages 
- The pending regulatory approvals are negative (seems highly unlikely to me given the research track record)
- Continued short selling (this is also an opportunity. Market failure, for whatever reason, provides a unique opportunity to buy a great company at a very cheap price).

Summary
I think the Strengths and Opportunities for ZNO far outweigh the Weaknesses and Threats. 

I own shares in ZNO (not in Stawman yet, new member and still trying to work it out) and  have been adding significantly to my holding over a number of weeks. I will continue buy  shares in this low risk, undervalued company even though it feels like like I'm the only contrarian doing so at the moment! :-)