UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________to________
Commission
File No.
(exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices) (zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated Filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
As of August 9, 2024, the registrant had shares of common stock outstanding.
Table of Contents
| 2 |
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Such forward-looking statements reflect the views of NuZee, Inc. (“NuZee” or the “Company”) with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential security holders about the Company. All statements other than statements of historical facts included in this report regarding our financial position, business strategy, plans and objectives of management for future operations, industry conditions, or any other matters, are forward-looking statements. When used in this report, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “expects”, “project,” “predict,” “believe,” “expect,” “anticipate,” “target,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about, actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Forward-looking statements in this report may include, without limitation, statements regarding:
| ● | our plans to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our products, provide our co-packing services, and to continue as a going concern; |
| ● | our expectation that our existing capital resources will be sufficient to fund our operations for at least the next three months and our expectation to need additional capital to fund our planned operations beyond that; |
| ● | the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; |
| ● | our expectations regarding our ability to maintain compliance with the listing requirements of the Nasdaq Capital Market; |
| ● | the impact to our business, including any supply chain interruptions, resulting from changes in general economic, business and political conditions, including changes in the financial markets and macroeconomic conditions resulting from a pandemic; |
| ● | the evolving coffee preferences of coffee and maca product consumers in North America and East Asia; |
| ● | the size and growth of the markets for our products and co-packing services; |
| ● | our ability to compete with companies producing similar products or providing similar co-packing services; |
| ● | our ability to successfully achieve the anticipated results of strategic transactions; |
| ● | our expectation regarding our future co-packing revenues; |
| ● | our ability to develop or offer innovative new products and services, and expand our co-packing services to other products that are complementary to our current single serve coffee product offerings; |
| ● | our expectations regarding additional manufacturing, coffee roasting and co-packing capabilities to be provided through our manufacturing partners, as well as our manufacturing partners’ ability to successfully facilitate distribution efforts; |
| ● | our reliance on third-party roasters or manufacturing partners to roast coffee beans necessary to manufacture our products and to fulfill every aspect of our co-packing services; |
| ● | regulatory developments in the U.S. and in non-U.S. countries; |
| ● | our ability to retain key management, sales and marketing personnel; |
| ● | the scope of protection we are able to establish and maintain for intellectual property rights covering our products and technology; |
| ● | our ability to develop and maintain our corporate infrastructure, including our internal control over financial reporting; |
| ● | the outcome of pending, threatened or future litigation; |
| ● | our financial performance; and |
| ● | our use of the net proceeds from our securities offerings. |
The forward-looking statements are not meant to predict or guarantee actual results, performance, events, or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Forward-looking statements speak only as of the date they are made. You should consider carefully the statements in the section of our Annual Report on Form 10-K filed with the SEC on January 16, 2024, as amended, titled “Risk Factors” and sections of this report that describe factors that could cause our actual results to differ from those set forth in the forward-looking statements.
Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
| 3 |
Item 1. Financial Statements
NuZee, Inc.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, 2024 | September 30, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Current assets held for disposition | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets: | ||||||||
| Right-of-use asset - operating lease | ||||||||
| Investment in unconsolidated affiliate | ||||||||
| Intangible assets, net | ||||||||
| Long-term assets held for disposition | ||||||||
| Other assets | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Notes payable | ||||||||
| Lease liability - operating lease | ||||||||
| Lease liability - finance lease | ||||||||
| Deferred income | ||||||||
| Current liabilities held for disposition | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Lease liability - operating lease, net of current portion | ||||||||
| Non-current liabilities held for disposition | ||||||||
| Other noncurrent liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Stockholders’ equity: | ||||||||
| Common stock; shares authorized, $ par value; and shares issued and outstanding as of June 30, 2024, and September 30, 2023, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ (deficit) equity | ( | ) | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from equity method investment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||||||||||
| Net loss from continuing operations | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from disposition of discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Per Share Information – basic and diluted | ||||||||||||||||
| Loss from continuing operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Loss from discontinued operations | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Net loss | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Basic and diluted weighted average number of common stock outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
| NuZee, Inc. | ||||||||
| For the three months ended June 30 | 2024 | 2023 | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation | ( | ) | ( | ) | ||||
| Total other comprehensive income net of tax | ( | ) | ( | ) | ||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| NuZee, Inc. | ||||||||
| For the nine months ended June 30 | 2024 | 2023 | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation | ||||||||
| Total other comprehensive income net of tax | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Accumulated | ||||||||||||||||||||||||
| Additional | other | |||||||||||||||||||||||
| Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||
| Shares | Amount | capital | deficit | Income | Total | |||||||||||||||||||
| Balance September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common Stock issued for cash | ||||||||||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Issued private placement | ||||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance December 31, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Issued private placement | ||||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Common Stock issued for cash | ||||||||||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Issued private placement Other comprehensive income | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | other | |||||||||||||||||||||||
| Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||
| Shares | Amount | capital | deficit | income | Total | |||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Restricted stock compensation | ||||||||||||||||||||||||
| Round-up shares issued in reverse split | ||||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||
| Forgiveness of stock issuance costs | - | |||||||||||||||||||||||
| Stock option expense | - | ( | ) | ( | ) | |||||||||||||||||||
| Restricted stock compensation | ||||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||
| Forgiveness of stock issuance costs | - | |||||||||||||||||||||||
| Stock option expense | - | |||||||||||||||||||||||
| Restricted stock compensation | - | |||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
NuZee, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended | Nine Months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Noncash lease expense | ||||||||
| Stock option expense | ||||||||
| Issuance of common stock for services | ||||||||
| Bad debt expense | ||||||||
| Loss on disposition of asset | ||||||||
| Loss from equity method investment | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ||||||||
| Other assets | ||||||||
| Accounts payable, accrued expenses and other current liabilities | ||||||||
| Deferred income | ( | ) | ||||||
| Lease liability – operating lease | ( | ) | ( | ) | ||||
| Other non-current liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Repayment of loans | ( | ) | ( | ) | ||||
| Borrowings from loans | ||||||||
| Proceeds from sale of future receipts | ||||||||
| Repayment of finance lease | ( | ) | ( | ) | ||||
| Repayment of equipment finance | ( | ) | ||||||
| Proceeds from equipment finance | ||||||||
| Proceeds from issuance of convertible note | ||||||||
| Proceeds from issuance of common stock for cash | ||||||||
| Proceeds from private placement | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Discontinued Operations: | ||||||||
| Net income (loss) from discontinued operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash | ||||||||
| Depreciation from discontinued operations | ||||||||
| Changes in operating assets and liabilities | ( | ) | ||||||
| Cash Flows from operating activities | ( | ) | ||||||
| Cash Flows from investing activities | ||||||||
| Cash Flows from financing activities | ||||||||
| Effect of foreign exchange on cash | ||||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest-continuing operations | $ | $ | ||||||
| Cash paid for taxes-continuing operations | ||||||||
| Cash paid for interest-discontinued operations | $ | $ | ||||||
| Cash paid for taxes-discontinued operations | ||||||||
| Non-cash transactions: | ||||||||
| Forgiveness of stock issuance costs | ||||||||
| ROU assets and liabilities added during the period | $ | |||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 8 |
NuZee, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2024
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of NuZee, Inc. (together with its subsidiaries, referred to herein as the “Company”, “we” or “NuZee”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023 as filed with the SEC on January 16, 2024. In the opinion of management, all adjustments, consisting of recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements as reported in the Annual Report on Form 10-K for the year ended September 30, 2023, have been omitted.
Principles of Consolidation
The Company prepares its financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts, balances and transactions have been eliminated upon consolidation.
The Company had two wholly owned international subsidiaries in NuZee KOREA Ltd. “NuZee KR”) and NuZee Investment Co., Ltd. “NuZee INV”). Effective June 7, 2024 the Company entered into an agreement to sell both subsidiaries.
Discontinued Operations
On June 7, 2024, the Company consummated the sale of its subsidiaries, NuZee Korea and NuZee Investment, to its former CEO, Chairman and co-founder. The Company elected to focus its efforts and resources on its Dripkit investment, the single serve pour over and brew bag market in North America and its recently introduced bagged coffee processing services in North America. The transaction for the sale of the subsidiaries is accounted for as discontinued operations in accordance with ASC 205-20.
The following table summarizes the major categories of income and expense for the discontinued operations sold on Jun 7, 2024.
Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income and (expense) | ( | ) | ( | ) | ||||||||||||
Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from disposition of discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Reclassifications of Prior Year Amounts
Certain prior year amounts have been reclassified for consistency with the current year presentation. The reclassifications had no effect on the reported results of operations or net assets of the Company.
2022 Reverse Stock Split
On
December 9, 2022, our stockholders approved a proposal granting the board of directors of the Company (the “Board”) discretionary
authority to file an amendment (the “Certificate of Amendment”) to our Articles of Incorporation, as amended (the “Articles”),
which amends the Articles to add a Section 1A to effect a reverse stock split of our common stock, at any
Basic earnings per common share is equal to net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. As of June 30, 2024 and June 30, 2023, the total number of common stock equivalents was and , respectively, and composed of stock options and warrants. The Company incurred a net loss for the three and nine months ended June 30, 2024 and 2023, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be antidilutive.
| 9 |
Going Concern and Capital Resources
Since
its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management
and technical staff, acquiring operating assets, raising capital and the commercialization and manufacture of its single serve coffee
products. The Company has grown revenues from its principal operations; however, there is no assurance of future revenue growth similar
to historical levels. As of June 30, 2024, the Company had cash of $
Use of Estimates
In preparing these consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.
The Company had
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions. From time to time, the Company may or may not maintain cash balances at certain institutions in excess of the Federal Deposit Insurance Corporation limit.
Accounts Receivable
Trade
accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial
condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in
the receivable portfolio and current economic conditions. The Company had $
Major Customers
In the nine months ended June 30, 2024 and 2023, revenue was primarily derived from major customers disclosed below.
| 10 |
Nine months ended June 30, 2024:
| Customer Name | Sales Amount | % of Total Revenue | Accounts Receivable Amount | % of Total Accounts Receivable | ||||||||||||
| Customer CL | $ | % | $ | % | ||||||||||||
Nine months ended June 30, 2023:
| Customer Name | Sales Amount | % of Total Revenue | Accounts Receivable Amount | % of Total Accounts Receivable | ||||||||||||
| Customer CL | $ | % | $ | % | ||||||||||||
| Customer CN | % | % | ||||||||||||||
Lease
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to provide guidance on recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about leasing arrangements, specifically differentiating between different types of leases. The Company implemented ASU No. 2016-02 on October 1, 2019.
The Company performs a quarterly analysis of leases to determine if there are any operating leases that require recognition under ASC 842. The Company had a long-term operating lease for office and manufacturing space in Plano, Texas. The leased property in Plano, Texas, had a lease term which expired on June 30, 2024. The lease has an option to extend beyond the stated termination date, but the option was not exercised. The Company is in the process of exiting the lease along with its subtenant. This lease was not included under ASC 842 because it is expired.
In
May 2022, the Company renewed the office and manufacturing space in Vista, California which was scheduled to expire on
As
of June 30, 2024, our operating leases had a weighted average remaining lease term of
| ROU Asset – October 1, 2023 | $ | |||
| ROU Asset added during the period | ||||
| Amortization and removal during the period | ( | ) | ||
| ROU Asset – June 30, 2024 | $ | |||
| Lease Liability – October 1, 2023 | $ | |||
| Lease Liability added during the period | ||||
| Amortization and removal during the period | ( | ) | ||
| Lease Liability – June 30, 2024 | $ | |||
| Lease Liability – Short-Term | $ | |||
| Lease Liability – Long-Term | - | |||
| Lease Liability – Total | $ |
| 11 |
The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of June 30, 2024:
Amounts due within twelve months of June 30,
| 2025 | $ | |||
| 2026 | ||||
| Total Minimum Lease Payments | ||||
| Less Effect of Discounting | ||||
| Present Value of Future Minimum Lease Payments | ||||
| Less Current Portion of Operating Lease Liabilities | ||||
| Long-Term Operating Lease Liabilities | $ |
On
October 9, 2019, the Company entered into a lease agreement with Alliance Funding Group which provided for a sale lease back on certain
packing equipment. The terms of this agreement require us to pay $
Lease
expenses included in operating expense for the nine months ended June 30, 2024, and 2023 was $
Cash and non-cash activities associated with the leases for the nine months ended June 30, 2024, are as follows:
| Operating cash outflows from operating leases: | $ | |||
| Operating cash outflows from finance lease: | $ | |||
| Financing cash outflows from finance lease: | $ |
In
September 2020, we subleased the space at 1700 Capital Avenue in Plano, Texas, effective October 1, 2020 under favorable terms that are
co-terminus with the original lease ending June 30, 2024. During the nine months ended June 30, 2024 and 2023, the Company recorded sublease income of $
Foreign Currency Translation
The
financial position and results of operations of each of the Company’s foreign subsidiaries are measured using the foreign subsidiary’s
local currency as the functional currency. Revenues and expenses of each such subsidiary have been translated into U.S. dollars at average
exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet
date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders’ equity,
unless there is a sale or complete liquidation of the underlying foreign investment. Foreign currency translation adjustment attributable
to NuZee, Inc. recorded to other comprehensive loss amounted to $
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Equity Method
Investee
companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method
of accounting. Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several
factors including, among others, representation on the investee company’s board of directors and ownership level, which is generally
a
| 12 |
When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.
On
January 9, 2020, a joint venture agreement was signed between Industrial Marino, S.A. de C.V. (
The
Company accounts for NLA using the equity method of accounting since the management of day-to-day operations at NLA ultimately lies with
the Company’s joint venture partner as the operations of NLA are based in its partners facilities as well as our partner appoints
the Chairman of the joint Board. As of June 30, 2024, the activity in NLA consisted of the contribution of two machines as described
above and other start up and initial sales and marketing related activities. $
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers.” Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605). The new standard’s core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in the standard are applied in five steps: 1) Identify the contract(s) with a customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations in the contract; and 5) Recognize revenue when (or as) the entity satisfies a performance obligation. We adopted Topic 606 as of October 1, 2018 on a modified retrospective basis. The adoption of Topic 606 did not have a material impact on our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations.
Return and Exchange Policy
The Company provides a 30-day money-back guarantee if a buyer is not satisfied with a product. All products are thoroughly inspected and securely packaged before they are shipped to ensure buyers receive the best possible product. If for any reason buyers are unsatisfied with the products, they can return them and the Company will exchange or refund the purchase minus any shipping charges. For wholesale customers, return policies vary based on their specific agreements with customers.
For
the nine months ended June 30, 2024 and 2023, the Company had
Cost Recognition
Cost of products sold is primarily comprised of direct materials consumed in the manufacturing of co-packing arrangements or the production of our own products for resale. Cost of products sold also includes directly related labor salaries and other overhead cost including depreciation, temporary labor and shipping costs for shipment of raw materials to our facilities.
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Selling, General and Administrative Expense
Selling, general and administrative expense (SG&A) is primarily comprised of personnel costs, sales and marketing expenses, depreciation and amortization, insurance expenses, legal and professional services fees, travel and office expenses, and facilities costs. In some situations, the Company covers shipping fees for delivering customer orders, and the shipping and handling expenses are recorded under operating expenses in the consolidated statements of operations.
Prepaid expenses and other current assets
Prepaid expenses and other current assets as of June 30, 2024 and September 30, 2023 is as follows:
| June 30, 2024 | September 30, 2023 | |||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
The
Prepaid expenses and other current assets balance of $
Inventory
Inventory,
consisting principally of raw materials, work in process and finished goods held for production and sale, is stated at the lower of
cost or net realizable value, cost being determined using the weighted average cost method. The Company reviews inventory levels at
least quarterly and records a valuation allowance when appropriate. At June 30, 2024 and September 30, 2023, the carrying value of
inventory of $
| June 30, 2024 | September 30, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | $ | |||||||
| Total | $ | $ | ||||||
Property and Equipment
Property
and equipment is stated at cost, net of accumulated depreciation. The Company generally depreciates property and equipment on a straight-line
basis over the estimated useful lives of the assets after the assets are placed in service except for NuZee KR which uses the declining
balance method. Office equipment is depreciated over a
| June 30, 2024 | September 30, 2023 | |||||||
| Machinery & Equipment | ||||||||
| Vehicles | ||||||||
| Leasehold Improvements | ||||||||
| Less - Accumulated Depreciation | ( | ) | ( | ) | ||||
| Net Property and Equipment | $ | $ | ||||||
| 14 |
The
Company is required to make deposits or prepayments and progress payments on equipment purchases before the Company receives possession
and title. As a result, the Company accounts for such payments as Other Assets until it has possession at which time the equipment is
recorded as Property and Equipment. There were
Loans
On
April 1, 2019, the Company purchased a delivery van from Ford Motor Credit for $
On
March 1, 2024, the Company entered into an unsecured finance agreement in the amount of $
The
Company entered into a financing arrangement on February 15, 2024 with Bill.com wherein it has the option to finance certain accounts
receivable at a
Other noncurrent liabilities
On
October 12, 2023, the Company entered into a finance agreement with a lender for the purchase of packaging equipment with future payments
of $
2. GEOGRAPHIC CONCENTRATION
The Company is organized based on fundamentally one business segment. Through June 7, 2024 it sold its products on a world-wide basis. The Company operated in in three geographical segments. The Company co-packed product for customers and produced and sold its products directly in North America and Korea. With the sale of its Korean subsidiary, the Company no longer sells products in Korea. The Company previously had a minimally staffed office in Japan that provided support for import and export of product and materials between the U.S. and Japan, as well as investor relations support to its stockholders based in Japan; these functions are now supported by the Company’s personnel residing in the United States, and the Japanese subsidiary was sold.
As of June 7, 2024 all revenues are from North America, and all property and equipment is located in North America.
3. INTANGIBLE ASSETS
Identifiable life intangible assets
As
of June 30, 2024, the Company’s intangible assets consisted of unamortized tradename asset of $
Amortization
expense was $
Amortization expense for the next four fiscal years is as follows:
| Tradename Amortization | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Grand Total | ||||
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4. ISSUANCE OF EQUITY SECURITIES
Private Placement
On
June 4, 2024, the Company entered into a Securities Purchase Agreement (“SPA”) with certain investors providing for the sale
of share of the Company’s common stock for an aggregate purchase price of $
On June 4, 2024 in connection with the SPA, the Company entered into a Registration Rights Agreement providing, among other things, that the Company would as soon as reasonably practicable, and no later than June 13, 2024, file with the SEC a registration statement registering the resale of the shares of common stock.
Convertible Notes and Warrant Purchase Agreement
On
April 27, 2024, the Company entered into a convertible note and warrant purchase agreement with certain investors providing for the private
placement of convertible promissory notes in the aggregate principal amount of $
On April 27, 2024 in connection with the agreement, the Company entered into a Registration Rights Agreement providing, among other things, that the Company would as soon as reasonably practicable file with the SEC a registration statement registering the resale of the shares of common stock issuable upon the conversion of the notes and the shares of common stock issuable upon the exercise of the warrants.
On June 12, 2024, the investors exercised their conversion option and converted the promissory notes to shares of commons stock. As a result of the conversion, shares of common stock were issued to the investors.
Registered Offering
The Company offered in an underwritten public offering (the “Offering”), shares of common stock, par value $ per share (the “Common Stock”), at a price to the public of $ per share of Common Stock (the “Offering Price”). The Offering was made pursuant to a shelf registration statement filed with and declared effective by the Securities and Exchange Commission (the “SEC”) (Registration No. 333-274818), a base prospectus, dated October 5, 2023, included as part of the registration statement, and a prospectus supplement, dated October 17, 2023.
On
October 18, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC,
as the sole book-running manager and underwriter (the “Underwriter”), relating to the Offering. Pursuant to the Underwriting
Agreement, the Company granted the Underwriter a 45-day option to purchase up to additional shares of Common Stock at the Offering
Price, less underwriting discounts and commissions. The Company received approximately $
Private Placement
On November 9, 2023, the Company issued in a private placement to an accredited investor (“Shareholder”) shares
of Common Stock, together with warrants to purchase a total of approximately
On
January 19, 2024, the Company issued in a private placement to an accredited investor shares of Common Stock, together with warrants
to purchase a total of approximately
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Restricted Shares
On August 11, 2023, the Compensation Committee (the “Compensation Committee”) of the Company’s Board of Directors granted to Randell Weaver, the Company’s newly appointed Chief Financial Officer, in connection with his employment agreement, an award of restricted shares (the “Restricted Shares”) of the Company’s common stock under the 2023 Stock Incentive Plan. These Restricted Shares vested as follows: (i) Restricted Shares shall vest upon the first anniversary of the commencement date; (ii) Restricted Shares shall vest upon the second anniversary of the commencement date; and (iii) Restricted Shares shall vest upon the third anniversary of the commencement date. The Company recognized common stock compensation expense of $ for the year ended September 30, 2023 related to these Restricted Shares.
On March 15, 2023, the Company granted performance-based restricted shares to executive officers, employees and consultants as part of the 2013 Stock Incentive Plan and the 2019 Stock Incentive Plan. % of the Performance-Based Restricted Shares would vest, if at all, in Fiscal Year 2023, based on the Company’s achievement of a specified amount of cash on hand, sales growth, increased gross margin, and reduced operating losses in Fiscal Year 2023, and the other % of the Performance-Based Restricted Shares will vest, if at all, in Fiscal Year 2024, based on performance metrics to be set by the Board in its sole and absolute discretion.
Restricted Stock Awards
On March 17, 2022, pursuant to the Company’s non-employee director compensation policy, the Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”) granted restricted shares (the “Restricted Shares”) of the Company’s common stock to each of the Company’s five independent directors pursuant to the NuZee, Inc. 2013 Stock Incentive Plan, totaling Restricted Shares. The Restricted Shares are scheduled to vest in full on the one-year anniversary of the grant date, subject to each independent director’s continued service as a director of the Company. The Restricted Shares are valued using the closing stock price on the grant date and the Company is expensing these stock option awards on a straight-line basis over the requisite service period.
On March 22, 2023, the Company granted Restricted Shares of the Company’s common stock to each of the Company’s five independent directors. The restricted shares are scheduled to vest in full on the one-year anniversary of the grant date, subject to each independent director’s continued service as a director of the Company.
The Company recognized common stock compensation expense of $ in the nine months ending June 30, 2024 as compared to $ in the nine months ending June 30, 2023.
| 2024 | 2023 | |||||||
| Number of shares outstanding at September, 2023 and 2022 | ||||||||
| Restricted shares granted | ||||||||
| Restricted shares forfeited | ( | ) | ( | ) | ||||
| Restricted shares vested | ( | ) | ( | ) | ||||
| Number of shares outstanding at June 30, 2024 and 2023 | ||||||||
During the nine months ended June 30, 2024, restricted shares were forfeited because of the termination of employment or performance goals not achieved.
During the nine months ended June 30, 2023, the Company issued shares of common stock for services rendered.
Options
During the nine months ended June 30, 2024, the Company granted no new stock options.
During the nine months ended June 30, 2024, stock options were forfeited or expired because of termination of employment, expiration of options and performance conditions not met.
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Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Value | |||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||
| Forfeited and expired | ( | ) | -- | - | ||||||||||||
| Outstanding at June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
The Company
is expensing these stock option awards on a straight-line basis over the requisite service period. The Company recognized stock
option expense of $
Nonvested options
Number of Nonvested Options | Weighted Average Grant Date Fair Value | |||||||
| Nonvested options at September 30, 2023 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Vested | ( | ) | ||||||
| Nonvested options at June 30, 2024 | $ | |||||||
Warrants
During the nine months ended June 30, 2024, the Company granted new warrants to purchase shares of common stock and did not issue any shares upon the exercise of outstanding warrants to purchase shares of common stock.
The following table summarizes warrant activity for the nine months ended June 30, 2024:
Number of Shares Issuable Upon Exercise of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Exercised | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding at June 30, 2024 | $ | |||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
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6. CONTINGENCY
Steeped, Inc. Litigation
As previously disclosed, on January 27, 2023, Steeped, Inc. d/b/a Steeped Coffee (“Steeped”) filed a complaint against the Company in the Superior Court of California, Santa Cruz County (Case No. 23CV00234) (the “Steeped Litigation”). The Steeped Litigation relates to Steeped’s claim that the Company breached a 2021 settlement agreement that resolved Steeped’s 2019 trademark infringement case against the Company. The earlier case involved Steeped’s purported trademark protection for “steeped coffee” and related phrases.
Steeped’s operative complaint in the pending Steeped Litigation alleges breach of contract, intentional interference with contractual relations, intentional interference with prospective economic advantage, and fraud in the inducement of contract. Plaintiff seeks a trial by jury and relief in the form of a permanent injunction for use of “Steep Coffee” or any confusingly similar variant of “STEEPED COFFEE”; the impoundment and destruction of allegedly violating packaging materials and/or finished goods; a final judgment for all profits derived from the Company’s allegedly unlawful conduct, actual damages, damages to the Plaintiff’s reputation and goodwill among its customers and partners; and reasonable attorneys’ fees and costs. NuZee answered Steeped’s complaint with a general denial and asserted twenty-five affirmative defenses.
On
January 16, 2024, a mediation hearing was held. After the close of business, the mediator suggested a settlement amount of $
Curtin Litigation
As previously disclosed, on January 6, 2023, a former employee of the Company, Rosaline Curtin (“Ms. Curtin”), filed a complaint against the Company and another former employee of the Company, Jose Ramirez (“Mr. Ramirez”), in the Superior Court of California, County of San Diego (Case No. 37-2023-00000841-CU-WT-NC) (the “Curtin Complaint”). The Curtin Complaint alleges that Ms. Curtin was subject to harassment by her supervisor, Mr. Ramirez, and gender discrimination throughout her employment, that she reported this discrimination and harassment to the Company, and that the Company retaliated against her and wrongfully terminated her for whistleblowing and failed to prevent discrimination, harassment, and retaliation. The Curtin Complaint seeks compensatory damages, including loss of past, present and future earnings, and benefits, as well as punitive damages, penalties, attorney’s fees and costs and interest. The Company has responded to the complaint on behalf of the Company and Mr. Ramirez and prevailed on December 22, 2023, prevailed on its motion to compel. Arbitration proceedings have been initiated, and the parties have agreed on an arbitrator. On May 24, 2024, a management conference was held in the arbitration and a hearing date was scheduled for January 13-17, 2025. Discovery is underway and the Company’s responses and objections to Curtin’s discovery demands are due on August 9, 2024. Curtin’s discovery responses and objections to the Company’s discovery demands are due on August 23, 2024. The Company believes the allegations set forth in the Curtin Complaint are without merit and intends to defend vigorously against the allegations. However, the Company is not able to predict the outcome, and there is no assurance that the Company will be successful in its defense.
From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Other
On July 29, 2024, the Company received a letter from an investor alleging that the Company has breached a purported agreement by failing to satisfy certain alleged obligations. The investor has demanded fulfillment of the alleged obligations, undisclosed monetary damages, legal fees and interest. He has indicated he will seek Court intervention if the Company fails to adequately address his demands. The Company and its counsel are reviewing the matter.
| 19 |
7. SUBSEQUENT EVENTS
Private Placement – Convertible Notes
On
July 24, 2024, the Company entered into a convertible note purchase agreement with certain investors to issue and sell convertible notes
in the aggregate principal amount of approximately $
On July 26, 2024, the investors exercised their option to convert the notes to common stock.
NASDAQ Compliance
As
previously disclosed, the Company received a letter from NASDAQ on January 23, 2024 indicating that the Company was not in compliance
with NASDAQ Listing Rule 5550(b)(1), the Stockholders’ Equity Requirement. NASDAQ stated that the Company failed to maintain a
minimum of $
On July 23, 2024, the Company received a letter from NASDAQ stating that based on the Form 8-K filed with the Commission on July 19, 2024, NASDAQ has determined that the Company has complied with Listing Rule 5550(b)(1). However, in the future, if the Company fails to evidence compliance upon filing its next periodic report, it may be subject to a delisting determination. Any such determination may be appealed to a Hearings Panel.
Private Placement
On
July 11, 2024 the Company entered into a Securities Purchase Agreement (“SPA”) with certain investors providing for the sale
of shares of the Company’s common stock for an aggregate purchase price of approximately $
The transaction closed on July 18, 2024.
| 20 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the other information set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as amended (“2023 Annual Report”), initially filed with the Securities and Exchange Commission on January 16, 2024. In addition to historical financial information, this discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. You should not place undue reliance on these forward-looking statements, which involve risks and uncertainties. As a result of many factors, including but not limited to those set forth under “Risk Factors” in our 2023 Annual Report our actual results may differ materially from those anticipated in these forward-looking statements. See “Special Note Regarding Forward Looking Statements.”
Overview
We are a specialty coffee and technologies company and, we believe, a leading co-packer of single-serve pour over coffee in the United States, as well as a preeminent co-packer of coffee brew bags, which is also referred to as tea-bag style coffee. In addition to our single-serve pour over and coffee brew bag coffee products, we have expanded our product portfolio to offer a third type of single-serve coffee format, DRIPKIT pour over products, as a result of our acquisition of substantially all of the assets of Dripkit, Inc. (“Dripkit”). Our DRIPKIT pour over format features a large-size single-serve pour over pack that sits on top of the cup and delivers in our view a barista-quality coffee experience to customers in the United States, Canada, and Mexico. Our mission is to leverage our position as a co-packer at the forefront of the North American single-serve coffee market to revolutionize the way single-serve coffee is enjoyed in the United States. Recently, we further expanded our product offerings to include bagged coffees for existing single-serve customers as well as a new licensing relationship with Stone Brewing which will include both bagged and single-serve format coffee products. We believe this expansion will allow us to increase manufacturing efficiency and better serve our customers and the market. While the United States is our core market, we also have manufacturing and sales operations in Korea and a joint venture in Latin America.
We believe we are the only commercial-scale producer within the North American market that has the dual capacity to pack single-serve pour over and brew bag coffee. We intend to leverage our position to become the commercial coffee producer of choice and aim to become the preeminent leader for coffee companies seeking to enter into and grow within the single-serve coffee market in North America. With our single-serve pour over and brew bag coffee we are paid per-package based on the number of single-serve coffee products produced by us. With our bagged coffee products, we will be paid based on the number of completed bags delivered. Accordingly, we consider a portion of our business model to be a form of tolling arrangement, as we receive a fee for almost every single-serve coffee product our co-packing customers sell in the North American and Korean markets. Under the single-1serve model, our risk related to owning and managing inventory is limited. With our bagged coffees and the Stone Brewing licensing relationship, we will manage the production and related inventory which will involve increased risk levels.
We may also consider co-packaging other products that are complementary to our current product offerings and provide us with deeper access to our customers. In addition, we are continually exploring potential strategic partnerships, co-ventures, and mergers, acquisitions, or other transactions with existing and future business partners to generate additional business, drive growth, reduce manufacturing costs, expand our product portfolio, enter into new markets, and further penetrate the markets in which we currently operate. Our goal is to continue to expand our product portfolio to raise our visibility, consumer awareness and brand profile.
Discontinued Operations – Sale of Assets
On June 7, 2024, the Company consummated the sale of its subsidiaries, NuZee Korea and NuZee Investment. The Company elected to focus its efforts and resources on its Dripkit investment, the single serve pour over and brew bag market in North America and its recently introduced bagged coffee processing services in North America. The transaction for the sale of the subsidiaries is accounted for as discontinued operations in accordance with ASC 205-20.
2022 Reverse Stock Split
On December 9, 2022, our stockholders approved a proposal granting the board of directors of the Company (the “Board”) discretionary authority to file an amendment (the “Certificate of Amendment”) to our Articles of Incorporation, as amended (the “Articles”), which amends the Articles to add a Section 1A to effect a reverse stock split of our common stock, at any ratio from 1-for-10 to 1-for-50 at the Board’s discretion. On December 21, 2022, the Board approved a 1-for-35 reverse stock split of our common stock (the “Reverse Stock Split”). The Certificate of Amendment was filed by the Company on December 28, 2022 and became effective upon acceptance of the Company’s filing of the Certificate of Amendment with the Secretary of State of Nevada. Accordingly, each holder of our common stock received one share of common stock for every 35 shares such stockholder held immediately prior to the effectiveness of the Reverse Stock Split.
| 21 |
Geographic Concentration
The Company is organized based on fundamentally one business segment. Through June 7, 2024 it sold its products on a world-wide basis. The Company operated in in three geographical segments. The Company co-packed product for customers and produced and sold its products directly in North America and Korea. With the sale of its Korean subsidiary, the Company no longer sells products in Korea. The Company previously had a minimally staffed office in Japan that provided support for import and export of product and materials between the U.S. and Japan, as well as investor relations support to its stockholders based in Japan; these functions are now supported by the Company’s personnel residing in the United States, and the Japanese subsidiary was sold.
As of June 7, 2024 all revenues are from North America, and all property and equipment is located in North America.
Results of Operations
During the current fiscal year, we began selling and shipping bagged coffee products for our largest customer in addition to the single-serve products we had been selling and shipping to them. We do not expect the revenues for the nine months ended June 30, 2024 to be indicative of future quarters as revenues from sale of bagged coffee products have declined in the June quarter.
Our results of operations for the nine months ended June 30, 2024 are influenced by the aforementioned transactions.
Comparison of three months ended June 30, 2024 and 2023
Revenue
| Three
months ended June 30, | Change | |||||||||||||||
| 2024 | 2023 | Dollars | % | |||||||||||||
| Revenue | $ | 366,888 | $ | 268,023 | $ | 98,865 | 37 | % | ||||||||
For the three months ended June 30, 2024, our revenue increased by $98,865, or approximately 37% compared with the three months ended June 30, 2023. This increase was primarily related to increased revenue in the US, due to volume sales increase with our major customers in existing single serve formats.
Cost of sales and gross margin
| Three
months ended June 30, | Change | |||||||||||||||
| 2024 | 2023 | Dollars | % | |||||||||||||
| Cost of sales | $ | 513,101 | $ | 262,474 | $ | 250,627 | 95 | % | ||||||||
| Gross profit (loss) | (146,213 | ) | $ | 5,549 | $ | (151,762 | ) | (A | )% | |||||||
| Gross profit (loss) % | (40 | )% | 2 | % | ||||||||||||
(A) – Less than (1,000)%
For the three months ended June 30, 2024, we generated a total gross loss of $146,213 from sales of our products and co-packing services, compared to a total gross profit of $5,549 for the three months ended June 30, 2023. The gross margin rate was (40)% for the three months ended June 30, 2024, and 2% for the three months ended June 30, 2023. The decrease is primarily attributable to an increase in inventory reserves and higher overall costs.
| 22 |
Operating Expenses
| Three
months ended June 30, | Change | |||||||||||||||
| 2024 | 2023 | Dollars | % | |||||||||||||
| Operating Expenses | ||||||||||||||||